DALLAS - Despite the imminent death of the Superconducting Super Collider project, Texas will not walk away from its collider debt obligations and has already appropriated funds to pay interest to bondholders for almost two more years, according to the deputy state treasurer.
"The last thing the state would do is default on the bonds. It would be foolish," said Texas deputy treasurer Paul Williams, citing the risk to the state's credit rating. "It's just a matter of how we meet our obligations."
With the House expected to vote today on a U.S. House and Senate conference committee recommendation to kill the $11 billion project, Texas officials were weighing their options to handle $250 million of lease revenue bonds issued to help finance construction of the super collider south of Dallas. According to the offering statement for the issue, the loss of federal funding could be a clear risk to investors.
But Williams said last Friday that the state has money in its budget until Aug. 31, 1995, to service debt on the lease revenue bonds. As a result, state officials have plenty of time to come up with options, which include an early redemption and replacement of lease revenue for general obligation bonds.
He said the state needs to find out how much, if any, in federal funds can be used to pay state debt to help finance the giant atom smasher, which already has created thousands of jobs and drawn additional business investment to the Dallas region.
Under the program, Texas had authorized selling up to $1 billion in debt and issued $500 million during the past several years. That included $250 million of GO bonds, which are considered safe because they are backed by the full faith and credit of the state, and the $250 million of lease revenue bonds.
"I don't know what we can use the federal appropriation for," Williams said.
Under the conference committee recommendation, $640 million in federal funds would be appropriated to wind down the project - a high-energy physics project that was expected to help unravel the mysteries of the universe. But it was not clear how much of that money could be used to pay debt.
Gov. Ann Richards has asked the federal government to repay all the bonds, but industry observers have said that is unlikely. "We are working on submitting [to the U.S. secretary of energy] a report to maximize the value of the investment already made in the site and to minimize the loss to the state of Texas," she said in a prepared statement last week.
In the meantime, Williams and rating agency executives said several options could be considered.
Texas could redeem the lease bonds early, using federal and state funds, under the extraordinary call provision. It also could pay off lease revenue bonds by floating the additional $250 million of GOs authorized by Texas voters.
An analyst said one major investor in the lease issue who has been looking to sell his portion of the bonds would like to see an early redemption of the bonds. "When you have a position like that, you're relieved to see they're considering a cash-out," the analyst said.
Peter D'Erchia, director of the municipal finance group for Standard & Poor's Corp., said Texas could benefit by refunding its lease revenue bonds with GOs because it would get a better rating and better interest rates. The credit agency rates the GOs AA and the lease revenue bonds are rated A-minus.
Whatever the case, he said, "We have no doubt that the bondholder will be paid."
He said that Standard & Poor's A-minus rating for the lease revenue bonds was not contingent on continued federal funding, rather on the state's ability to pay.
Fitch Investors Service, which has assigned the bonds an A rating, also indicated they are not concerned that the state will pay. "They will handle the situation so that it is not prejudicial to their credit," said Claire Cohen, an executive vice president at Fitch.
Last week, Moody's Investors Service said it has placed its A rating for the lease revenue bonds under review and will evaluate the level of federal funding to be provided to pay debt service and monitor Texas' actions.
Officials at the Texas governor's office could not be reached for comment.
An official with the Texas National Research Laboratory Financing Commission, which issued the bonds, said last week that an emergency meeting of the nine-member commission could be called after action by the U.S. Congress. A Senate vote will follow the House's vote on the conference recommendation, after which it will go to President Clinton for his signature.
Williams also said the issue is expected to come up next month at the next meeting of the Texas Bond Review Board.
