Texas Water Development Board
State Revolving Fund Revenue Bonds, New Series 2020
May 18, 2020
This was SWS’ first senior managed mandate for the Board’s SRF program and the largest transaction executed by an M/WBE firm for a Texas state-level account
In addition, as of May 19th, the Board’s financing was the largest tax-exempt, negotiated transaction brought to market by a Texas issuer since the COVID-19 related market disruption began in March.
Proceeds from the sale of the Bonds are to be used to provide funds to the Clean Water State Revolving Fund (CWSRF) and Drinking Water State Revolving Fund (DWSRF) to finance the acquisition of Political Subdivision Bonds and meet State Match requirements.
The New Series 2020 Bonds were structured to generate an aggregate $430 million project fund, with principal maturing serially (2021-2040), and a 10-year call option at par. 3% coupons were used in 2021, 2039 and 2040, 4% coupons in maturities 2034-2038, and 5% coupons in 2022-2033. The Bonds received ratings of “AAA” by S&P and “AAA” by Fitch.
Although still a volatile market overall due to continued concerns related to the ongoing global COVID-19 pandemic, the tax-exempt market continued its May trend towards lower yields. The market received another boost at the beginning of the week of pricing when the DJIA gained over 900 points as news of positive data from early-stage preliminary trials from Moderna, a biotech company, stoked optimism about a potential coronavirus vaccine.
After receiving a robust response from investors during premarketing on the Monday before scheduled pricing, SWS’ desk recommended accelerating the pricing by a day. SWS’ desk recognized strong demand for Texas paper, with other Texas issuers also in the market that day such as Aledo ISD and Spring ISD also receiving investor feedback. With an early MMD read showing bumps in the first 3-4 years and unchanged beyond, SWS’ desk saw an opportunity to take advantage of investor interest and believed the transaction would be oversubscribed and would give the Board leverage if the deal was brought to market that same afternoon.
During the order period, the Board received an impressive influx of orders, with 80% of the par amount spoken for within the first thirty minutes. Large anchor orders above $100 million from Nuveen Asset Management, Vanguard Group, Capital Research & Management and Wells Capital Management further enhanced an already stellar book of business. At the conclusion of the order period, the SWS-led syndicate had placed over $1.7 billion in orders from 61 institutional investors, making the overall transaction 4.9x oversubscribed.
At reprice, SWS’ desk recommended lowering yields across all maturities except 2029, ranging from 1 to 9 bps. The Board achieved an All-In True Interest Cost of 2.004% and a True Interest Cost of 1.988%.