Virginia Splits $167M as Negotiated and Competitive

bb101111va.jpg

BRADENTON, Fla. — Gilt-edged Virginia is poised to sell $167 million of state general obligation bonds, split for the first time between the negotiated and competitive calendars in a two-way sale that should tap the most retail investors and some of the lowest rates.

The state prices $87.93 million of Series A GO bonds Wednesday in a negotiated sale aimed at making them available to in-state retail investors. The state on Thursday will then competitively price $78.98 million of Series B GOs, plus any bonds that were not sold on Wednesday.

Proceeds will be used for dormitory projects at six colleges and universities. Dormitory fees will secure the bonds, which will have a back-up pledge from the state in the event that fees are insufficient to make debt-service payments.

A few issuers, such as Delaware, Maryland and locally, Arlington County, have already used the negotiated and competitive sale structure to target investors. Virginia is following suit to get bonds into the hands of the commonwealth’s retail investors, who are an important to the state’s investor base, according to Evelyn Whitley, the director of debt management.

“So often we tend to sell our bonds in Virginia through the competitive bidding process, which offers very favorable terms but often gets placed with institutional investors,” Whitley said. “And we do have investors who are frustrated. This process is an effort to put some bonds out there for our Virginia investors.”

Gov. Bob McDonnell got out in front of the sale last week and touted the new approach to selling the state’s triple-A rated bonds. “Particularly in these tough economic times it is important to provide our citizens with an opportunity to invest in safe and secure Virginia general obligation bonds,” he said.

The transaction is sized according to the amount underwriters believed they could reasonably sell to retail, Whitley said.

“This isn’t the best retail environment because rates are so low and investors might be put off by absolute low yields,” she said. “We arrived at the number we thought we might be able to sell to retail, and to the extent those bonds are not sold, they will rolled into the competitive offering.”

The $87.93 million of Series A bonds for retail will have serial maturities from 2012 to 2023, and a $10.89 million maturity in 2031. The $78.98 million of Series B bonds selling competitively will have serial maturities from 2024 to 2036.

Fitch Ratings and Standard & Poor’s assigned ratings of AAA to the GO bonds. Both have a stable outlook on the state’s debt, and affirmed their AAA ratings on $1.7 billion of outstanding GOs.

Moody’s Investors Service assigned a Aaa to the bonds. The agency places a negative outlook on Virginia due to its indirect links to the weakened credit profile of the United States.

“In the coming weeks, we will assess the commonwealth’s degree of vulnerability to sovereign risk in terms of its reliance on capital markets, dependence on federal revenues, sensitivity to macroeconomic cycles, and available financial resources to offset risks related to the U.S. government, in order to determine whether to maintain the negative outlook,” said Moody’s analyst Lisa Heller.

Public Resources Advisory Group is financial advisor and Morgan Keegan & Co. is book-runner. Other firms on the sale are Citi, Fidelity Capital Markets, Bank of America Merrill Lynch, Siebert Brandford Shank & Co., and Wells Fargo Bank NA. Troutman Sanders LLP is bond counsel and Christian & Barton LLP is underwriters’ counsel.

For reprint and licensing requests for this article, click here.
Virginia
MORE FROM BOND BUYER