Newly created capacity in the Texas Permanent School Fund, or PSF, is available for the February round of new-money bond guarantee applications for independent school districts, or ISDs, and charter schools, according to an email statement dated Monday, Feb. 13, from the Texas Education Agency.
This increase in capacity, in addition to the upcoming February bond payments and maturities of outstanding guaranteed bonds, “totals $7 billion to $9 billion and should help alleviate program capacity concerns in the short term,” reads the statement.
The Texas State Board of Education recently voted to revise the PSF Bond Guarantee Program rules in the Texas Administrative Code and reduce the program reserves to 0.25% from 5%, according to the email statement.
The Texas PSF Bond Guarantee Program pledges to pay for bonds issued by Texas school districts by giving all bonds issued under the program an enhanced rating of AAA. This allows participating school districts rated lower than AAA to borrow at a cheaper price.
Charter schools are charged a substantial fee upfront to gain access to the PSF, which is later retained as a credit buffer in the event of a default. In addition, the PSF requires that a charter school fund a debt service reserve fund.
Charter schools that do not receive the PSF wrap typically trade about 50 to 75 bps wider on the long end and about 25 bps wider on the short end, with an all-in true interest cost difference of about 72 bps, according to market sources.
In addition to about $5 billion that will come from the reduction of the reserves, “there will be about $3 billion plus available this month due to the payoff of principal on Feb. 15 for ISD’s statewide,” explains Drew Masterson, managing director at Masterson Advisors LLC.
Masterson further adds that ISDs have been selling without PSF or with commercial bond insurance since the guarantee funds were at a record low last December at $26.6 million. In January, 10 ISDs issued bonds without any bond insurance, according to Masterson’s research of sales results.
This accounted for a third of 30 deals that came to the market last month, totaling $2.2 billion out of the overall volume of $3.96 billion. The rest of the deals that came through received insurance from either Assured Guaranty Municipal, Build America Insurance or PSF. Seven deals that received PSF guarantee were rated A+ or higher. This week, the following deals are on EMMA’s new issuance calendar:
- $241.875 million from Houston ISD;
- $90 million from Judson ISD;
- $250 million from Prosper ISD; and
- $80 million East Central ISD
In fiscal-year 2022, the PSF Bond Guarantee Program guaranteed 62 school districts, including six charter districts, according to the most recent
disclosure report from PSF for the month ended Dec. 31, 2022. Total amount of bonds guaranteed during fiscal 2022 was $3.4 billion for all districts. Since its inception in 1985, the program has guaranteed $239.6 billion, $4.2 billion of which was allocated to charter districts when they became eligible to participate in the program in February 2014.
--Hoa P. Nguyen