On July 18, 2018, Siebert Cisneros Shank served as bookrunner for SCS’s first senior-managed mandate for the City of Laredo. The firm’s ability to expand the investor base and effectively market bonds to holders of Texas paper with high August municipal cash flow were instrumental in ensuring a successful transaction. Laredo is the third most populated City on the US border and with its multiple international bridge system serves as a major port of entry. It lies at the base of the I-35 corridor leading to San Antonio, Austin, Dallas and beyond.
At $46,635,000, the Series 2018 refunding bonds represent the District’s largest issuance since February 2016 and the fourth largest ever. The bonds are rated Aa2 and AA by Moody’s and S&P, respectively. Citing tax base expansion coupled with growing sales tax and bridge toll receipts, both firms accompanied the ratings with a stable outlook. The bonds are being issued to refund Direct Payment Build America Bonds, namely the Series 2009B and 2009D Certificates of Obligation, with an aggregate par of $51.41 million. 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 to maintain full subsidy payments.
With a dwindling interest subsidy and an inconspicuous outlook, the City took the proactive approach to refund the high cost debt, among the first in the state, garnering over $3.3 million in net present value savings, or 6.48% of the refunded par amount.
The investing landscape leading up to the week of pricing was dominated by a risk-on/risk-off environment where geopolitical concerns had dominated since mid-March and would be balanced by strong domestic economic releases. A range-bound Treasury (read, lack of volatility) was welcome in a week that included a $9 billion municipal negotiated calendar. The day of pricing, Wednesday, July 18th, served as a microcosm of previous sessions: investors digesting possible effects stemming from that week’s Trump/Putin summit in Helsinki against Federal Reserve Chairman Powell’s two-day testimony to the Senate Finance Committee highlighting steady growth. With an August 16th delivery, SCS focused marketing efforts on holders of Texas municipal bonds that were expecting significant redemption cash flow in August. Including maturities, coupon payments, and potential calls, with municipal cash inflow estimates of over $10.4 Billion, August was shaping up to be the highest months of cash inflows ever.
Despite moderately aggressive pricing, sales efforts were met with success as all maturities were oversold, with 11 out of the 18 maturities 2 to 3 times oversubscribed. This allowed SCS’s underwriting desk to recommend re-pricing in 10 maturities, tightening spreads 1 – 2 bps in each.
SCS’s sales desk generated $78.9 million of priority orders, or 98% of the total priority orders submitted by the underwriting group. Among the 9 firms submitting orders, all were potentially new investors, a testament to SCS’s ability to make the most of the opportunity to expand the investor base.