Rhode Island Agency Readies $72 Million for Institutions

Institutional pricing begins today on the Rhode Island Convention Center Authority's $72 million of tax-exempt refunding bonds and $500,000 of taxable refunding bonds, following a one-day retail order period yesterday.

The deal refunds bonds issued in 2001 as variable-rate demand bonds with MBIA Insurance Corp. insurance and a liquidity provided by Dexia Credit Local, and have been resetting at higher rates.

"It was terrible," said James McCarvill, executive director of the authority. "Because of the variable-rate bonds with the MBIA insurance not really being marketable - I mean, they're out there but they're not being sold - we feel like this was the best course of action so we could get into a fixed-rate environment and not have to deal with the resets."

The latest reset on those bonds was 6.5%, according to Bloomberg LP.

The outstanding bonds were partially secured by sureties provided by Ambac Assurance Corp. However, the bond resolution requires that a surety have at least one triple-A rating, which Ambac no longer has. Financial Security Assurance will provide a surety to meet that requirement on the new bonds, according to the preliminary official statement.

The refunding will also terminate a swap with UBS AG, forcing the issuer to pay a swap termination payment. McCarvill said he did not know how much the swap termination payment would be.

Merrill Lynch & Co. is lead managing the bonds, which are being issued as serial and terms bonds with various maturities out to 2027, according to the POS. The refunding bonds will be insured by Assured Guaranty and will be callable in 2019.

Partridge Snow & Hahn LLP is bond counsel and First Southwest is financial adviser. The bonds are backed by lease rental payments made by the state that are subject to appropriation.

Yesterday Standard & Poor's revised its outlook for Rhode Island's general obligation and appropriation debt to negative from stable, citing "continued significant pressures on state finances despite substantial ongoing actions to balance the budget and the availability of federal stimulus funding."

The rating agency assigns its AA rating to the state and AA-minus to the convention center bonds.

"Additional economic deterioration beyond the state's current projections could further reduce economically sensitive revenues and make structural budget balance more challenging," the ratings report said.

Standard & Poor's move followed a Fitch Ratings outlook revision on the state last week to negative while affirming its AA-minus rating. Fitch rates the bonds A-plus with a negative outlook, based on "the credit quality of the state."

Moody's Investors Service assigns the bonds its A1 with a negative outlook and the state's $997 million of outstanding GOs Aa3 with a negative outlook.

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