Waterbury, Conn., will continue its seven-year absence from new-money bond issuance after officials last week held off on pricing $320 million of taxable pension bonds that would have helped address the city's $460 million unfunded pension liability.
William Blair & Co. was set to price the transaction Wednesday or Thursday, yet the Treasury market showed losses on both days, with yields on the benchmark 10-year Treasury note finishing at 4.01% and 4.08% on Wednesday and Thursday, respectively.
From May 22 to May 29, 10-year Treasury note yields increased 29 basis points to 4.09% from 3.80%. Over the same period, the two-year Treasury went to 2.70% from 2.41%.
Waterbury wasn't the only issuer that postponed a sale. Florida's Citizens Property InsuranceCorp. held off on pricing $1.5 billion of debt, which would have been last week's largest bond deal.
Waterbury's director of finance, John Jedrzejczyk, said officials are not sure when the city will return to the market with pension bonds.
"We deferred it for now," he said. "It was very weak last week when we were in the market and we saw our savings go up and down from the morning to the afternoon, and the administration decided to defer the sale at this point."
In response to the change in plan, Fitch Ratings on Monday withdrew its BBB-plus underlying rating on the deal. Moody's Investors Service and Standard & Poor's rate the transaction Baa1 and BBB-plus, respectively.
Webster Bank is the financial adviser and Shipman & Goodwin LLP is bond counsel on the postponed transaction. Assured Guaranty Corp. was set to provide insurance.
Waterbury had planned to use the bond proceeds to help fill a $460 million unfunded pension liability and boost the system's funding ratio to 70% from 11.5%. Officials calculated that borrowing to address the pension liability would save residents more than $100 million over the life of the 30-year bonds. Yet Jedrzejczyk said the city crafted the fiscal 2009 budget, which begins July 1, without taking into account the anticipated savings from the POBs.
"We've already adopted a budget for next fiscal year and that never factored in the issuance of a POB," he said.
The deferred sale would have been Waterbury's first new-money bond issuance since 2001. The city at that time sold $97 million of deficit bonds to help address budgetary shortfalls. Waterbury has since issued the occasional refunding and a $10 million new-money note sale in September.
Waterbury's fiscal health has improved in recent years. It can boast of six consecutive operating surpluses and a projected $1 million surplus for the current fiscal year, which ends June 30. While the pension bond sale is in limbo, officials do expect to sell $10 million of short-term debt in September and another $60 million of bonds and notes in September 2009.
In addition to the $460 million pension deficit, Waterbury has a $604 million unfunded liability in other post-employment benefits. The city has approximately $162 million of outstanding debt, including the $97 million deficit bonds and $66 million of sewer bonds, according to Jedrzejczyk.
Waterbury is in southern Connecticut and has an estimated 2006 population of 107,251, according to U.S. Census data.
