DALLAS -- The Texas Public Finance Authority last week chose Grigsby Brandford Powell Inc. to run a long-awaited master lease program that officials say could top $100 million a year in equipment financings.
The authority selected Grigsby Brandford's line-of-credit structure over the commercial paper programs proposed by two other finalists for the underwriting job.
First proposed four years ago as a way to save millions that Texas now spends on vendor-financed leases, the program is expected to be operational within three months.
"If all goes well and the Bond Review Board is satisfied, I think it would be reasonable to assume it could be ready by early May," said Glen Hartman, executive director of the authority, the state's most prolific issuer.
The program is not likely to be ready to sell its first fixed-rate bonds until the early fall, however, and will be funded in the meantime by interim financing from Grigsby Brandford. Also, the program must now be promoted among state agencies that will use it.
Under the line-of-credit arrangement, the firm will provide short-term financing through a leasing subsidiary, Fiscal Funding Co. The state will pay an interim rate equal to 88% of the one-year Treasury note -- at current rates, about 5% to 6%.
Mr. Hartman said that when the state has enough equipment leases -- about $20 million -- the contracts will be bundled and the interim financing will be replaced with fixed-rate debt sold in maturities that match the life of the equipment being purchased. The maturities are likely to range from three to seven years.
The Grigsby Brandford program was chosen over separate commercial paper proposals submitted by Lehman Brothers and a group led by J.P. Morgan Securities Inc.
"I think there was a feeling on the board that it would be more cost effective and generally more flexible than commercial paper," Mr. Hartman said.
That also was the view of Hugh Robinson, senior vice president and manager of Grigsby Brandford's Dallas office.
"If you do commercial paper for less than $20 million at a time, you are going to pay a penalty for it," he said. "It may be 25 to 100 basis points. There is no penalty with our program."
State lawmakers first proposed the program in 1988 after a study found that Texas was financing many of its purchases of equipment -- from copying machines to computer mainframes -- with vendorsponsored loans that had interest rates up to 18%, nearly triple the cost of short-term tax-exempt financing.
While state officials expect to eventually save millions in interest costs annually, the biggest savings will be in the need for immediate funding in the state's budget for such equipment. Rather than budgeting for a lease in one year, it may now be stretched over several years.
By that standard, the authority has estimated that the state will save nearly $80 million in general revenue costs during the fiscal 1992-93 biennium.
In a statement, Gov. Ann Richards endorsed the program as progressive.
"This is the kind of innovative thinking Texas needs to utilize fully in these though economic times," she said. "This program has the possibility of saving the state nearly $100 million."
Of course, after the program has been operational for several years, the aggregate annual savings to the budget will decline. Even then, Mr. Robinson said, "I'm sure the savings are going to be significant."
For Grigsby Brandford, the Texas program will be one of its largest ventures into master leasing with a projected potential of up to $100 million a year. The same line-of-credit structure has been used by the firm with the states of Washington and Maryland and the California cities of Fresno and Sacramento. More recently, the firm was named to head up a new master lease program for New York City.
Grigsby Brandford last year ranked number 17 as senior manager of lease-backed bonds and certificates of participation, with nine issues totaling $187.8 million. At the same time, the firm was number seven as a co-manager with 24 issues totaling $1.823 billion, according to Securities Data Co./Bond Buyer.
Mr. Hartman said the fact that the Atlanta-based firm was minority-owned was not a consideration, adding, "We felt they had the best proposal."
