Early marketing efforts allow SCS to brush off bond market headwinds

On October 1, 2018, Siebert Cisneros Shank served as the book-running senior manager on the City of Pharr’s Combination Tax & Revenue Certificates of Obligation. The Series 2018 issuance was SCS’ second underwriting engagement and first senior-managed mandate for the City. SCS had the opportunity to introduce the credit to new investors, successfully marketing to 13 firms who placed orders, and none of whom were reported existing holders of the City’s bonds. Pharr is located 224 miles south of San Antonio along the US/Mexico border and serves as an international port of entry via the Pharr International Bridge. Agriculture, trade, and tourism are primary drivers of the Pharr economy, typical of the Lower Rio Grande Valley of Texas. With a population of approximately 79,000, Pharr is part of the fast growing McAllen-Edinburg- Mission municipal statistical area. Within a 50 mile radius, including manufacturing and urban hubs in Mexico, the regional population is conservatively estimated at 1.6 million.

At $16.4 million, the Series 2018 bonds is one of the largest general obligation bond issues in the City’s history. Citing the City’s conservative budgeting practices, a trend of favorable budget-to-actual results, and the growth of the general fund balance, S&P raised the City’s bond rating from A+ to AA- the week prior to issuance. The bonds were further enhanced by bond insurance from Assured Guaranty, rated AA. The Certificates were issued primarily to pay for construction of a natatorium and infrastructure needed for the expansion of the international bridge; though disparate, both outlined in the City’s 2017 Capital Improvement Plan.

Leading up to Friday and the weekend prior to the Monday pricing date, news was relatively light, as was the municipal calendar for the week of October 1. From Thursday to Friday, MMD yields fell 2 basis points in 2024 and beyond. The weekend ended with headlines late Sunday that Canada agreed to sign on to a trade deal between the US and Mexico, only hours before a midnight deadline. On the day of pricing, early morning indications were dominated by a risk-on trade, buoyed by the trade news. Equity futures indicated a strong start to the day, with the Dow Jones Industrial Average set to open higher by more than 200 points. As such, the US Treasury market had trouble finding a bid and interest rates were up 2 – 3 basis points throughout the yield curve. 

Despite the headwinds, early indications from investors were favorable, and SCS found itself in a position to maintain Thursday’s initial spreads (and subsequent drop in yields noted in Friday’s release).

SCS’ underwriting desk suggested a two-hour order period, beginning at 9:00 am central—slightly longer and later than recent transactions of similar size. The early indications of investor interest came to fruition with an order book that began to fill within the first quarter hour of the order period. 

Not including member orders, thirteen of twenty maturities were oversubscribed, with heavy demand concentrated in 2019, 2022, 2033, and 2038. This allowed the SCS underwriting desk to reprice the bonds, lowering yields in 2019 and 2022 by 3 basis points. To ensure the best result for the City, SCS underwrote balances in 2029 and 2030 totaling $1.25 million.

SCS’s sales desk generated $27.605 million of priority orders, or 95% of the total priority orders submitted by the underwriting group. Of the 13 firms submitting orders, all were potentially new investors.