DALLAS - With more than $1 billion of authorized but not-yet-issued general obligationbonds in the pipeline and interest rates low, the Dallas Independent School District isnot dawdling with its next deal. Originally expected to come to market in April or May,the district's $300 million tranche for 2004 will be up for grabs tomorrow.
"The reason that we're selling the bonds right now is that with rates being soattractive, we thought it would be prudent to accelerate our timing by about fourmonths," said Jerry Robinson, managing director of public finance at Banc of AmericaSecurities, which serves as co-financial adviser for DISD with Walton Johnson & Co.
"We think the Fed will make its first move in June and the market will pre-anticipatethat move and rates will begin inching up," Robinson said. "We're just trying to getahead of it."
He expects strong institutional demand for the triple-A rated bonds along with somedecent retail interest. However, no retail order period is scheduled.
"The bonds will be good block sizes available in years 2009 to 2030, which will appealto institutional and retail investors alike," Robinson said.
The unlimited tax school building bonds will be dated Feb. 15, and the longer maturitieswill be callable in 2015.
Because the bonds are backed by the $20 billion Texas Permanent School Fund, they carrytriple-A ratings from all three rating agencies. The underlying ratings are Aa3 fromMoody's Investors Service and AA from Standard & Poor's and Fitch Ratings.
The senior manager on the deal is William R. Hough & Co., with co-managers EstradaHinojosa & Co., J.P. Morgan Securities Inc., Citigroup Global Markets Inc., the WilliamsCapital Group, Lehman Brothers, Morgan Keegan & Co., First Southwest Co., RBC DainRauscher Inc., and Southwest Securities.
Vinson & Elkins and West & Gooden serve as the district's co-bond counsel.
After tomorrow's pricing, DISD will have $711 million of bond authorization remainingfrom a March 2002 election in which voters approved the largest bond program in statehistory, a total of $1.37 billion. The Houston Independent School District won thesecond-largest-ever school bond authorization in Texas - $808.6 million - also in 2002.
Two remaining DISD deals are expected, one in August 2005 for around $300 million, andanother in 2006 for $411 million, Robinson said. The first sale from the currentauthorization, worth $300 million, came in March 2002, followed by a $55 million issuein June 2002.
The record authorization in 2002 followed years of neglect at crowded Dallas schools. Inthe wake of scandals involving previous administrations and a subsequent federalinvestigation into financial misconduct, school leaders feared they could not winpassage for bond issues from voters who were seen as increasingly disturbed by thedistrict's decline.
In 1991, district leaders identified $600 million of critically needed projects but werehesitant to go to the polls with a bond package worth that much. Prior to the 2002authorization, only $275 million of bond debt was issued toward the 1991 goal.
Standard & Poor's analyst James Breeding noted in the agency's credit report that thedistrict's investment in new facilities "has been sparse for a generation." Between 1969and 2002, DISD had held only three bond elections - $80 million in 1976, $195 million in1984, and $275 million in 1992 - though all of them passed.
The Federal Bureau of Investigation's probe uncovered financial mismanagement and eventheft. Several key officials, including one former superintendent, were sent to prison.However, in 2001 the FBI closed its four-year investigation into DISD's finances andmanagement, and the district moved forward with the $1.37 billion election.
The mammoth authorization is not expected to take care of all the system's needs, andofficials say they expect to see DISD bring a referendum before voters every six or soyears in the near future.
With an enrollment of 160,000 students, the district covers 351 square miles, mostlywithin the city of Dallas. Superintendent Mike Moses is entering his third year as headof the district, after two years as deputy chancellor at Texas Tech University. He wasalso appointed by then-Gov. George W. Bush to two terms as Texas Commissioner ofEducation. Moses also once worked as a consultant for William R. Hough, the lead managerin this week's deal.The bonds authorized in 2002 cover 11 new schools, 36 classroom additions, 19 early-childhood classroom additions, 37 renovations under the Americans with Disabilities Act,a new athletic complex, a new centralized food service facility, and 158 renovations.
DISD expects to have completed roughly 23% of the projects by August, with allconstruction finished by August 2007.
With land for new schools hard to find, some eminent domain battles have arisen. Oneprime site for a new middle school is owned by a Catholic cemetery that plans to use theland for graves.
Like many Texas school districts, DISD is feeling pinched by the state's school fundingformula. Popularly known as Robin Hood, the formula caps school property tax rates at$1.50 per $100 of assessed valuation. Although the Dallas district is not classified aswealthy under the funding law - and therefore does not have to share any of its propertytax revenue with poorer districts - the tax cap and inflation, as well as new state andlocal standards for education, are pushing it to its financial limits.
DISD recently joined approximately 100 other districts in a lawsuit that alleges thestate's school funding laws are unconstitutional because they don't allow localdistricts to assess tax rates that cover their costs from year to year.
The backing of the Permanent School Fund means districts in Texas do not need to acquireinsurance to earn triple-A ratings. On Nov. 8, 1983, Texas voters approved aconstitutional amendment that provides for the guarantee of school district bonds by thePSF.
In rating the district, Standard & Poor's Breeding cited the district's large anddiverse tax base, solid financial position, and manageable debt load. Offsetting factorsincluded a growth rate below expectations, with 2004 assessed-property values falling by1%, or nearly $58 million.
"Sluggish results are the product of commercial real estate declines," Breeding wrote."A rebound is expected but at a very modest rate of growth."
