City of San Antonio, Texas



Electric & Gas Systems Revenue Refunding Bonds, New Series 2022

March 30, 2022


Image by Sam Mgrdichian

The Bonds were rated Aa2/AA-/AA- and being issued to refund the New Ser. 2012 Bonds for debt service savings. The Bonds were structured with maturities from 2023 – 2025 with principal ranging from $24 - $46mm and to generate level debt service savings.

A day before the pricing, CPS Energy issued a parity $413mm Taxable New Series 2022 Bonds to refund short-term notes and commercial paper, originally issued to cover its expenses from the 2021 Winter Storm (“Uri”).

Year-to-date, the muni market has faced significant headwinds as the Federal Reserve’s hawkish pledges to fight record inflation included signals of a potential rate increase at every 2022 FOMC meeting. Adding to that would be the Russian invasion of Ukraine.

With this backdrop of high market volatility and recent transactions having to “chase the market,” SWS held weekly meetings with CPS Energy, Co-MAs, and the underwriting syndicate to provide current investor sentiment, pricing levels of recent deals, and secondary market activity of CPS Energy’s bonds.

As the pre-marketing process commenced, market dynamics and overall momentum were moving against the refunding economics and potential success. A carefully crafted pricing strategy regarding coupons and initial pricing spreads would be required to ensure a successful sale.

On the day of pricing, given the market sentiment, SWS provided a pricing strategy that focused on generating interest and order commitments from investors hesitant and sitting on the sidelines with higher pricing spreads.

The SWS sales desk generated over $735 million in priority orders from 30 investors (5.6x to 7.5x par), including five potentially new investors. With a strong and diverse book of orders, SWS recommended lowering pricing spreads by 5 to 7 basis points.

With the decrease in interest rates across all maturities, the All-In TIC was lowered by 8 basis points to 2.47%. With a three-month escrow, OMS securities were bid for and yielded a benefit of 53 bps ($169,000) over SLGS. The Bonds generate present value savings of $3.45 million (2.69%).