CHICAGO — Ohio plans to begin taking retail orders Tuesday on $230 million of double-A rated Garvee bonds and opening the sale to institutional buyers Wednesday.
The issuance represents the second time this year the state has sold Garvees, or grant anticipation revenue vehicle bonds. The last deal, which priced May 25, saw a true interest cost of 2.55% to the state.
The timing is being dictated partly by the Ohio Department of Transportation’s capital needs and partly by a desire to take advantage of the taxable Build America Bond program before its scheduled expiration on Dec. 31, 2010.
The debt is tentatively divided into a tax-exempt and a BAB series. But officials said they will monitor the market until the last minute to decide which structure offers the lowest financing cost.
“If we were to have priced it last week, it would have been an almost all-BAB structure,” Jake Wozniak, director of the office of debt management in the state treasurer’s office, said in an interview Friday. “If it priced today, it would be almost all tax-exempts. We will continue to evaluate it until Monday evening.”
All the bonds mature in 10 years.
Moody’s Investors Service rated the bonds Aa1, Standard & Poor’s rated them AA, and Fitch Ratings assigned a AA-minus. All three agencies maintain stable outlooks on the credit.
Goldman, Sachs & Co. is senior manager. Seven additional firms round out the underwriting team. Public Financial Management Inc. is financial adviser. Roetzel & Andress LPA and Lumpkin McCrary LLP are co-bond counsel.
Garvees are secured by Federal Highway Administration reimbursements to the Ohio Department of Transportation. As with all Garvee sales, the key risk to investors is the uncertainty of federal grant reauthorization. Congress has in the past delayed reauthorizations of transportation legislation, credit analysts noted.
Falling gasoline tax revenue and shifting national priorities further contribute to the risk. Still, the Federal Aid Highway Program remains a popular program with broad support.
The previous program, SAFETEA-LU — Safe, Accountable, Flexible, Efficient Transportation Equity Act: a Legacy for Users — expired last September. It has been extended through the end of 2010 by a series of short-term reauthorizations.
Ohio tries to mitigate political risk with the 10-year final maturities, which covers two reauthorization periods.
Wozniak said the state is promoting the issue as debt with a strong history. The transactions will mark the state’s 12th and 13th Garvee bond issues since 1998. Maximum annual debt-service coverage totals more than 7 times in 2010.
ODOT also has a program that allows unspent project money to be tapped to pay for debt service.
Ohio’s Garvee program requires the department to set aside debt-service payments a year in advance. The program also prohibits ODOT from using any federal highway aid until it has set aside payments for its Garvees.
After this week’s sale, the state will have $936 million of outstanding Garvee bonds.
Proceeds will be used for 20 construction projects across 11 counties over the next 14 months.
It will be Ohio’s last Garvee sale under outgoing Treasurer Kevin Boyce. The Democrat lost to Republican state Rep. Josh Mandel in the Nov. 2 election.
It is uncertain whether the new treasurer plans to issue requests for qualifications to assemble new finance teams and a spokesman said the department would not comment on the new administration’s plans.
