DALLAS -- Moody's Investors Service has confirmed ratings assigned to debt obligations that rely on liquidity support by the Texas Treasury, which has been bailing out the state's beleaguered municipal investment pool.
Moody's reviewed two commercial paper programs run by the Texas Public Finance Authority, a variable-rate note issue by the University of Texas System-Permanent University Fund, and a variable-rate bond issue for the Texas Veterans' Housing Assistance Program.
The review was prompted following the Texas Treasury's purchase of securities held by TexPool. The staterun investment fund suffered a $2 billion run this month, touched off by the fiscal crisis in Orange County, Calif.
"The results of our analysis suggest that, in the unlikely event that, simultaneously, each program were unable to remarket its issues, the Treasury could still meet its liquidity commitment to all programs from available cash and easily liquidated U.S. Treasury securities," Moody's said in a statement this week.
"Despite the adverse publicity about TexPool, which generated a high level of withdrawals, each agency with rated debt has been able to successfully remarket its issues within the last week, without calling upon the Treasury," Moody's said.
The run on TexPool began Dec. 9 when the Wall Street Journal published a story making comparisons between the fund and Orange County's investment pool. The California municipality sought bankruptcy protection this month after disclosing that the pool suffered huge losses linked to derivatives trading.
To protect TexPool investors and cover the massive withdrawals, the Texas Treasury sold $2.37 billion of securities and used the proceeds to purchase securities from the investment fund.
The sale resulted in a loss of $55 million, but the treasury said that higher-than-projected interest earnings would offset the loss.
"These losses are attributable to market conditions and the rising shortterm interest rates," Moody's said. "The earnings reduction is not expected to affect state operations, even if its full impact is borne by the General Revenue Fund, as state Treasury interest earnings, to date in this fiscal year, have exceeded the budgeted amounts for the General Revenue Fund."
Despite the securities sale, the state treasury's funds are expected to range from $6 billion to $8 billion in the current fiscal year, which began Sept. 1, and if remarketing of the commercial paper issued by the Texas Public Finance Authority, for instance, should fail, the treasury would still be able to step in and cover the debt programs.
"We found there was ample security to support all of those programs," said James Dearborn, a vice president at Moody's. "We felt very comfortable confirming these ratings."
The ratings confirmed by Moody's were: Prime-1 for the Texas Public Finance Authority commercial paper notes, Series 1993 A; Prime-1 for the authority's commercial paper notes, 1994 Series B; Aa/VMIG 1 for the board of regents of the University of Texas system, Permanent University Fund variable-rate notes, Series A; and Aa/VMIG1 for Texas veterans housing assistance bonds, Series 1994 A-1 (variable rate).
The veterans housing bonds, totaling $10 million, were issued by the Texas Veterans' Land Board. Bruce Salzer, director of funds management for the land board, called the general obligation bonds "very, very secure."
"Moody's probably undertook the review just to reassure the market," Salzer said, adding," We have a lot of faith in the treasury."
