CHICAGO - Ohio yesterday completed a negotiated $240 million sale of new-money general obligation infrastructure bonds, selling nearly $180 million of it to retail investors on Tuesday before offering it to institutional buyers yesterday.
Ohio originally planned to sell the bonds - rated in the high double-A category - on Sept. 16, but delayed the issue amid intense market turmoil that prompted nearly all issuers to postpone their deals in recent weeks. Earlier this week, even as new-money issuance remained significantly diminished, the state's finance team felt the market was firmer and decided to open a one-day retail order period Tuesday.
"We had been day-to-day for a bit, and we felt [the market] was getting a little bit stronger, and that we had enough retail business to get a good portion sold," said state debt manager Kurt Kauffman. Citi was the book-runner on the transaction, with Wachovia Bank NA as co-senior manager.
Of the $240 million sale, retail investors bought around $180 million - more than double the amount of retail interest the state typically attracts, Kauffman said.
Ohio's retail results echoed Kentucky's experience in the market Tuesday. The Kentucky State Property and Buildings Commission priced $375 million of bonds, increasing the deal by more than $100 million after the retail pricing period began and generating more than $130 million of retail orders.
"The retail buyer segment has been the strongest segment for the municipal market," Kauffman said. "The $180 million is two to three times what we would normally get."
The state captured a true interest cost in the 5.25% range on the bonds purchased during the retail order period, according to Kauffman. During the institutional pricing yesterday, yields ranged from 3% with a 3% coupon on the short end in 2010 to 5.5% with a 5.375% coupon on a 2028 maturity.
The state had also planned to sell roughly $60 million in current refunding bonds, but the team held the transaction, as the state's net present savings target of 3% could not be met in the current market.
The bond sale was part of Gov. Ted Strickland's $1.57 billion economic stimulus plan, and proceeds will finance a number of road, bridge and sewer projects across the state.
Meanwhile, Ohio remains on track to sell $375 million in grant anticipation revenue vehicle bonds early next week, said Jake Wozniak, director of debt management in the Ohio treasurer's office.
The $375 million is the state's largest Garvee deal so far, and comes as Ohio is accelerating construction projects in the midst of rising construction costs, said Wozniak.
The state put together a large selling syndicate in hopes of attracting strong retail interest, with Morgan Stanley as senior manager. "We think this particular market is going to generate some strong retail demand, which we like to see," Wozniak said.
Richard Cordray, the current state treasurer who is running for attorney general in November, has spent the last few years promoting increased retail investment in Ohio's debt with the goal of achieving lower interest rates and building a large network of local investors.
The Garvee bonds are secured by the state's share of payments under the Title 23 federal aid highway program. Some issuers have recently postponed their Garvee deals as the federal government in mid-September said it would have to begin rationing reimbursements to states on an as-available basis unless Congress takes action to replenish the fund late next year. Ohio is confident that an ailing highway fund is unlikely to impact its Garvee bonds, in part because of its strong debt service coverage of more than five times.
Standard & Poor's assigned an AA rating to the bonds, basing its rating partly on the state Department of Transportation's pledge to replace any shortfalls in pledged federal highway receipts with available funds. Moody's Investors Service assigned an Aa2 rating and Fitch Ratings AA-minus.
