Houston's Harris County Borrows $205 Million as Sales Lowest in Two Years

Harris County Flood Control District, which includes Houston, leads issuers this week with states and municipalities poised to borrow $2.5 billion, the least in almost two years.

Harris, the nation’s third most-populous county, plans to issue $205 million in tax-exempt general obligations backed by a lien on property-tax revenue, according to preliminary offering documents. The debt carries a top credit score from Standard & Poor’s and Fitch Ratings.

Thirty-day visible supply fell 31 percent to $4.6 billion on Aug. 27, almost $6 billion below the daily average in 2010, according to data compiled by Bloomberg. Scheduled issuance this week is the lowest for a full trading week since the $1.7 billion sold in the period ended Dec. 19, 2008, Bloomberg data show.

“It’s just seasonality,” said Alan Schankel, director of fixed-income research for Janney Montgomery Scott LLC, a Philadelphia-based money-management firm with $7.3 billion in tax-free bond assets. “Everything just kind of grinds to a halt, but it’ll pick up again after Labor Day.”

Reduced supply coupled with concern that the U.S. recovery is slowing has driven investors to Treasury and municipal debt, sending yields, which move inversely to prices, to historic lows last week.

Yields on top-rated tax-exempts due in 10 years rose Aug. 27 for the first time in 10 weeks, climbing 3 basis points to 2.61 percent from 2.58 percent, the lowest ever, according to data from Concord, Massachusetts-based Municipal Market Advisors dating to January 2001. A basis point is 0.01 percentage point.

Depressed Yields

The depressed yields will help boost issuance of muni debt when vacationing investors and underwriters return to the market, according to Schankel.

“Issuers are going to want to lock in these low rates,” he said. “They won’t be able to take advantage this week, but they’ll be back with a vengeance. Even if yields rise when the week’s over, they’ll still be low.”

Proceeds from Harris County Flood Control District’s tax- exempt sale will refinance existing debt, preliminary offering documents show. The district was created in 1937 to provide relief to an area devastated by major floods in 1929 and 1935, according to its website.

It maintains a $1 billion five-year rolling capital improvement plan for work on 15 watersheds, home buyouts, flood- plain acquisitions and regional-flood control projects, Fitch analysts wrote in an Aug. 24 report.

Previous Sale

Harris County last sold flood bonds in November 2008, a $158 million offering with debt due in 2023 priced to yield 5.13 percent, or 19 basis points above an MMA index of comparable maturity. The securities yielded 2.99 percent on Aug. 18, 6 basis points below a 13-year MMA index.

Trisha Bentley, spokeswoman for the district, declined to comment on tomorrow’s sale.

In the taxable market, the average yield on Build America Bonds also reached a record low last week, dropping to 5.49 percent on Aug. 26, according to a Wells Fargo index. The federal program, which provides issuers of the taxable securities with a 35 percent subsidy on interest costs, is set to expire at year’s end. A bill was introduced in the U.S. House of Representatives July 28 to extend it by two years.

Sales of the debt may see an increase next month as issuers take advantage of the subsidy before it’s potentially lowered or eliminated, Schankel said. About $130 billion of the obligations have been sold since the program began last year.

Following are descriptions of pending sales of municipal debt in the U.S.:

PENNSYLVANIA TURNPIKE COMMISSION, established in 1937 to help manage the state’s highways, plans to issue about $600 million in tax-exempt debt and taxable Build Americas as early as this week. The revenue bonds, rated fourth-highest by Moody’s Investors Service at Aa3, will be used for capital-improvement projects. Bank of America Merrill Lynch will lead marketing of the obligations. (Updated Aug. 30)

STATE OF NEW YORK MORTGAGE AGENCY, which provides low- interest fixed-rate mortgages and financial assistance to help low- and moderate-income families become homeowners, plans to issue about $152.9 million in tax-exempts today. The mortgage- revenue bonds, rated highest by Moody’s, at Aaa, will be marketed by a group led by Morgan Stanley. (Updated Aug. 30)

To contact the reporter on this story: Brendan A. McGrail in New York at bmcgrail@bloomberg.net

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