New Mexico Looks for Opening to Issue $500M of Notes

DALLAS - Amid an unprecedented credit freeze, New Mexico is adjusting to the declining fortunes of its finance partners and scouting for a market opening to issue $500 million of notes to cover government operations over the coming year.

The $500 million tax revenue anticipation notes, originally scheduled for competitive sale Sept. 23, were pulled off the calendar the day before due to market conditions, said financial adviser David Paul of Fiscal Strategies. It was the second postponement for the issue originally scheduled in July.

"We're going to wait until the short end of the market comes down," Paul said.

New Mexico typically issues two Tran deals a year to cover government operating costs amid uneven revenue flows. But this year, the postponed deal will probably be combined with the second planned issue. Paul said the state hopes to issue the combined deal before the usual date in December.

The inability to issue the Trans has not hurt the state's ability to meet its obligations, according to Paul. "They have enough liquidity to take care of their needs," he said.

New Mexico is also reckoning with the Lehman Brothers bankruptcy that has affected bond financing for part of its $1.6 billion transportation construction program.

Lehman Brothers Derivative Products was replaced as a swap partner by Germany's Deutsche Bank this week. The substitution brings a slightly higher interest rate on $50 million in bonds that expire in 2024, and will cost the New Mexico Department of Transportation about $78,000 in higher yearly debt service payments, officials said.

The State Board of Finance approved the new financial arrangement Monday.

The New Mexico Finance Authority issues bonds and provides bond management services for Gov. Bill Richardson's highway construction program, dubbed GRIP, or Gov. Richardson's Investment Partnership.

The NMFA also got some good news recently when it learned that Fitch Ratings had taken its AA-minus rating on $381 million of subordinate-lien public project revolving fund revenue bonds from its negative watch list.

The PPRF bonds return to a stable outlook reflects the fact that the state has shown that it can service the debt comfortably without the $35.7 million debt-service reserve fund surety bonds from MBIA Insurance Corp. and Ambac Assurance Corp., analysts said.

The $381 million was part of $623 million in outstanding debt for the revolving fund that is rated AA-minus, which was affirmed last week by Fitch.

"The ratings on the NMFA's PPRF bonds are based on the authority's continuing record of conservative loan underwriting criteria, the stability and strong coverage of loan repayment and governmental gross receipts tax revenue securing the bonds, the diversification of the loan portfolios, and the sound management of PPRF loan programs," analysts wrote in a report removing the authority from the watch list.

The NMFA recently had to postpone a $24 million senior lien revenue bond issue under the PPRF program because of market conditions. When conditions allow the state to issue the debt, the size of the deal will increase to $36 million, said financial adviser Chip Pierce of Western Financial Group.

The authority's senior-lien PPRF debt carries ratings of AA-plus from Standard & Poor's, Aa2 from Moody's Investors Service, and AA from Fitch. The ratings negate the need for insurance, Pierce said.

"They're in a very fortunate position of having very strong ratings and having the liquidity to ride something like this out," he said.

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