Estrada Hinojosa was hired in 2014 to serve as co-financial advisor for the Texas Water Development Board (“TWDB”), the state agency that has responsibility over Texas’s statewide water plan and manages several large scale water-related loan programs. TWDB was founded in 1957 and has financed over $4 billion of water- and wastewater-related projects statewide, often at below market borrowing costs. Estrada Hinojosa was hired, among other activities, to assist in the implementation of a newly authorized bond program: the State Water Implementation Revenue Fund for Texas or SWIRFT.
In November 2013 Texas voters approved Proposition 6, which sent $2 billion to the State Water Implementation Fund for Texas (“SWIFT”). Revenue and funds derived from the SWIFT would be used in conjunction with a new loan program that would provide affordable, ongoing state financial assistance for projects in the state water plan. The goal is to provide assistance for up to $27 billion in projects over the next 50 years. SWIFT revenue would be transferred to the SWIRFT, and bonds issued from the SWIRFT would be used to provide low-interest loans, extended repayment terms, deferral of loan repayments, and incremental repurchase terms to eligible projects and municipalities in Texas.
Throughout 2014 and 2015, the working group, which included TWDB staff, the co-financial advisors, and bond counsel, developed the financial structure, bond and legal documents of the debut bond issues of the SWIRFT. The co-financial advisors were tasked with developing a bond program that would last decades over dozens of bond issues, preserving the $2 billion corpus of the SWIFT, and optimizing the bond structure to reduce the borrowing costs of the underlying borrower’s loans. Of particular importance was obtaining an AAA category rating. The working group worked with S&P and Fitch to rate the new program and both firms awarded the SWIRFT triple-A ratings.
Once the rating was announced – and the legal and bond documents finalized – the bonds were pre-marketed for several weeks in September 2015. The debut issue priced on October 6th and consisted of a $798 million tax-exempt tranche and a much smaller $11.96 million taxable tranche. The debut bond issue was a success; and the TWDB finalized all the underlying loans with the respective borrower communities by the end of the calendar year.
Most recently Estrada Hinojosa served as Senior Managing Underwriter in May 2017 on $88,870,000 Water Financial Assistance and Refunding Bonds. This is just one of the successful refunding and new money transaction for State Agency credit. Estrada Hinojosa was named senior manager in February by Water Board after having been added to their underwriting pool in late 2016. Syndicate also included three co-managers.
Prior transactions consisted of two tax exempt transactions ($67.3MM priced with same spreads), and one taxable transaction ($21.5MM). Interest was strong for both tax-exempt and taxable transactions. The taxable refunding had a successful Indications of Interest period, with nearly all bonds spoken for before pricing day. Tax exempt interest was also strong. On pricing day, the tax exempt bonds saw interest across the yield curve, which benefited from a continued rally in USTs and munis. Oversubscription allowed for bumping (lowering) of spreads by 2bps in 22-24, and 2-4bps in 32-37. 5% coupon spreads after the call date ranged from 18-21bps, with 4% coupon spreads netting 52,53bps spread for their two maturities. The result, Estrada Hinojosa generated PV Saving of $9.1 million or 13.6% of the refunded bonds, which illustrates willingness and ability to underwrite unsold balances (approximately $1.3 million of unsold balances underwritten).