School Authority Plans Over $1 Billion In Alabama’s Biggest State Agency Deal

BRADENTON, Fla. — The largest debt sale ever by a state agency in Alabama — more than $1 billion of revenue bonds — earned ratings of Aa2 from Moody’s Investors Service and AA from Standard & Poor’s last week. The Alabama Public School and College Authority expects to take bids for the entire $1.07 billion of Series 2007 capital improvement bonds via Ipreo’s Parity system on Dec. 5.The deal represents the bond market’s largest competitively sold, tax-exempt new-money offering of the year so far. The largest competitive deal to date was California’s sale of $1.132 billion on Feb. 14, but $132 million of that was a refunding.The Alabama transaction is expected to be structured with serial maturities up to 20 years. The limited obligation revenue bonds will be secured by utility, sales, and use taxes. Proceeds of the bonds will provide funds for construction and repairs to city and county K-12 school systems, as well as public two- and four-year colleges.Insurance will be at the option of bidders. “We think the market should look favorably on Alabama’s paper since it’s a high-quality credit,” said Phil Dotts, president of Public FA Inc., the authority’s financial adviser. “The state’s not a frequent issuer so we’re looking for a positive reception.”Rating agency analysts said the deal has good debt service coverage and that the education trust fund, as well as the bonds, are supported by growing revenues although growth is at a slower pace than in previous years.“Alabama’s status as a low-debt state, a positive credit feature, will be reduced by the current issue as well the state’s $305 million GO bond offering in July,” said Moody’s analyst Ted Hampton. “Nevertheless, Moody’s expects the state’s debt burden to remain manageable.”According to Moody’s state debt medians, Alabama ranks 37th in debt per capita and 32d in debt as a share of personal income.“The outlook for the state of Alabama is stable based on expectations it will continue to exercise conservative financial management, conforming with its statutory and constitutional requirements,” Hampton said.While rating the upcoming sale, Moody’s affirmed the state’s Aa2 GO rating and the Aa2 rating on the authority’s $1.32 billion of outstanding bonds.While giving the upcoming transaction a AA rating, Standard & Poor’s analyst Sussan Corson said that rating is mitigated by the fact there is no debt service reserve fund. Corson said the rating has a stable outlook that reflects continued growth of pledged revenue streams, the expectation that strong maximum annual debt service coverage by pledged revenues will continue, and that officials will structure planned future debt to maintain good debt service coverage. Standard & Poor’s also rates the state GOs AA.The upcoming sale represents the entire authorization for education-related capital bonds approved earlier this year by Alabama lawmakers in HB 21, which Gov. Bob Riley signed into law in June.Under a formula prescribed in the bill, K-12 schools will receive $658.6 million of the bond proceeds. Higher education will receive $226.4 million. The remaining allocation will be earmarked for training and education-related services, including $20 million for workforce development training, $14 million for youth services, $11 million for forensic sciences at two universities, $24.5 million for state trooper and corrections officers’ training facilities, and $55 million for the Alabama school and college education incentive fund.Bond counsel for the authority’s deal is Bradley Arant Rose & White LLP. Hand Arendall LLC and Bell & Adams PC are co-disclosure counsel. Fitch Ratings was not asked to rate the bonds.