Fact check: Does a mayoral candidate in Houston have a plan to sell junk bonds?
December 9, 2015
By Charles Aull
Does Houston mayoral candidate Bill King’s financial plan include selling “junk” bonds?
His opponent says that it does.
But we found this to be a misleading description of King’s financial plan. While King does advocate borrowing cash through a bond issue to fund infrastructure projects and to pay down Houston’s pension obligations, the city’s current credit ratings suggests that these bonds would be considered “investment” grade—the opposite of junk.
Background
Bill King is a Houston-based businessman and the former mayor of Kemah, Texas. He took second place in a crowded nonpartisan general election on November 3 with 25 percent of the vote.[1] Democratic State Representative Sylvester Turner came in first place with 31 percent. King and Turner will face each other in a runoff on December 12.
| Mayor of Houston, General election, 2015 | ||
|---|---|---|
| Candidate | Vote % | Votes |
 Sylvester Turner |
31.3% | 81,735 |
| Bill King |
25.3% | 65,968 |
| Adrian Garcia | 17.1% | 44,758 |
| Ben Hall | 9.5% | 24,805 |
| Chris Bell | 7.4% | 19,345 |
| Stephen C. Costello | 6.7% | 17,546 |
| Nguyen Thai Hoc | 0.9% | 2,325 |
| Marty McVey | 0.5% | 1,378 |
| Demetria Smith | 0.5% | 1,234 |
| Victoria Lane | 0.3% | 908 |
| Rafael Muñoz Jr. | 0.2% | 515 |
| Dale Steffes | 0.1% | 302 |
| Joe Ferreira | 0.1% | 240 |
| Write-in votes | 0% | 0 |
| Total Votes (100% of precincts reporting) | 261,059 | |
| Source: Harris County Texas, "Official general election results," accessed November 16, 2015 | ||
Shortly after the general election, Turner’s campaign released a 60-second radio ad attacking King’s record as a businessman and discrediting his financial plan for the city.
The ad opens with the narrator stating, “As much as he tries, Bill King just can’t delete the truth.” A frustrated man—intended to represent King—can be heard typing and grumbling in the background. The ad claims that King has sought to hide his affiliation with Republicans such as U.S. Senator and presidential candidate Ted Cruz and that he has downplayed unsuccessful moments in his career as a businessman. It concludes by stating:
| “ | King certainly doesn’t want you to know about his plan to sell billions of dollars in junk bonds, sending our city on a downwards spiral of higher taxes, more fees and cuts to essential services; and the only winners would be his Wall-Street friends.[2] | ” |
We wondered if Turner’s description of King’s financial plan is accurate. Does he really want to sell junk bonds?
What are Junk Bonds?
“Junk bond” is a pejorative term for high-yield, high-risk bonds that cities and corporations can use to raise funds. For many, junk bonds invoke thoughts of financial scams, fraud and sketchy investments; but in reality they are just another part of the bond market. With that being said, they do carry some risks for both borrowers and bondholders.
The financial website Investopedia describes junk bonds as “bonds that pay high yield to bondholders because the borrowers don't have any other option. Their credit ratings are less than pristine, making it difficult for them to acquire capital at an inexpensive cost.”[3]
Michael Belsky, a lecturer of public policy at the University of Chicago and an expert on municipal finance, helped us refine our definition of junk bonds further, telling us via email, “Junks bonds are anything rated below BBB-.”[4]
By “BBB-,” Belsky was referring to the ratings that credit-rating agencies such as Moody’s Investor Services, Fitch and Standard and Poor's (S&P) give to cities and corporations to assess their general credit-worthiness.[3] Moody’s uses a scale that runs from Aaa to C (with Aaa being the highest and C being the lowest); Fitch’s and S&P’s run from AAA to D.
| Investment grade bond credit ratings* | ||
|---|---|---|
| Moody's | S&P | Fitch |
| Aaa | AAA | AAA |
| Aa1 | AA+ | AA+ |
| Aa2 | AA | AA |
| Aa3 | AA- | AA- |
| A1 | A+ | A+ |
| A2 | A | A |
| A3 | A- | A- |
| Baa1 | BBB+ | BBB+ |
| Baa2 | BBB | BBB |
| Baa3 | BBB- | BBB- |
| Non-investment grade or "junk" bond credit ratings | ||
| Ba1 | BB+ | BB+ |
| Ba2 | BB | BB |
| Ba3 | BB- | BB- |
| B1 | B+ | B+ |
| B2 | B | B |
| B3 | B- | B- |
| Caa1 | CCC+ | CCC |
| Caa2 | CCC | CCC |
| Caa3 | CCC- | CCC |
| Ca | CC | CCC |
| Ca | C | CCC |
| C | D | DDD |
| - | D | DD |
| - | D | D |
| Sources: Investopedia, "When to Trust Bond Rating Agencies," February 19, 2009 *Houston's current credit ratings are marked in bold. | ||
In the world of municipal finances, a bond issued by a city with a rating of BBB- (Baa3, in the case of Moody’s) or lower is considered junk, indicating that the city could default and bondholders could lose their money (hence “junk” bonds). Cities with junk grade ratings generally have to borrow at high interest rates because they come with a high risk of default and they therefore have no other option when it comes to attracting investors.
A bond issued by a city with a rating higher than BBB-, on the other hand, is considered investment grade, meaning that the borrower is less likely to default on the loan. Cities with investment grade status are able to borrow at low interest rates because their bonds are seen as safe investments.[5][6]
Bill King’s financial plan for Houston
When we reached out to the Turner campaign for more information about their claim that King plans to sell junk bonds, a spokesperson told us:[7]
| “ | Mr. King has proposed to sell more than $4 billion in new bonds ($1 billion in infrastructure bond and $3.4 billion in bonds to pay off Houston's unfunded pension liability) that would generate an annual level of debt service $241 million [sic]. Moody's has already warned that it is likely to downgrade Houston's credit rating. If Houston were able to issue the bonds that Mr. King proposes, they would have a much higher default risk than well-rated bonds.[2] | ” |
We looked through statements that King has made about his financial plan for the city and found a few instances in which he has proposed bond issues or borrowing. We came across no instances of King mentioning junk or high-yield, high-risk bonds.
On a page from his campaign website titled “Infrastructure,” King states, “... in order to truly bring the [infrastructure] situation under control, Houston is long overdue for a road and drainage bond issue.”[8]
On another page titled “Pensions,” he states:[9]
| “ | So what do we do about the $3.7 billion [pensions] hole? We extend the payments. Houston has the great fortune of a strong economy, which is likely to continue for some time. We have the luxury of borrowing this money at very low rates and spreading out the shortfall over a longer term. It is not an ideal solution, but if we try to continue making the payments as scheduled, we will either need to significantly raise property taxes or severely cut back city services — and we will not be able to make the infrastructure investments the city will need if it is going to continue to grow.[2] | ” |
We found other instances of King proposing bond issues in interviews with local Houston news outlets and in a debate with Turner from November.[10][11]
Investment grade or junk?
So bonds are certainly part of King’s platform, but the question now is, if Houston did a bond issue, would the bonds be considered junk?
Based on Houston's current credit ratings, the answer seems to be no.
Houston’s current credit ratings from Moody’s, S&P and Fitch are high: Aa2, AA and AA, respectively.[12]
Looming over these ratings is a decision by Moody’s in July to downgrade the city’s financial “outlook” to “negative” because of outstanding pension obligations and a revenue cap that voters approved in 2004. A negative outlook indicates that Moody’s could lower Houston’s credit rating in the next 12 to 18 months.[13]
But at the moment, Houston’s bonds carry an “investment grade” rating in the eyes of all three major credit-rating agencies, which means they would be considered low-yield, low-risk investments, as opposed to junk or high-yield, high risk.
The experts that we spoke to reiterated this conclusion.
Mike Belsky at the University of Chicago explained to us, “As of now, the city holds the third highest rating and far from junk which is below BBB-. If rated, the bonds would sell at very favorable rates given their Aa rating status.”[4]
Two accountants at the nonprofit Truth in Accounting, Bill Bergman and Shawn Cruce, agreed that Houston’s bonds would not be “junk” but added that they could still carry significant risks for the city:[14]
| “ | While you can borrow to pay down other debt, it is often difficult and inadvisable to do so because it can be counterproductive. Effectively, the city may be simply prolonging the maturity date of its debt by substituting old bonds payable with new bonds payable. In turn, the city will end up paying more interest in the end, and possibly at higher rates because more debt increases its credit risk. Houston's current ratings are "investment grade" (e.g. not "junk"). But beauty is in the eye of the beholder, and the ratings firms have historically been very wrong, with widespread consequences.[2] | ” |
Conclusion
Houston mayoral candidate Sylvester Turner stated in a radio ad that his opponent, Bill King, plans to sell “junk bonds” in order to deal with some of the city’s financial issues.
We found that to be inaccurate.
King has announced plans to sell bonds to pay for infrastructure projects and Houston’s pension obligations, but these bonds would be considered investment grade bonds—not junk bonds.
Launched in October 2015 and active through October 2018, Fact Check by Ballotpedia examined claims made by elected officials, political appointees, and political candidates at the federal, state, and local levels. We evaluated claims made by politicians of all backgrounds and affiliations, subjecting them to the same objective and neutral examination process. As of 2025, Ballotpedia staff periodically review these articles to revaluate and reaffirm our conclusions. Please email us with questions, comments, or concerns about these articles. To learn more about fact-checking, click here.
Sources and Notes
- ↑ All municipal elections in Texas are officially nonpartisan
- ↑ 2.0 2.1 2.2 2.3 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
- ↑ 3.0 3.1 Investopedia, "Junk Bonds: Everything You Need to Know," November 16, 2015
- ↑ 4.0 4.1 Email exchange with Michael Belski on December 7, 2015
- ↑ Megginson, W. and S. Smart (2011). Introduction to Corporate Finance. Mason, OH: Cengage
- ↑ Investopedia, "Bond Rating," accessed December 9, 2015
- ↑ Email exchange with Turner campaign on December 7, 2015
- ↑ BillKingforHouston, "Infrastructure," accessed December 9, 2015
- ↑ BillKingforHouston, "Pensions," accessed December 9, 2015
- ↑ ABC13, "Why Bill King wants to be Houston's next mayor," September 10, 2015
- ↑ Click2Houston, "Houston Newsmakers Nov. 8: Sylvester Turner and Bill King in first face-off," November 8, 2015
- ↑ City of Houston Controller's Office, "Investment Policy/Reports," accessed December 9, 2015
- ↑ Moody's, "Moody's affirms City of Houston's, TX Aa3 GOLT; revises outlook to negative," July 2, 2015
- ↑ Email exchange with Shawn Cruce on December 7
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