MUD Receivables: How Texas Developers Turn Reimbursements Into Cash

A Texas developer can have tens of millions of dollars on the balance sheet that it cannot spend. It paid for the water, sewer and drainage in a new community, and the municipal utility district owes it the money back. But the district can only pay from bonds, the bonds only sell as homes add taxable value, and every dollar has to survive an audit and a state review first.

That debt is the MUD receivable. How a developer finances it, or sells it, decides how much capital is tied up in a community and for how long. Here is how the receivable turns into cash, what gets cut on the way, and the routes the market has built around it.

What a MUD receivable is

When a developer builds a district's facilities, it does so under a reimbursement agreement with the district, signed before construction. The agreement makes repayment contingent on the district's bonds being approved by voters, the Texas Commission on Environmental Quality and the Texas Attorney General, and limits repayment to qualified costs. The Attorney General's office restated those conditions in a March 2024 letter to bond counsel.

So the receivable is not a loan to the district. It is a right to be repaid from future bonds, which is why lenders, buyers and auditors all treat it as contingent. The basics of how a district is created and the rules on the developer's share are in the Texas MUD guide. This post starts where that one stops: turning the receivable into cash.

From invoice to bond proceeds

Each bond issue follows the same path. A 2023 presentation by a Houston district law firm and its financial advisor laid it out:

1. The district engineer prepares a summary of the costs to be reimbursed.
2. The bond application goes to the TCEQ, with a review of about 60 days expedited or 180 days standard.
3. A notice of sale goes out 10 days before the sale, and the bonds are sold publicly to the bidder with the lowest net effective interest rate.
4. The Attorney General reviews the issue, with a 10-business-day review period.
5. A CPA audit. Before paying the developer from bond proceeds, the district hires a CPA to run agreed-upon procedures on every reimbursed item, including proof of payment and the interest calculation (30 TAC §293.70). The report goes to the TCEQ.
6. At closing, proceeds are split among the city (impact fees), the developer, the district and the paying agent.

Each issue repays only the facilities it covers. A community therefore pays its developer back in installments, one bond series at a time.

What a real bond issue pays back

Public TCEQ memos show how the money divides. The staff memo on Fort Bend County MUD No. 233's $11.2 million Series 2024 bonds, sold at a 5.94% net effective interest rate, broke the issue down like this:

• Developer construction and related costs: $6,964,858, including engineering ($728,700), stormwater pollution prevention ($228,314) and materials testing ($69,455)
• Developer interest: $673,162
• City impact fees: $1,613,815
• Bond discount (3%): $336,000

By our arithmetic, about 68% of the issue went to the developer. The memo also shows what did not make it. Paving in three sections, totaling just over $2 million, was removed as ineligible for utility reimbursement. Interest on the difference between a bid price and a later increased price was disallowed.

What the TCEQ will not reimburse

Most cuts trace back to a short list in the TCEQ's rules (30 TAC §§293.44, 293.47 and 293.51):

• The developer's 30% share of water, wastewater, drainage and recreational costs, unless the district qualifies for a waiver
• Planning and zoning costs
• Both a design and its redesign. The district pays for one or the other.
• Utility easements, which are dedicated without payment
• Paving from utility bonds. Roads need road powers and road bonds.
• Land, which is reimbursed at its arm's-length cost plus taxes and capped interest. Floodplain land goes in at the lower of cost or appraisal, and detention or amenity sites only for their drainage or recreation share.
• Interest beyond the limits, which cap it at the lower of the bond rate and the developer's actual borrowing rate

A developer that budgets the receivable at its full cost of construction will be wrong in the same direction every time.

Why the receivable arrives in pieces

Bonds sell only as the community earns them. The first issue must clear tests on completed facilities, built value and a projected tax-rate cap. That cap is $1.50 per $100 of value in Harris County and 12 other counties in and around the Houston region. Later issues generally need 75% of the build-out projected in earlier issues to be in place (30 TAC §293.59).

That makes the receivable a function of how fast builders start and close homes. The developer carries the risk: if value does not appear, neither do the bonds. It is the same pace question covered in the lot absorption rate guide, applied to the district's tax roll.

Five ways to turn the receivable into cash

Pledging it to your lender

The most common route costs nothing extra: the receivable becomes part of the collateral for the acquisition and development loan. Sample loan clauses require the developer to assign its MUD receivables to the lender, and make further advances conditional on the district acknowledging the assignment.

Public companies disclose the same arrangement. Howard Hughes' 2025 annual report states that MUD receivables are pledged as security under the debt facilities for its Bridgeland community. The cost is flexibility: once the receivable is pledged, selling or refinancing it needs the lender's agreement.

Receivable loans and private credit

Specialty lenders now make loans secured by the reimbursement itself. In July 2026, ORIX USA announced a $22 million MUD receivables loan for Tellus Group's Meraki community in Forney, covering two of seven phases and 646 homes. Lenders in this space rarely publish pricing, so the terms are a negotiation, and the diligence centers on one question: how fast will taxable value support the next bond issue?

Selling the receivable

A sale converts the receivable to cash now and hands the timing risk to the buyer, at a discount. The clearest public numbers come from Howard Hughes:

• September 2024: it sold rights to $186.0 million of receivables plus $9.3 million of accrued interest, and $40.0 million of future receivables, for $176.7 million. $146.7 million of that was allocated to the existing receivables, and it recorded a $48.7 million loss.
• May 2025: $147.0 million of receivables plus $14.1 million of interest, and $95.9 million of future receivables, sold for $180.0 million. $112.8 million was allocated to the existing receivables, and the loss was $48.2 million.

By our arithmetic, the existing receivables sold for about 75 cents per dollar of principal and interest in 2024 and 70 cents in 2025. For a developer, the comparison is that discount against what the capital earns if it goes into the next phase instead.

Securitizations and conduit bonds

A newer route turns future reimbursements into bonds sold to municipal investors. A Wells Fargo presentation at a 2025 high-yield municipal conference counted 56 MUD receivable bond issues since 2020, totaling $2.96 billion, with a median size of $45 million. In these deals, the developer sells and assigns its reimbursement agreement to a conduit issuer, and investors are repaid from the MUD bonds as they sell.

The Texas Infrastructure Program, underwritten by Piper Sandler, closed its largest deal to date, $196 million, in March 2025. Its own materials quote all-in borrowing costs of 7% to 11%. Those are the program's figures, not a market survey.

The state has noticed the structure. The Attorney General's 2024 letter requires added safeguards when a developer assigns its rights to an out-of-state conduit issuer. The office asks whether the rights have been assigned, and district bond money cannot pay the conduit's issuance costs.

The 30% rule and how waivers change the math

The developer's 30% contribution is the largest single amount that never comes back, so a waiver changes the receivable materially. Under 30 TAC §293.47 it does not apply when:

• The district's debt is 10% or less of its assessed value
• Its bonds carry an underlying rating of Baa3 or BBB- or better
• The bonds are insured to a AA rating, with no premium paid from district funds
• The district has a qualifying revenue contract with a city or county

Fort Bend County MUD No. 233's Series 2024 bonds were sold only once the district had a credit-enhanced rating. One caution: if a waiver rests on estimated values that the final certified values do not support, the rules can require the developer to refund the difference with interest.

What to check before you finance or sell

• The reimbursement agreement: whether it can be assigned, and whether the district must consent
• The engineer's cost records, line by line, against the TCEQ's eligibility rules
• The build-out schedule behind the next bond issue, since every route is priced on it
• Your loan documents, which may already pledge the receivable
• Lot purchase contracts. When lots are sold to builders, state who keeps the reimbursement rights. The guide to selling lots to builders covers where that clause belongs.

Where a map fits

A MUD receivable is a map problem in disguise. Each bond series repays specific sections, and each section's taxable value comes from specific lots being built and sold. A lender or buyer underwriting the receivable is asking spatial questions: which sections are complete, which are selling, and which are still paper.

An interactive plat map built from the recorded plat can shade each section by its bond series and show every lot's status beside it. The land developer view puts all of it on one page, so the build-out behind the next issue is visible without a site visit.

The Bottom Line

A MUD receivable is money owed but not yet money. It is paid in series, only for eligible costs, and only as fast as homes add value. The developer chooses who carries that timing: itself, its lender, a private credit fund, a buyer at 70 to 75 cents, or bond investors.

Model it net of the 30% share, the disallowed costs and the interest limits. Then price every financing route against the build-out schedule, because that schedule is what every lender and buyer will underwrite.