Fort Bend ISD became the first school district in Texas to issue green bonds, an historic feat widely noted in the press
Siebert Cisneros Shank served as the senior manager on two refundings for the Fort Bend Independent School District in April 2017. This was SCS’s first senior-managed transaction for the District. As a result of being a proactive underwriter of green bonds, SCS first pitched the idea on the issuance of green bonds to the District over the past year. The District was currently building three new elementary schools with the expectation of applying for LEED building certification. By issuing a part of the transaction as green bonds, the District became the first school district in Texas to issue green bonds, a historical feat that was widely touted in the press. With the positive press coverage and an opportunity to own Texas’ first school district green bonds, the sale of the District’s bond transaction was a tremendous success.
The bonds were issued to refinance short-term commercial paper notes initially used to fund projects such as school buildings and other facilities. Both series of bonds were issued as 25-year level debt service bonds and enhanced with the Permanent School Fund (“PSF”) Guarantee. In addition, the District’s underlying ratings were strong at NR/AA+/AA+. With limited PSF paper being issued in the primary market over the past several weeks, the District was able to take advantage of the reduced volume and get ahead of an anticipated busy summer PSF issuance calendar. To further the marketing momentum, SCS was able to reach out to several green bond investors who had a questions on the District’s LEED certification process the week leading up to the bond sale. Another potential investor who was interested in the bonds had questions on whether the District’s policies met the requirements for it to invest with its socially conscious bond fund. While many green bond transaction have included ongoing disclosure regarding the spending of bond proceeds to ensure proceeds were spent on green projects, the District green bond transaction didn’t require this commitment given the bonds refunded commercial paper notes. The construction of the elementary schools were near completion and on schedule to open for classes in August 2017.
Entering the week of pricing, the municipal bond market was buoyed by positive momentum with interest rates decreasing approximately 4 to 5 basis points throughout the yield curve. With the District and its municipal advisor’s preference for lower coupon bonds and a shorter optional redemption date than the standard ten years, SCS led the underwriting syndicate in marketing a mix of 3.25%, 4% and 5% coupons and an 8/15/2026 call date. As the market was in the bond sale’s favor, the District entered the municipal bond market as soon as possible to take advantage of the potentially strong demand.
After the order period, all but two maturities were oversubscribed. The underwriting syndicate generated $267 million in orders making the transaction nearly 3x oversubscribed for. With these oversubscriptions, SCS lowered pricing spreads 1 to 5 basis points on those oversubscribed maturities. There was strong demand for the 4% coupon bonds offered in the Series 2017A (Green Bonds) with four investors putting in orders for their green bond funds. When compared to the District’s Series 2016 transaction, the Series 2017 A&B Bond’s pricing spreads were lower by 2 to 8 basis points in the one to eight year range.
SCS’s sales desk generated $196 million (92%) of all the priority orders submitted and were able to bring in green bond investors such as PNC Bank, Nuveen, Credit Suisse Asset Management, and Goldman Sachs Asset Management. The bond sale was an incredible success for the state’s first school district green bond issuance. There were a total of 38 investors that submitted orders for the transaction including 9 investors that currently held the District’s bonds.