District generates over $26 million in NPV savings—17.4% of refunded par

Siebert Cisneros Shank Fort served Bend Independent School District on April 23, 2019 for its second book-running senior-managed transaction for the District. SCS had served previously as book-running senior manager for the District’s Series 2017AB Green Bonds—the first school district green bond issue in Texas.

SCS was awarded the role of senior manager on the fixed rate Series 2019B Bonds after months-long dedicated and persistent banking coverage that focused on providing innovative ideas to the District’s finance staff. In the process, we developed a comprehensive excel-based tax rate model utilizing the What’sBest linear model to optimize the financing structure and tailored to achieve the District’s issuance and tax rate goals.

The Series 2019B Bonds were structured with level savings, a 9-year par call, and principal maturing in years 2020-2022 and 2026-2034. The absence of principal repayment in years 2023 – 2025 was due to tax revenue constraints.

The Bonds received underlying S&P and Fitch ratings of “AA+” (stable outlook) and “AA+” (stable outlook). Additionally, the Bonds were guaranteed by the Texas PSF program.

Proceeds from the Bonds were used to current refund the District’s outstanding Unlimited Tax Refunding Bonds, Series 2009 (maturities 2020 – 2024) and Unlimited Tax School Building Bonds, Series 2009 (maturities 2021 – 2030; 2034), both of which would become callable on August 15, 2019.

In the holiday-shortened week leading up to pricing, the market continued in strong form, with treasuries falling 3 bps on the early close Thursday and MMD receiving a 1 bp bump 5 years and out. The negotiated calendar for the week of pricing was more robust than previous weeks, with $3 billion in transactions set to price, of which $1 billion would be supplied by Texas issuers. With a Tuesday pricing date, the District was first in line in a week that would feature over $700 million in Texas school district transactions.

SCS’ desk received insightful reads from investors, with feedback concentrated on relative value options in the earliest maturities, as both an Austin Airport transaction and the District’s put bonds were pricing as much as 30bp cheaper in 2020 – 22, a dynamic related to SIFMA exceeding 2% and climbing since the previous week.

On the day of pricing, SCS’s desk went out into the market with essentially the same levels indicated in premarketing, with a change in coupon from 5% to 4% in years 2032 and 2033. SCS’ desk generated over $455 million in institutional orders (3.5x oversubscribed), allowing our underwriter to recommend lowering yields in 9 of the 11 maturities on offer (2026 to 2034 from 1 to 5 bps). In addition, SCS rose to the occasion to underwrite a total of $8.7 million in bonds including $7.175 million of the 2022 maturity at the initial price (no increase in yield) and $1.55 million of the 2027 maturity with a decrease of 2 basis points in yield at reprice.

The District generated approximately $26.2 million in NPV savings (17.4% of refunded par) on the refunding with an all-in TIC of 2.78%.