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Austin Independent School District (TX)



Unlimited Tax Refunding Bonds, Taxable Series 2020

March 3, 2020


Image by Sam Mgrdichian

SWS underwrote $10.09 million in bonds, which allowed the District to lock-in the historic low interest rates

The Taxable Series 2020 Bonds were structured with level savings, a 10-year call option at par, and principal maturing serially in years 2022-2038. Additionally, 4% coupons were used for the non-callable maturities (2022-2030) to generate premium to comply with State of Texas statutory par to part test. The Bonds received a “Aaa” rating by virtue of a guarantee by the Permanent School Fund of the State of Texas and also received a “Aaa” underlying rating from Moody’s.

The District’s issuance entered the most volatile market since the 2008 Financial Crisis with concerns over a coronavirus outbreak occurring in the United States fueling the uncertainty. In the week prior to pricing, the Dow plunged over 3,500 points, bringing its decline from a record high to more than 10%. The volatility continued into the week of pricing with Monday, March 2nd the DOW closing over 1,200 points higher before falling on Tuesday by over 780 points.

This volatility was matched on the fixed income side, with interest rates on both treasuries and municipals falling significantly the week ending February 28th. Additionally, taxable corporate issuances had come to a sudden halt after having expected $20 billion in issuance in the week prior to pricing, an unusual development almost unheard of for a non-holiday week. Our desk composed a pre-marketing scale aimed at price discovery given the market volatility and nominal yields near all-time lows.

Following pre-marketing, on Monday March 2nd, the transaction moved into the Indications of Interest phase. SWS proposed increasing spreads by 5 basis points throughout the curve given the 10-year treasury had fallen 25 basis points the prior week and investors remained on the sideline with nominal yields too low for them to buy.

On the day of pricing, the Federal Reserve took the emergency step of cutting the benchmark U.S. interest rate by half a percentage point, an attempt to limit the economic and financial fallout from the coronavirus. The U.S. central bank had not made a cut like this since late 2008, shortly after the collapse of Lehman Brothers.

After the conclusion of a second Indications of Interest period, the SWS-led syndicate generated a total of $74 million in institutional orders.

SWS underwrote $10.09 million in bonds, which allowed the District to lock-in the historic low interest rates and generated net present value savings of $13.4 million (20.12% of the refunded par) or $18.4 million gross debt service savings with 1.999% in all-in true interest cost.

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