Rice Financial Products Company is one of the fastest growing underwriters of municipal bonds in the United States today. In 2006, the firm was a managing underwriter on $7.7 billion in municipal bonds. In 2010, the firm served as a managing underwriter on issues totaling $52.3 billion - a 578% increase in just four years. Not surprisingly, Rice's ranking among underwriters grew dramatically during this period as well, jumping from 43rd place to 19th place nationally, full credit to each manager.

Rice Financial's average transaction size 2006-2010 was $239 million, earning the film a 10th place ranking nationally among firms that participated in 50 or more issues.  The firm's regular participation in some of the nation's largest bond transactions is a testament to its ability to place a wide range of bonds with all types of investors.  A few of the notable transactions we have senior managed in recent months are summarized below.

City of Houston

$273,275,000 Combined Utility System

Refunding Bonds

Series 2011 A

On February 23, 2011, Rice Financial senior managed a $273.275 million transaction for the City of Houston Combined Utility System, a AA/AA- rated revenue credit. The Combined Utility System provides water to homes and business throughout the City. The transaction was issued to refund and defease all of the City’s First Lien Revenue Refunding Bonds, Series 2004C-1, 2004C-2B and 2004C-2B in the amount of $274.125 million.
 
Buyer demand was high for the strong credit quality of the issue, and the transaction was well received by investors. As a result of the high demand, Rice lowered yields in every maturity. The syndicate generated more than $1.4 billion in orders. Rice generated $838 million of those orders, all on a priority basis.  

New York City Municipal Water Finance Authority

$210,040,000 Water and Sewer System Second General Resolution

Revenue Bonds

Fiscal 2011 Series BB

Rice Financial’s rapid 16-month leap from selling group member to book-running senior manager for the City of New York culminated in late summer 2010 when the firm proposed a unique refunding strategy to the NYC Municipal Water Finance Authority.  The idea had not been presented by any of the other 17 senior and senior co-managers on the account.  Rice was awarded the refunding transaction the following day.  

In the resulting bond issue, Rice refunded $181.27 million of Fiscal 1999 Series A Bonds and $42.485 million of Fiscal 2001 Series D First Resolution Bonds, producing $18 million of present value savings (or 8% of refunded par). The firm presented a consensus scale during the pre-pricing call based on input from all managing members of the syndicate. The scale was formulated on spreads against the MMD AAA scale published the previous day and had spreads ranging from 20 to 37 basis points over the MMD, producing yields of 0.50% in 2011 to 3.80% in 2031.  Based on a successful retail marketing effort, Rice Financial was able to tighten the pricing spreads for the entire financing.  With these improvements, the issue initially priced at yields ranging from 0.40% in 2011 to a 3.70% yield in 2030. Additionally, during the repricing, the syndicate was able to lower the yields on several maturities by as much as two basis points, ultimately producing yields that ranged from 0.38% in 2011 to 3.78% in 2031.

State of Ohio

$207,610,000 GO Highway Capital Improvement Bonds

Series N and O

On October 4, 2010, Rice Financial served as book-running senior manager for a $207,610,000 General Obligation Highway Capital Improvements Bond financing for the State of Ohio (Treasurer of State).  The State issued the bonds as a hybrid tax-exempt and taxable BAB structure to fund five major highway projects and 154 other minor highway projects over the next 20 months.  In addition to the new money bonds, Rice Financial identified a refunding opportunity that generated debt service savings.  Throughout the transaction, the firm monitored the refunding by performing Opportunity Cost Index (OCI) analysis that showed the value of refunding the bonds now versus waiting to refund the bonds on the call date.  Although the refunding, at pricing, did not produce the amount of savings originally shown, the State decided to refund the bonds base on the level of OCI the refunding generated and the fact that the refunding represented short maturities that would probably not be refunded in the future.  

Rice Financial priced the transaction in a challenging market.  During the week of pricing, the primary market was gearing up for over $13 billion in taxable and tax-exempt supply.  In addition, the State of Ohio had issued a significant amount of paper in the weeks leading up to the pricing of the Series N, O and P bonds.  Despite the amount of supply of national and Ohio paper, the Rice banking and underwriting team worked closely with the State Treasurer and its financial advisor to develop a financing structure that best met the State’s financing goals while producing the lowest available cost of funds.  Rice Financial provided the State with break-even analysis to determine where in the yield curve BABs and tax-exempt bonds produced the lowest all-in cost. 

During the retail order period on Monday, October 4, the municipal market was weaker as it prepared for a heavy slate of new issuance in the primary.  The yield on the 10-year MMD increased 5 basis points from 2.43% on Friday, October 1, to 2.48% on Monday.  Rice reacted quickly to the deteriorating market by accelerating the institutional pricing of the tax-exempt bonds and taxable BABs. Instead of waiting until the next day to price the tax-exempt and BABs for institutions as originally scheduled, Rice cut the retail order period and started taking institutional orders.   The firm generated over $237 million in orders on the taxable BABs and garnered significant oversubscription in the 2015, 2019 and 2021 maturities.  Rice was able to clear the market before three $1 billion+ deals from New York and California.   By Tuesday, October 5, the 10-year MMD had increased an additional basis point. 

Virgin Islands Water and Power Authority

$85,335,000 Senior Lien Electric System Revenue and Refunding Bonds

Series 2010 A, B and C

In October 2009, the Virgin Islands Water and Power Authority selected Rice Financial to lead a two-firm syndicate for its proposed bond issue, which was to consist of refunding and new money components. The Authority had three main financing objectives:  refund approximately $40 million of Series 1998 Bonds for savings, issue $30 million for capital projects and maintain aggregate maximum annual debt service at or below current levels.

The proposed financing was the Authority’s first entry into the bond market since 2007. Rice Financial analyzed a number of financing alternatives, all centered around a refunding transaction to restructure outstanding debt to provide capacity for the new money borrowing. Rice Financial proposed a senior lien refunding transaction that restructured principal amortization without extending the final maturity or increasing the average life. For the new money portion, Rice Financial evaluated tax-exempt bonds and Build America Bonds (BABs). Rice Financial provided refunding sensitivity analysis, debt portfolio analysis (with respect to preserving callable debt in the Authority’s portfolio post financing) and insurance breakeven analysis. The firm devised a rating strategy whose objective was to maintain the Authority’s outstanding “BBB” category ratings process and solicit and negotiate bond insurance.

The financing ultimately consisted of three series: tax-exempt refunding bonds (Series 2010A), tax-exempt bonds used to repay amounts outstanding under existing lines of credit (Series 2010B), and BABs with make-whole calls, which were used to fund key capital projects (Series 2010C). Key capital projects included two substations on St. Croix: a new Mid-Island substation to provide for the receipt of purchased capacity and energy from proposed waste-to-energy facilities to be constructed on the island and to improve reliability and reduce line loss, and an upgrade to the existing Richmond Substation to electrically interconnect the proposed Mid-Island Substation with the Richmond generating plant. Another key project included a new underwater cable connecting St. Thomas and St. John to provide for increased reliability and increased electrical loads on the island of St. John.

This issue included the first and only BABs issued in the U.S. Virgin Islands Territory and the first BABs issued by a U.S. territory.   The BABs were 3x oversubscribed and the overall financing was sold to 28 different investors, demonstrating the desirability of a Virgin Islands credit to a taxable investor base.  The transaction generated $1.85 million present value refunding savings (4.7% of refunded par) and reduced aggregate maximum annual debt service by $60,000.  The restructuring permitted the Authority to issue $46.3 million in new money bonds, more than $16 million greater than originally planned. The increased new money proceeds enabled the Authority to improve internal liquidity by refinancing $9 million in line of credit borrowings used for capital projects and obtain nearly $6 million in additional proceeds for capital projects. A portion of the Series 2010 issue was insured by Assured Guaranty, marking only the second time the Authority’s bonds had been insured. The issue marked the first time Assured Guaranty had insured the Authority’s bonds. The Authority’s credit ratings were affirmed by all three rating agencies with an upgraded outlook from S&P, during a period of economic weakness.

Harris County Toll Road Authority (TX)

$79,825,000 Toll Road Revenue Refunding Bonds (Taxable and Tax-Exempt)

Series 2010B

Rice Financial was the first firm to identify the taxable refunding opportunity for the Harris County Toll Road Authority that was ultimately part of this financing. The candidate issues totaled $39.95 million and provided over $1.3 million in additional PV savings.

On October 20, 2010, Rice Financial senior managed a $79.8 million transaction for the Authority consisting of a $22 million refunding of Series 2002 Limited Tax and Subordinated Toll Revenue Bonds with taxable refunding bonds; a $29 million refunding of Series 2002 Senior Lien Revenue Bonds with taxable and tax-exempt refunding bonds; and a $22.7 million refunding of Series 2003 Senior Lien Revenue Bonds with tax-exempt refunding bonds that produced $3 million in present value savings (or 4% of refunded par).  Working closely with the Authority and its financial advisors, Rice Financial analyzed a number of financing alternatives and evaluated the cost of various couponing structures. 

Despite a huge supply in the market on the week of pricing, over $8 billion, the bonds were priced aggressively versus comparable issues. At the end of the order period, the syndicate did not generate sufficient orders for the tax-exempt term bonds and a portion of the taxable bonds. After conversations with the Authority’s financial advisors, Rice reopened the order period and was able to bring a combination institutional buyer to purchase sizable portion of the outstanding maturities.

The financing received wide distribution, with Rice Financial alone generating $93 million in orders from 20 different investors, 18 of which were allotted bonds.  In a difficult market, the transaction was oversubscribed (1.61x).  Rice took down approximately $295,000 in bonds.

City of Chicago

$90,892,392 Sales Tax Revenue Refunding Bonds

Series 2009 A, B and C

On October 6, 2009, Rice Financial senior managed a $90.9 million sales tax revenue bond financing for the City of Chicago.  This complex, three-tiered transaction consisted of the following series: Series 2009A, $68.7 million, tax-exempt; Series 2009B, $2.2 million, taxable current interest bonds; and Series 2009C, $20.0 million, taxable capital appreciation bonds.  The purpose of the transaction was to provide near-term budget relief to the City. The bonds were used to refund existing 1998 bonds for present value savings as well as to restructure select maturities from Series 2005 and interest due on both Series 1998 and 2005. 

Rice Financial conducted weekly pricing calls with the City to keep staff informed on the state of the municipal market and the current pricing for the City’s sales tax bonds. The banking and underwriting staff worked closely with the City and its financial advisor to develop a financing structure that best met the City’s financing goals while producing the lowest available cost of funds. 

During pricing, the market had begun to deteriorate from strong levels on Monday (10/05/09). While the 10-year yields went from a 3.21% to 3.25% on Tuesday, the day of pricing, the 30-year yields went from a 3.97% to a 4.07%, a drop in price of one full point. The night before, Australia in a surprise move, raised its prime rate equivalent from 3.00% to 3.25%. Going into the market on Tuesday, the MMD, which had shown strong gains (reduced yields) steadily for the past several weeks, was unchanged on Monday evening from Friday’s levels. By Tuesday, preliminary reads showed increased yields throughout most of the yield curve.  At the end of the day, MMD yields rose 3 basis points in 2018 and 2019, 4 basis points from 2020 through 2026, and 3 basis points from 2027 through 2029. By late Thursday evening (10/08/09), the MMD had declined about 20 basis points since pricing. For instance, the 10-year MMD was 2.57% on the morning of pricing and deteriorated to 2.76% by late Thursday.  Rice brought the issue to market at spreads that ranged from 53 to 55 basis points over the MMD. By the following Tuesday (10/15/09), the 10 year MMD yield was 3.04%, and the bid-side spread on the bonds was 70 basis points.

Overall, the transaction saved the City $15.2 million in 2010 and over $21 million in 2011. Furthermore, the bonds were structured to stay within $400,000 of existing maximum annual debt service and an average life under 16 years (on the tax-exempt Series 2009A), and to achieve the lowest possible cost funds. The bonds were widely distributed with strong interest from retail and many national institutional investors.

Rice Financial’s investment banking professionals have a reputation and demonstrated track record for innovative problem solving that set them apart from their peers. The firm’s bankers leverage decades of experience and financial creativity to help customers develop tailored solutions to their unique financing needs.

As a testament to the quality of the firm’s banking and underwriting capabilities, in 2008, Rice Financial senior managed a transaction that was named the Bond Buyer 2008 Southeast Region Deal of the Year - a $114 million bond issue on behalf of Jackson Public Schools. This was the largest school district financing ever completed in the state of Mississippi.

Through a subsidiary, Rice Capital Access Program, LLC, Rice Financial also serves as the Designated Bonding Authority to the U.S. Department of Education’s Historically Black College & University Capital Financing Program on a billion dollar portfolio.