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City of Houston Airport System (“HAS”)



Subordinate Lien Revenue and Refunding Bonds

June 29, 2023


Image by Sam Mgrdichian

SWS analyzed the use of bond insurance, which proved to be beneficial from both a cost and marketing perspective, and was ultimately used on the entire transaction. SWS evaluated the use of alternative couponing, with the AMT Bonds ultimately pricing with 5.25% coupons in 2039 and longer, and the 2053 maturity was bifurcated with 5.25% and 4.50% coupons in order to attract the widest net of investors. Additionally, the Non-AMT Series utilized 4.25% couponing on the 2053 maturity. 

SWS revamped the format and content of the investor presentation focusing on the Airport’s resiliency and growth. The slides-only investor roadshow was viewed by 36 different investors, 67% of which ultimately submitted orders.SWS organized 3 one-one-one calls and responded to questions from 3 additional investors, with 4 of those investors placing over $245 million of orders for HAS’ bonds. 

Tender Results. SWS also served as Dealer Manager on HAS’ fixed-spread tender financing to purchase its outstanding Taxable Series 2020C Bonds to achieve debt service savings. On June 12, 2023, HAS released an Invitation to Offer Bonds for Purchase for up to $417.6 million of the Taxable Series 2020C Bonds (7 CUSIPs). Upon expiration of the Tender on June 27th, existing bondholders tendered for purchase $226.8 million of outstanding Series 2020C Bonds resulting in a robust 54% tender success rate. HAS subsequently accepted $151.5 million of the tendered bonds (67%) and rejected $75.3 million of the Offered Bonds due to not meeting the City’s savings target. 

The week prior to pricing saw relative stability in the municipal market as MMD experienced modest bumps of 2-4 bps, outperforming US Treasuries which were higher after a hawkish Fed speech from Chairman Powell and the Bank of England’s surprise 50 basis point rate hike. The municipal market remained stable in the days leading up to pricing, with only minor bumps on the front end of the curve. For pre-marketing on Wednesday (June 28), the municipal market continued to remain stable, although Treasuries were off by up to 11 bps, and SWS recommended leaving spreads unchanged from the syndicate’s consensus levels in order to attract investors and create momentum. On the morning of pricing, Treasuries opened with a weaker tone following stronger than anticipated weekly jobless claims, leading SWS to recommend leaving spreads unchanged vs. pre-marketing levels in order to build a strong book of orders. 

Despite a choppy market with MMD increasing 3-4 bps, SWS generated over $2.2 billion in priority orders from 69 different investors (2.9x oversubscription) - 13 of which did not previously report holding HAS’ outstanding paper. At re-pricing, SWS tightened spreads on certain serial maturities by 1-5 bps on the AMT series. The 5.25% 2053 terms was tightened by 1 bp.

Although rising Treasury rates put upward pressure on tax-exempt rates, HAS benefited by a lower purchase price for the bonds they accepted for tender, resulting in an additional $1.2 million in present value savings on the tender refunding. In total, the transaction generated $12.9 million in PV savings (6.5% of refunded bonds) and an all-in TIC of 4.44%.

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