In gun law’s wake, Goldman exits $832 million Texas bond deal


The Texas Public Finance Authority shuffled its finance team for $832 million of general obligation bonds after senior manager Goldman Sachs withdrew under the shadow of a controversial state gun law.

Without comment, Goldman joined other major underwriters in backing away from Texas business after the new gun law went into effect Sept. 1.

“In this case, Goldman Sachs has advised us that they are on pause,” Texas Public Finance Authority Executive Director Lee Deviney told the board at its Oct. 7 meeting.

Texas Attorney-General Ken Paxton can use his office’s powers to block municipal bond issues.

Bloomberg News

Raymond James Financial Inc. will replace Goldman on the bond sale expected to price Nov. 2.

In neighboring Louisiana, Republicans’ gun fixation has played out in the State Bond Commission, a committee of lawmakers and executive branch officials that must ratify bond sales.

The panel on Thursday delayed approval of a $700 million state bond sale set to be underwritten by JPMorgan Chase — one of the banks on the outs in Texas — as the attorney general pushed for information on the bank’s policies on gun control.

Louisiana Treasurer John Schroder, a Republican, said during the bond commission meeting that the group wouldn’t consider an agenda item allowing for the refinancing of gasoline- and fuels-tax bonds that JPMorgan was slated to underwrite.

JPMorgan Chase, Citigroup and Bank of America have underwritten no deals in Texas since Senate Bill 19 became law, according to data from Refinitiv.

Those banks, the largest underwriters in Texas for years, accounted for $6.4 billion of bonds in the first half of the year, according to Refinitiv.

“While we believe our business practices should permit us to certify, the legal risk associated with this ambiguous law prevents us from bidding on most business right now with Texas public entities,” said Trish Wexler, spokeswoman for JPMorgan Chase.

“While we are dedicated to staying involved in the Texas market and serving our public sector clients, we have elected not to engage in primary market underwriting temporarily as we work through the certification process,” said Citi spokesman Scott Helfman.

A Bank of America Securities spokesman declined comment.

The law requires banks and other businesses to sign a statement that they do not discriminate against the firearms industry or related organizations to do business with the state or local governments.

In debates on the bill, Goldman was not identified as a target.

Republican lawmakers sought to exclude JPMorgan, Citi, Bank of America and Wells Fargo for making statements or policies that were interpreted as adversarial to the firearms industry.

Wells Fargo claimed it can continue lending money to the state in a letter to Texas Attorney General Ken Paxton.

Paxton, who has served his entire first term under indictment for securities fraud, positions himself as a pro-Trump, pro-gun Republican, as does Gov. Greg Abbott, his predecessor as attorney general.

In Texas, the attorney general approves most bond deals, stipulating that they are free from litigation. The Bond Review Board includes the governor, the comptroller and the attorney general.

After the 2018 gun-powered massacre of 14 students and three adults at Marjory Stoneman Douglas High School in Parkland, Florida, Citi set a policy asking new retail sector clients to adhere to “best practices” policies for firearms sales, including a minimum age of 21 for gun buyers and not selling bump stocks or high-capacity magazines. Bump stocks are credited with helping a gunman murder 60 country music concert attendees in a 2017 massacre in Las Vegas.

BAML said it planned to stop lending to companies that make assault-style guns for non-military purposes.

“The concern is that bonds of Texas have to be approved by the attorney general’s office,” Kevin Twining, co-chair of Locke Lord’s public finance group in Dallas, said in August.

“Our concern — issuers, bond counsel or others — is that we can make that representation, but the AG may not approve of it. They can say: ‘We’re not going to approve.’ Then you’ve got a failed bond proposal and you have to break a lot of contracts.”

Texas Comptroller Glenn Hegar noted in a statement this summer that SB 19 applied not just to the underwriters but their counterparties, as well.

In his letter to Paxton, managing director James L. Perry III affirmed that Wells Fargo’s “parent company, wholly- and majority-owned subsidiaries, and other affiliates, if any, presently do not, and at the time the Company accepts participation in any such syndicate will not, (a) boycott Israel, (b) boycott energy companies, (c) have a practice, policy, guidance, or directive that discriminates against a firearm entity or firearm trade association.”

Others who wrote letters to Paxton seeking permission to do business in the state were Barclays Plc, TD Securities, and Stifel Financial Corp. The letters are filed on the Municipal Advisory Council of Texas website.

The banks did not openly challenge SB 19 when it was debated, nor did they oppose a state law allowing customers to bring guns into their banks. During the COVID-19 pandemic, bank robbers can wear masks and carry guns, as several have done.

Kroll Bond Rating Agency said the new law would not factor into the state’s triple-A credit rating but does highlight the impact of environmental, social and governance trends on issuers.

“KBRA believes it is not the role of a credit rating agency to make value-based judgments and instead focus on the way ESG factors can impact credit default risk,” analysts said in a research piece this month. “Stakeholder preferences can be important to credit risk but only when they affect financial outcomes and impact the risk of default. KBRA’s view is that subjective beliefs on ESG-related issues are left up to the stakeholder, not to rating agencies.”

In a report affirming Texas’ top credit rating, analyst Karen Krop noted that “litigation has periodically been a source of uncertainty.”

In the debate over the gun law in April, House Democrats pointed to the high cost of litigating the constitutionality of provocative political issues such as abortion, transgender bathroom rights, and voting rights. Texas’s law banning all abortions after six weeks of pregnancy is under review by the U.S. Supreme Court, which has allowed the law to remain in effect.

To date, analysts have not factored the cost of Gov. Greg Abbott’s plan to build a border wall at state taxpayer expense. Abbott adopted the border wall as a state responsibility after the defeat of Republican President Donald Trump in 2020.

Abbott called for three special sessions, including one to restrict voting amid fierce Democratic resistance and another to redistrict the state, which typically favors Republican candidates. That redistricting plan will also be litigated.

Texas gun massacres included the 2019 murder of 23 people at an El Paso Wal-Mart and the murders of 26 people at Sutherland Springs Baptist Church in 2017.

TPFA was created in 1984 by the Texas Legislature to finance facilities for state agencies. Along with the Texas Transportation Commission and the Texas Water Development Board, it is one of the largest issuers of general obligation bonds backed by the state.

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