DALLAS – Texas school districts began 2016 by doubling the volume of bonds they issued compared to the same month of 2015.
Counting the deals scheduled for the final week, January will see about $2.2 billion of Texas school bonds, twice the $1.1 billion in January 2015. The high volume comes after a year of record issuance for Texas districts.
Volume of $16.2 billion from the districts in 2015 grew 36% compared to 2014, according to Thomson Reuters data. With 595 deals, school districts accounted for 58% of total Texas bond volume, up from 42% in 2014.
"It looks interesting," said Noe Hinojosa Jr., chief executive of financial advisor Estrada Hinojosa & Co., who attributed the volume to "growth, successful elections, current refunding bonds and interest rates being lower by as much as 35 basis points versus December."
Hinojosa is scheduled to open
One of the scheduled panelists, Dallas Independent School District chief financial officer James Terry, is preparing for a spring issue of some of the record $1.6 billion of bonds approved by voters last year.
Voters in 38 Texas school districts approved $6.3 billion of school construction bonds on the November ballot, one of the largest authorizations in the state's history. In January, 38 districts are pricing bonds.
One of the largest issuers from the Houston area, the Katy ISD, is scheduled to go to market Wednesday with $251 million in a negotiated deal led Citi managing director Michael Bartolotta and director Mario Carrasco. Clarence Grier, managing director at RBC Capital Markets, is financial advisor.
Voters in November approved $748 million of bonds for the district two years after rejecting a $99 million proposal. One of the controversies in the 2013 vote was the inclusion of a football stadium. The Katy school board reworked the proposal, lowering the stadium's cost to win approval.
This week's deal includes $23 million of Series B refunding bonds.
Both series carry underlying ratings of AA from Standard & Poor's and Aa1 from Moody's Investors Service. A guarantee from the Texas Permanent School Fund gives the bonds triple-A ratings.
As of last November, the PSF, derived from oil, gas and other revenues from state lands, guaranteed $64 billion of Texas public school bonds, with a capacity of $87.3 billion.
With 73,000 students, Katy ISD has seen 3.85% annual growth since 2011, making it the eighth-largest district in the state and 54th largest in the nation.
"The district has greatly benefitted from a surging local economy over the last decade as evidence from the resilient growth of taxable values," Christopher Smith, chief financial officer for Katy ISD, said, in a roadshow presentation. "The positive trend continued in 2015 as assessed valuation grew by 16.1%, the highest mark of the past decade."
Another fast-growing district in the Houston suburbs, Conroe ISD, took $138 million to market Jan. 15, earning yields of 3.16% on 4% coupons maturing in 2041. The negotiated deal was led by JPMorgan. Yields on 5% coupons maturing in 10 years were 1.86%, or 17 basis points below Treasuries.
Conroe and Katy ISDs are connected by the Grand Parkway a new outer loop around the greater Houston area that has accelerated growth in the suburbs.
Conroe ISD, which serves more than 56,000 students across 60 campuses, is the 14th largest district in the state and the largest in Montgomery County. The district expects to add 1,400 students each year for the foreseeable future.
Voters in the district approved $487 million of bonds in November, with about a third of the funds committed to a new, 3,000-student high school.
The nearby Aldine ISD, which won voter approval for $798 million of bonds, brought the month's biggest Texas school deal to market Jan. 20 with a $266.8 million pricing. Maturities of 2044 with 4% coupons yielded 3.18%. The 5% coupons of 2025 yielded 1.79%, or 22 basis points below 10-year Treasuries. Wells Fargo Securities was bookrunner on the negotiated deal. FirstSouthwest was financial advisor. Underlying ratings were Aa1 from Moody's and AA-minus from Standard & Poor's.
With 70,500 students, Aldine ISD has seen its tax base grow 3.3% in fiscal year 2016, with a five-year average growth rate of 9.1%, according to Moody's.
Aldine ISD officials expect to issue $350 million in 2017, and $198 million in 2018.
"During that time period, the debt service tax rate is expected to increase to accommodate the debt issuance," Moody's noted. "Payout is slow with 39.2% of principal retired in 10 years."
Statewide, school district debt outstanding grew by 6.4% to $72.35 billion during fiscal year 2015, according to the Texas Bond Review Board. Of that amount, 98% was voter approved, according to the BRB. In the past five years total school district debt has increased by 13.9% to $72.35 billion.
School district debt issuance in Texas doubled to $18.17 billion in fiscal year 2015 from $9.09 billion in fiscal 2014. Of the total amount issued, 41.2% was issued as new-money debt, an increase of 39% from the $5.39 billion issued during fiscal 2014. The remaining 58.8% was issued as refunding debt, an increase of 188.3%.
Over the past five fiscal years from 2011 to 2015, school district debt issuance grew 131% from $7.86 billion in fiscal 2011, according to the BRB. The state's population grew by 6.7% during the same time period.
Dallas ISD ranked first in outstanding debt with $2.553 billion or $17,293 per student. Houston ISD ranked second with $2.551 billion or $13,168 per student. Northside ISD in San Antonio ranked third with $2.091 billion or $21,675 per student, followed by Cypress-Fairbanks ISD in suburban Houston $2.069 billion or $19,450 per student, and Frisco ISD near Dallas with $1.742 billion outstanding or $36,367 per student.
Northwest ISD north of Fort Worth ranked first in per-pupil debt with $40,531 on a total of $766 million outstanding.
