Bloomberg News

Texas Sells $7.2 Billion of 1-Year Notes at Record-Low Yield (1)

August 27, 2013

Texas sold $7.2 billion in notes, its smallest offering since 2009, at a record-low yield to help manage cash flow in the fiscal year beginning Sept. 1.

The debt was priced to yield 0.201 percent, Comptroller Susan Combs said in a statement. That compares with an interest rate on benchmark one-year notes of 0.35 percent, data compiled by Bloomberg show. The state offered similar debt a year ago at what was then a historically low yield of 0.23 percent.

Sales-tax collections rose 7.8 percent for the 11 months through July 31 compared with a year earlier, reducing the need for borrowing after Texas issued about $10 billion in each of the past two years, said R.J. DeSilva, a spokesman for Combs.

The notes mature in August 2014 and are rated SP-1+ by Standard & Poor’s, its highest short-term grade. The notes amount to about 8.8 percent of projected general revenue for fiscal 2014, “significantly smaller” than in the past three years, according to S&P.

“The best ratings from Wall Street ratings firms and strong demand for Texas notes helped drive down the borrowing cost,” Combs said. “The competitive bids for today’s sale show that investors are very confident in the Texas economy and the direction it’s heading.”

Following California

California, the most populous state, this month sold $5.5 billion of revenue-anticipation notes maturing in June with a yield as high as 0.23 percent, according to Treasurer Bill Lockyer. It was the lowest yields the state has paid since 1971, the earliest year for which data was available, said Tom Dresslar, a spokesman for Lockyer.

The Texas Legislature in May approved a $102 billion general revenue budget for 2014 and 2015, a 10.2 percent increase from the previous two years.

The state has sold short-term notes annually since fiscal 1987 to provide aid to school districts when its financial year begins. The state then reserves tax revenue to repay the debt within 12 months.

Seven banks bought the debt, including JPMorgan Chase & Co., Wells Fargo & Co. (WFC:US) and Morgan Stanley, Bloomberg data show. Buyers submitted bids totalling $16.7 billion, Combs said.

To contact the reporters on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net; David Mildenberg in Austin at dmildenberg@bloomberg.net


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