UBS will pay $850,000 to a Texas public school district in a settlement over the bank’s inability to underwrite bonds under a state law prohibiting government contracts with companies that “boycott” the fossil fuel industry, the state attorney general announced Friday.

The settlement involves a $18.6 million Normangee Independent School District competitive bond sale the investment bank won on Aug. 8 ahead of its Aug. 24 placement on the Texas comptroller’s list of boycotters.

UBS had verified to the district, as required by the 2021 state law, that it was not boycotting energy companies, but the contract for the bonds was rejected by the attorney general’s office due to the investment bank’s inclusion on the comptroller’s list, according to a statement from Texas Attorney General Ken Paxton’s office. That forced the district to resell the bonds at a higher interest rate. 

“UBS’ actions in this case were costly, and it is critical that they compensate Normangee ISD to recover losses. That’s exactly what this settlement accomplishes,” Paxton said in the statement. “I remain committed to combating the corporate (environmental, social, and governance) investment agenda, shielding taxpayers from the extra costs that come with it by shifting the burden to banks, and protecting Texas energy companies.” 

The investment bank issued a statement saying it recognized “the challenging circumstances in which Normangee ISD was placed and is pleased to support the school district following its bond reissuance.” 

“UBS does not boycott the energy industry, as we actively work with energy companies on an ongoing basis,” it added.

The school district subsequently sold the bonds Sept. 15 through RBC Capital Markets.

The Texas law, known as Senate Bill 13, tasked the comptroller with compiling a list of boycotting companies. It also prohibits state and local governments contracts valued at $100,000 or more with companies on the list.

UBS, the only muni bond underwriter on the list, also resigned or was dropped from other deals in the state, including being removed in October from a $3.4 billion natural gas securitization issue.

Another 2021 state law targeting companies determined to be discriminating against the firearm industry led to Citigroup being banned in January from underwriting municipal bonds requiring the attorney general’s approval.

A study last year said the two Texas laws increase borrowing costs for issuers in the state.

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