This transaction was SCS’s fifth consecutive senior-managed transaction for the Bexar County Hospital District
On January 31, 2019, Siebert Cisneros Shank served as the book‐running senior manager for its fifth consecutive senior‐managed mandate for the Bexar County Hospital District. This appointment exemplified the District’s confidence in SCS’s underwriting capabilities and extensive experience and in‐depth knowledge of both the credit and investor base that would be pivotal in ensuring a successful transaction.
The Bonds, rated Aa1 / AA+ by Moody’s Investor Service and Fitch, respectively, are one notch below Bexar County’s Aaa / AAA ratings. SCS has worked hard to educate investors to minimize the spread between the District and County debt, given the same tax pledge.
The Bonds were issued to refinance Build America Bonds, specifically $232.14 million of the Direct Subsidy taxable bonds Series 2009B. Build America Bonds, authorized by the 2009 American Recovery and Reinvestment Act, aimed to dampen risk aversion during the recession, offered subsidized interest to issuers or a tax credit to bondholders but were subject to certain government funding provisions in order to maintain full subsidy payments. These funding provisions, and therefore the BABS subsidies, have been adversely affected by sequestration. With a dwindling interest subsidy and an inconspicuous outlook, the District took the proactive approach to refund the high cost debt, generating debt service savings and lowering overall debt outstanding.
The market environment leading up to the week of pricing was favorable, with subdued volatility (due in small part to a government shutdown and lack of economic releases) and a light negotiated municipal calendar. With a pricing date scheduled between a Federal Reserve meeting (Wednesday) and the January jobs report (Thursday), assistance came from a dovish tone proceeding the former. Complementing the decision to leave rates unchanged, Federal Reserve Chairman Jerome Powell made special mention that the Fed’s balance sheet would remain larger than previously expected, a boon to Treasuries.
The positive market tone allowed SCS’s underwriting desk to enter the market with an aggressive pricing scale. The transaction received significant interest with orders from 60 investors. On a priority basis and prior to repricing, the issue was 3.3x oversubscribed with every maturity attracting orders between 1.5x to 5.8x.
SCS’s sales desk generated $660.7 million in institutional orders—98% of all priority orders. Looking closer at the investor mix, 20 potential buyers had participated in the District’s most recent issue, the Series 2018 C/O’s in April. Furthermore, orders came in from 22 potentially new investors, including firms that reached out during their due diligence process. The oversubscription allowed SCS to re‐price the transaction tighter in every maturity between 3 to 6 basis points.
The successful refunding produced gross savings of $42 million and net present value savings of over $26 million, equal to 11.2% of the refunded par amount.