Connecticut next week will sell $534.7 million of general obligation bonds, with about one-third of the proceeds being used for a refunding. Institutional pricing will take place on Wednesday, with a two-day retail order period on Monday and Tuesday.Siebert Brandford Shank & Co. LLC is the lead underwriter, and M.R. Beal & Co., Raymond James & Associates Inc., RBC Capital Markets, and UBS Securities LLC are co-senior managers.Day Pitney LLP is the lead disclosure counsel. Levy & Droney PC, Lewis & Munday, Nixon Peabody LLP, Pullman & Comley LLC, Robinson & Cole LLP, and Shipman & Goodwin LLP are bond counsel. P.G. Corbin & Co. and Acacia Financial Group Inc. are co-financial advisers for the deal.Of the $535 million, $188.7 million of the proceeds will be used for a current refunding of bonds issued in 1997 and 1998, the Treasurer’s Office said. Officials said they have been planning the refunding to refund the 1997 and 1998 bonds within 90 days of their call dates.Connecticut’s refunding will target a 3% net present-value savings, according to the Treasurer’s Office.“The rates are low and that helps,” said Siebert Brandford Shank managing director Sherman Swanson.The new-money portion will be used for a variety of state building projects and the state’s clean water fund program, according to the Treasurer’s Office. About $46 million of the bonds are taxable.
The bonds will not be insured, as Connecticut does not normally insure its GO deals, the Treasurer’s Office said. Fitch Ratings has affirmed its AA rating of the state’s GOs. Moody’s Investors Service currently rates the debt Aa3, and Standard & Poor’s gives it a AA, though both are currently reviewing their ratings.“There’s a lot of in-state demand for Connecticut paper,” Swanson said. The quality of the state GO is solid, he said, adding: “it has always got a good retail reception.”“Connecticut is the wealthiest state in the U.S. measured by personal income per capita, and it has very much held that position,” Fitch director Douglas Offerman said. “The economy has been quite steady there.”Connecticut has also built up its rainy-day fund to about $1.4 billion, according to Moody’s senior vice president Nicole Johnson. Still, Connecticut has a “large negative unreserved, undesignated general fund balance that offsets, to some extent, the large positive rainy-day fund,” she said. “Overall, it makes their combined reserves less than we see in some other states.” The negative balance of the unreserved, undesignated general fund is about $1 billion, Johnson said.Still, both Connecticut’s Office of Policy and Management and Comptroller Nancy Wyman have projected surpluses for fiscal 2008. The OPM has projected an $88 million surplus, while she estimated in early November a $100 million surplus. Wyman’s estimates show a higher income tax projection than the OPM’s.What’s significant is that when Connecticut “adopted the [fiscal 2008] budget, they were looking at basically no surplus,” Johnson said. Offerman noted that job growth has held up in Connecticut, while it has softened in many other states.Still, he said that Connecticut is a high-debt state, and that debt burden will likely increase in the relatively near future because of recent authorizations for pension obligation bonds.“They issue a lot of debt, their needs are high, but they pay off that debt relatively quickly,” Offerman said.This summer, legislation was passed and signed into law by Gov. M. Jodi Rell allowing the state to issue up to $2 billion of POBs to help close a $6.9 billion shortfall in the teachers’ retirement fund.Standard & Poor’s director Karl Jacob said that his agency pays close attention to how Connecticut will invest the proceeds of a pension borrowing and whether they borrow the amount all at once or over time. While the Treasurer’s Office has yet to give details about the deal, they said it potentially will happen in fiscal 2008, though it does need approval of the State Bond Commission.
