Spring Independent School District, Texas
Unlimited Tax School Building Bonds, Series 2023 (Non-PSF)
January 26, 2023
This was SWS’ fourth senior managed transaction brought to market for the District.
The Series 2023 Bonds (the “Bonds”) are the first issuance under the District’s historic November 2022 $850 million authorization for a new high school, a new performing arts center, technology improvements, new buses, safety upgrades, and various deferred maintenance projects at all schools. The Bonds are tax-exempt, structured as fixed-rate serial bonds maturing in years 2024-2045 and term bonds in 2047 and 2052 and are optionally callable at par beginning on 8/15/2033
Due to the dwindling capacity of the Texas Education Agency’s Permanent School Fund Guarantee program under federal law, the District issued its debt in the municipal market without the state’s credit enhancement and relied solely on its underlying ratings of “Aa2” (stable outlook) from Moody’s and “AA-” (stable outlook) from S&P. SWS prepared an investor roadshow for the District in order to assist investors in their credit review process given the absence of the PSF guarantee. The investor roadshow was viewed by 18 unique institutional investors.
After a very volatile 2022, munis were performing in lock step with treasuries, with rates falling by approximately 40 bps since the start of the new year. This dynamic was primarily driven by strong technical factors such as limited supply, positive fund flows ($3.5 billion) in the two weeks prior to pricing, and the sentiment that inflation will continue to slow. The positive tone in the market would prove beneficial to large Texas ISD transactions pricing in the week prior to Spring ISD, with $570 million Dallas ISD (PSF-enhanced) and $540 million Austin ISD (Aaaunderlying, Non-PSF) being absorbed well by the market and satiating the appetite for Texas paper for some key investors. After a $10.5 billion week of volume that featured two large urban school districts with either a PSF-enhancement or a natural AAA underlying credit, the week of pricing would bring to market a seemingly manageable $5.5 billion of volume that would include the first slate of sizeable school districts transactions without PSF wrapping and sub-AAA ratings.
On the day of pricing, a softening tone in the market continued from the start of the week as investors showed resistance to low muni to treasury ratios. Other investors, who had met their quota of Texas paper from the previous week, would not participate in the transaction. Nevertheless, SWS’ underwriting desk showcased its poise and adeptness by adjusting the structure of the transaction to 4% coupons in maturities 2039 and 2040 and moving the 2048 sinker of the 2048 term bond into the 2052 term bond. This, along with a slight adjustment in yields, resulted in a flurry of investor orders after the conclusion of the order period and a minimal change of less than 1 basis point to the all-in true interest cost. In addition, SWS deployed its capital to underwrite over $18 million in bonds in maturities 2026, 2027, 2033, and 2052. SWS generated over $354 million orders from 44 distinct institutional investor accounts from the start of order period through the reprice process. The District achieved an All-in TIC of 3.908%.