Siebert Williams Shank served as the book-running senior manager for Katy ISD’s transaction which priced on Wednesday, October 23, 2019.
This was our firm’s first senior-managed mandate for the District and represented the culmination of exceptional sales performances as a co-manager on the District’s past bond issuances.
Proceeds from the Bonds were used to current refund the District’s outstanding Unlimited Tax School Building Bonds, Series 2010-D (Build America Bonds – Direct Payment to Issuer), which were callable on February 15, 2020.
The Bonds were structured with level savings, a 10-year call at par, and principal maturing serially in years 2020 – 2041. They received “Aaa” and “AAA” ratings by virtue of a guarantee by the Permanent School Fund of the State of Texas and attained underlying Moody’s and S&P ratings of “Aa1” (stable outlook) and “AA” (stable outlook), respectively.
The week’s tax-exempt calendar continued to swell with roughly $9.75 billion in volume, well above the 2019YTD weekly average of $5.09 billion. The District’s comparable and local competition included two other Houston-area school districts: Cypress Fairbanks ISD ($350 million) pricing on Tuesday and Pasadena ISD ($40 million) pricing on Wednesday.
With a positive marketing tone during the premarketing period, SWS’ underwriting desk proposed an accelerated pricing based on a critical mass of early investor reads, lingering investor appetite after the finalization of the Cypress-Fairbanks ISD deal, and the expectation that MMD would remain unchanged for the day.
This strategic move by SWS’ desk to accelerate the pricing by a day would signal to other investors not yet involved with the deal that the District’s transaction had strong interest and would lure said investors and create further momentum.
At the onset of the order period, SWS’ desk received an influx of orders concentrated in the latter maturities. With an hour remaining in the order period, 87% of the transaction was fully subscribed. At the conclusion of the order period at 3 P.M. Eastern, the SWS-led syndicate had generated over $359 million in priority orders from 38 different institutional investors with priority subscriptions ranging from 1.0x to 4.5x. At repricing, yields were lowered on all maturities by 1 – 4 bps.
When compared to its Texas ISD peers, the District’s transaction priced 2 to 3 bps tighter in spreads to MMD in the 13 years where the District and Cypress-Fairbanks ISD (priced a day prior to the District) had the same coupon. In addition, the District’s transaction priced 2 to 4 bps tighter than Pasadena ISD’s transaction, which priced the same day.
The District generated net present value savings of $22.6 million or $34.4 million on a cash flow basis (net of BABs Subsidy), more than 14.58% of the refunded bonds with 2.52% in all-in true interest cost.