UBS loses bond deal after Texas calls it an energy boycotter

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UBS Group AG’s municipal underwriting subsidiary has lost a bond contract in Texas after the state comptroller included the parent company on a list of companies it considers ‘boycotting’ the bond industry. fossil fuels.

The Normangee Independent School District, about 140 miles southeast of Dallas, had accepted an offer from UBS Financial Services Inc. to underwrite a bond deal auctioned Aug. 8, bond filings show.

But two weeks later, State Comptroller Glenn Hegar, a Republican, included UBS Group on a list of 10 companies his office considers to be boycotting the energy sector. There is usually a one-week gap between when a municipal bid sells out and its closing date.

The district ended up reselling the bonds last week, hiring RBC Capital Markets as an underwriter instead, at a time when yields were well above levels prevailing for the first loan.

The school district took the action after the Texas attorney general’s office said it would not approve the sale UBS underwrote, said Aaron Reitz, assistant state attorney general for legal strategy, in an email.

The state comptroller released his list on August 24. His investigation was prompted by a GOP-backed state law that took effect in September 2021 that prevents Texas governments from entering into certain contracts with companies that have restricted ties to carbon-emitting energy. businesses.

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Deletion request

A UBS spokesperson said in an emailed statement that the bank had asked the comptroller to remove the company from the list.

“We recently met with the Texas Comptroller’s Office to better understand the reason for our inclusion on their list and to reinforce the importance of the energy industry and Texas to our business with the goal of UBS being considered for remove from the list,” the statement read. .

Last month, a spokesperson for the company said it was assessing the situation and investigating whether putting the parent company on the list would prevent a subsidiary from entering into contracts.

The outcome of the deal suggests UBS may struggle to work in the Texas municipal bond market, one of the most lucrative in the country, after the parent company was named an energy boycotter.

The attorney general’s office, led by Republican Kenneth Paxton, approves most bond sales in the state, making its approval of the school district’s deal crucial.

Reitz said a district representative contacted the Texas attorney general’s office to inquire about the impact on bond sales following UBS’s inclusion on the list.

“We told Normangee that OAG agreed with the monitor’s analysis and conclusions set out in the listing and, therefore, could not approve obligations with UBS as a buyer,” Reitz said. “Normangee then decided not to proceed with the sale of UBS-backed bonds.”

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Higher yields

The school district returned to the market Sept. 15, selling $18.4 million worth of bonds in a competitive auction won by RBC, according to data gathered by Bloomberg.

The school faced tougher market conditions in September, which suggests it may have had to pay additional interest charges due to the delay. The benchmark 10-year munis returned 2.8% on Sept. 15, down from around 2.2% on Aug. 8, when the bonds were originally sold.

Mark Ruffin, the district superintendent, declined to comment.

The school district isn’t the only locality in Texas to have its funding decisions influenced by a GOP-backed state law. A Texas city saw its borrowing costs soar after it refused to award a bond deal to Citigroup Inc. this month, even though the bank submitted the most competitive bid.

Citigroup has been grappling with a separate GOP law limiting Texas governments’ work with companies unless the companies verify they don’t “discriminate” against firearms entities.

The municipality chose the second-best offer, which it says will cost it about $277,334 more over 25 years.

Amanda Albright and Danielle Moran, Bloomberg

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