Rhode Island plans to market part of a $350 million tax anticipation note deal directly to residents and small businesses today at certain branches of Bank of America NA. The Tans will mature in eight months and will be sold in denominations of $1,000, instead of the typical $10,000 that Rhode Island sold last year.
Rhode Island Treasurer Frank Caprio has tried to do a balancing act, on the one hand trying to convince state residents to help the government without spooking investors so soon after a downgrade by Fitch Ratings.
"Because of the competitive interest rates that municipal bonds are offering investors today and because Rhode Islanders will be paying the bill for this through their taxes, I wanted to expand the universe of interested individuals on the retail level," Caprio said. "I wanted it to be done in a user-friendly fashion."
Speaking to the Providence Journal on Thursday, however, Caprio painted a picture of a state in crisis, calling on its citizens to help as it would during a natural disaster. "This is one [event] where Rhode Islanders can step up and assist the state at this time," he said.
On Friday, Caprio downplayed those remarks, but said the economic situation was serious.
"When you look at the equity markets, we've had a negative move that is comparable to what happened in the '20s," Caprio said. "But Rhode Island and America will get through this and prosperity will return."
Last year the state sold $220 million of Tans. It sold $120 million in 2006. Though today's sale is larger than those two, Caprio said that the deal is not as large on a percentage basis as its Tan issues were when the state was having troubles in the early 1990s.
Caprio said he expects the notes to sell at a yield of about 3%.
Fitch downgraded Rhode Island's GO to AA-minus with stable outlook two weeks ago. Fitch rates the Tans F1-plus.
"They are experiencing some real financial strain," said Fitch senior director Laura Porter. "They've been hit really hard on housing."
The state also has the highest unemployment rate in the country at 8.8%.
A Fitch ratings report recognized as positives the state's "history of making budgetary modifications when necessary, and the state's flexibility to tap alternative internal liquidity sources and employ cash management strategies if needed."
Moody's Investors Service assigns the state its Aa3 rating with negative outlook and Standard & Poor's assigns its AA ratings.
Tom Doe, chief executive officer of Municipal Market Advisors, said in an e-mail that Rhode Island's move says "that innovative strategies are required to build a demand base to gain attractive access to the capital markets. I also believe that broad retail distribution of bonds will familiarize voters with municipal securities that could facilitate favorable results for future bond referenda."
Jim Lebenthal, who made a name selling bonds to small investors, was skeptical of the deal when told of it.
"This is the wrong time to be going to Ma and Pa Kettle to let them in on a good thing," Lebenthal said. "I was a tremendous booster of these mini bonds in good times - never as an act of desperation."
