City of Houston, Texas Convention and Entertainment Facilities Department

$132,590,000
Convention and Entertainment Facilities Department Hotel Occupancy Tax and Special Revenue and Refunding Bonds, Series 2015
Rating: Moody’s A2 / S&P A‐ / Fitch NR
Sale Date: February 19, 2015
Role of HSE: Senior Manager

On February 19, 2015, HSE priced $132,590,000 of bonds for the City of Houston, TX. The bonds advance refunded the City’s Series 2011 Convention and Entertainment Facilities Bonds, Series 2011B and current refunded a bank note. This was the third Houston Convention and Entertainment Facilities series for which HSE served as book‐running manager and fifth series overall for which HSE has been a senior or co‐senior manager.

HSE aggressively marketed the bonds to our diverse investor base. We received orders from 65 institutional investors, including 46 new investors that had not participated in the 2012 and 2014 issues for which HSE was the book‐running manager. The market had declined substantially in the weeks leading up to pricing, but our approach produced oversubscriptions of more than 400% on most maturities. The high level of demand allowed us to lower yields by as much as 10 basis points from the initial scale.

HSE also provided significant value to the City with our structuring expertise. We received initial customer feedback that a discount bond for the final maturity of the series would be well received. Consequently, we suggested that the bond structure be changed from a premium bond with a 5% coupon to a discount bond with a 4% coupon. Investor demand for this structure proved extremely strong, with the maturity more than 10‐times over subscribed, allowing us to reduce the final yield by 10 basis points. Even accounting for the lower value of the call option with the 4% coupon, the discount structure saved the City about 15 basis points compared to the 5% structure standard to municipal issues.

The City achieved a true interest cost of 3.685% on a series with an average life of 15 years. Net present value savings from the advance refunding portion totaled $9.2 million, or 13% of par refunded.