Fort Bend County (TX)
Unlimited Tax Road and Refunding Bonds, Series 2018
January 23, 2018
Bonds successfully price following the tax act of 2017 and in the midst of federal government shutdown
Siebert Cisneros Shank served as book-running senior manager on Fort Bend County’s Unlimited Tax Road and Refunding Bonds, Series 2018 on January 22, 2018—the firm’s fourth senior managed transaction for the County. The transaction priced in the first sizable issuance week of the year with approximately $6.5 billion in volume and was the County’s first transaction since the passage and signing of the Tax Cuts and Jobs Act of 2017 which, among other provisions, eliminated the use of tax-exempt bonds for advance refundings and potentially disincentivized the investment in municipal bonds by insurance companies as a consequence of the reduction in corporate tax rates. The Series 2018 Bonds also priced in the midst of a shutdown of the United States federal government.
The transaction, originally slated for in mid-2017 and anticipated to be $93 million in par amount, included three components: the tax-exempt current refunding of the Series 2009 Bonds (maturities 2019-2021), the tax-exempt advance refunding of the Series 2012 Bonds (maturities 2022-2032) and $60 million for road projects. On November 2, 2017, the tax bill was introduced in the United States House of Representatives which would drastically alter the municipal market. By mid-December, it became increasingly clear that the prohibition on the use of tax-exempt bonds for advance refundings would remain in the legislation and would become law. This affected the County’s issuance in two immediate and significant ways: the deal size decreased by approximately $34 million and it compelled the County to consider shorter call dates to retain call flexibility. SCS worked diligently with the County’s financial advisor to determine the shortest call date possible without sacrificing price.
The Series 2018 Bonds current refunded $5,430,000 (maturities 2019-2021) of the County’s outstanding Series 2009 Bonds with a uniform savings structure. The Bonds received an Aa1 (stable outlook) underlying rating from Moody’s and AA+ (stable outlook) from Fitch. On the day of pricing, SCS’ underwriting desk went to market with 5% coupons in maturities 2020 to 2032 and 4% coupons in 2033 to 2038. The transaction overall was 3.2 times oversubscribed with orders totaling $188.5 million. At the end of the order period, SCS repriced by reducing yields by 1 to 5 bps across the curve. These adjustments resulted in approximately 5.82% present value savings on the refunding portion of the transaction and an overall All-In TIC of 3.15%.