DALLAS -- The Texas Public Finance Authority yesterday approved the sale of a $300 million taxable issue -- the largest ever sold by the state -- to capitalize a new state-run worker's compensation insurance fund.

The board voted unanimously to award the negotiated deal to an underwriting team led by PaineWebber Inc. and co-senior managed by two Dallas-based firms, Rauscher Pierce Refsnes Inc. and Estrada Securities Inc.

The underwriters this week aggressively priced the taxable revenue bond deal with an average true interest cost of 8.897% With a 15-year final maturity, the deal had an average life of 10.6 years for term bonds and serials in 1992-94.

"I was braced for 9.5%," said Glen Hartman, executive director of the authority. "Any surprise we had was a pleasant one."

Because the authority was pushing to close the transaction in time to begin a new Texas Worker's Compensation Insurance Fund on Jan. 1, rating analysts were given just over a week to study the proposal before rating it.

"It was a bit of a free drill to get it out in tim," said Amy Doppelt, senior vice president at Fitch Investors Service.

Fitch rated the deal A-minus, while Moody's Investors Service assigned a single-A to the taxable securities. Mr. Hartman said Standard & Poor's Corp. declined to rate the deal because of the short time table.

"They just didn't think they would have enough time," he said. "We did this deal in 34 days of elapsed time, including Thanksgiving."

Analysts say the $300 million financing used a hybrid of municipal and corporate financing to capitalize the new state-run insurance fund. Because the fund will benefit private businesses, tax-exempt financing was not a consideration.

The revenue bonds are secured by a pledge of maintenance tax surcharge assessed against each company writing worker's compensation insurance in Texas.

The Texas Board of Insurance has agreed to raise the surcharge to a level sufficient to pay the estimated $38 million a year in debt service on the bonds.

Although the bonds were authorized this summer by the Texas Legislature, they are in no way backed by a state pledge or any revenues except the surcharge. Chris Evangel, assistant vice president at Moody's, said a traditional municipal finance structure generally uses a wider ranging pledge to secure bonds.

"This is a more narrow base in using only the surcharge," he said yesterday.

Still, both rating agencies agreed that the surcharge should be broad enough to give bondholders strong coverage even under worst-case scenarios.

Mr. Evangel said such a negative trend is not likely, adding, "There would have to be trends developed there that are not there now."

As part of a larger worker's compensation reform package, private insurers agreed to support the state-run fund in exchange or deregulation of the rates they could charge businesses for insurance coverage, Ms. Doppelt said, however, that the state is prohibited from competing with private firms on rate structure if it drops too low.

An existing state worker's compensation fund that will be abolished by 1994 has been troubled by chronic deficits because of a rate-setting structure that set its fees at the current levels plus 15%. That program was not capitalized with bonds.

"The [new] fund has to maintain rates at actuarily safe levels," she said. "The fund will not be able to run deficits."

For Texas, the sale this week marks a record. Before the worker's compensation fund issue, the largest state-level taxable sale was a $100 million offering sold in March 1987 by the Texas Housing Agency, which has since merged with another state agency.

According to Securities Data Co./Bond Buyer, the transaction is equal to the largest taxable deal ever completed in Texas. The Southeast Texas Housing Finance Corp. sold a $300 million taxable issue in August 1986, but those bonds are in default because the proceeds were invested in an Executive Life guaranteed investment contract.

"This was so unique for us that we had trouble convincing everybody this was still a municipal bond even though it was taxable," Mr. Hartman said. "There was a lot of education involved."

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