DALLAS - With top ratings secured, Texas plans tomorrow to sell its largest ever tax and revenue anticipation note deal to fill a record $2.4 billion cash-flow deficit in fiscal 1993.
The Texas Treasury will sell $1.5 billion of Trans at the competitive sale, and officials are expecting a strong reception and rates of under 3% for the 12-month notes.
As expected, Wall Street analysts have given the Texas deal their top ratings. Moody's Investors Service yesterday assigned the deal its MIG-1 rating, while Fitch Investors Service late last week rated the notes F-1-plus and Standard & Poor's Corp. gave the transaction its top rating of SP- 1 -plus.
Although this week's Texas issue alone will set a record for one-time note sales, analysts said the sum is only a fraction of the state's $30 billion annual budget and small compared to some other states.
"That's moderate," said Hyman Grossman, managing director at Standard & Poor's Corp. "It's large compared to most states and small compared to others, like California."
The primary reason the cashflow needs are so large this year is because of a one-time adjustment in how the state's franchise tax, similar to a corporate income tax, is collected. Under the change, the tax collection deadline has been moved from March to May.
"Part of it is just that structural change in the franchise tax," said Amy Doppelt, senior vice president at Fitch.
She said half the state's $2.4 billion in cash-flow needs is caused by the one-time shift in collections, also moving Texas' most critical shortage from January to May.
This week's $1.5 billion issue tops a record S1.25 billion cash-management deal in fiscal 1987 that Texas sold at the zenith of its troubles after the collapse of the state's oil-driven economy.
In fact, before the mid-1980s, Texas did not sell tax-exempt paper for its cash-flow needs. "They've had to do interfund borrowing for many years that just wasn't visible to the public," said Mr. Grossman. "It's primarily the fact that they have gone public that is new."
Still, some state officials have warned that the cash-flow needs of the treasury could set another record in fiscal 1994 and beyond.
George Leung, vice president and managing director of state ratings at Moody's, said yesterday the cash-management needs are an indicator of budget pressures that lawmakers will face in writing the next two-year budget.
Already, the state's Legislative Budget Board has projected a gap of nearly $6 billion between current spending and revenues in the next biennium.
"The cash-flow needs are a symptom of the budget pressures the state faces," he said. "I think it will be a major issue in the upcoming [legislative] session."
Early next year, the state expects a second sale of $400 million to $700 million, likely to be commercial paper, to cover remaining cash-flow needs to the end of the fiscal year on Aug. 30, 1993.
"I hate to call the market, but I would say we see rates in the 2.75% to 3% range," said Noe Hinojosa Jr., partner with Estrada, Hinojosa Securities Inc. in Dallas, the state's cofinancial adviser. "We have been getting a lot of phone calls, a lot of interest from the big institutions."
The Bond Buyer's one-year note index was calculated at 2.99% on Aug. 12.
The sale comes as the short-term market faces a lighter-than-usual slate of notes mostly from small, lesser-known credits. The Texas deal represents the bulk of an anticipated $1.83 billion of deals expected this week.
The only other major issuer scheduled to come to market this week is the state of Vermont, which expects to sell $65 million of notes on Thursday. Market sources noted, however, that the Vermont deal might wait until next week, depending on market conditions.