DALLAS - After calling off a $430 million competitive sale of general obligation bonds amid market turmoil last October, triple-A rated Utah is taking the negotiated route, starting with a retail order period today.
"We never have had a retail order period, so this is a new venture for us," said state Treasurer Richard Ellis. "But retail tends to be such a huge component of the market these days that we decided to offer it."
If any of the bonds are left on Tuesday, they will be offered to institutional investors, he said.
The underwriting team on today's issue is led by Morgan Stanley, with Merrill Lynch & Co., Goldman, Sachs & Co, Wells Fargo Brokerage Services, and George K. Baum & Co. as co-managers. Zions Bank serves as financial adviser.
The underwriting team was chosen from proposals submitted in November after the aborted competitive sale, Ellis said.
As a top-rated credit, Utah is likely to see strong appetite for its paper, especially given tax-exempt muni yields relative to taxable treasuries, market observers said. Utah joins other triple-rated states that have gone negotiated recently, including Georgia and Maryland, which this week also is taking retail orders for a GO bond sale.
Ellis said he will be watching with interest how Utah residents respond to the offering given little history of retail offerings. The treasurer said he can't predict how much of the bonds will go to Utah buyers seeking shelter from state and federal income taxes.
"Utah is not unlike a lot of other states where you may not have a lot of high net-worth individuals," he said. "So we're kind of interested in what kind of demand we get. Of course, what qualifies as 'retail' these days seems to be changing."
Despite a slowing economy, Utah's conservative management practices allow the state to maintain a stable outlook, analysts said. An ambitious $3.8 billion transportation program spanning a decade represents a departure from past practices, they noted.
Under the program, the state is issuing 15-year GO debt for transportation instead of the seven-year maturities of the past. The state also relied heavily on pay-as-you-go to finance transportation.
The pay-go funding drops from $792 million in fiscal year 2008 to $100 million in fiscal 2010.
All but about $30 million of today's issue will go toward priority highway projects, Ellis said.
The serial bonds reach final maturity in 2023. Call dates remain to be set.
"Due to the state's strong growth and limited debt issuance, net tax-supported debt of approximately $1.7 billion remains at the low end of the moderate range, by equaling just 2.1% of 2007 personal income," according to Fitch Ratings analysts. "Principal amortization including lease revenue bonds remains rapid, with 86% maturing in 10 years. Pensions are well-funded."
Utah lawmakers, whose current session ends in March, continue to look for ways to cut spending as revenues fall. The current budget of $11.5 million is $500 million lower than the 2008 spending plan. Using bond debt in the place of pay-go has eased some of the fiscal strain.
Despite employment contractions that are much less severe than the national average, Utah is suffering from the declining economy in general.
"The concert of factors that fueled Utah's economic expansion in the mid-2000s - population growth, low interest rates, a strong national economy, and relatively high levels of defense spending - is gradually fraying," Standard & Poor's analysts wrote in confirming their AAA rating. "While some of these factors remain in place, others, such as the conditions of the national economy, contributed to a perceived plateau in the state's economic growth."
