CHICAGO — Wisconsin will competitively sell $430 million of 20-year general obligation bonds Thursday to fund bricks-and-mortar capital projects in the new administration’s first debt issuance, according to capital finance director Frank Hoadley.
Rating agencies have not yet issued new reports. Fitch Ratings, Standard & Poor’s, and Moody’s Investors Service last affirmed their mid-double-A ratings on the state’s $6.8 billion of GOs over the summer. Foley & Lardner LLP is bond counsel on the deal.
Wisconsin officials had initially anticipated offering the debt before the end of 2010 to tap the Build America Bond program, but opted to put it off as the market struggled to absorb the volume offered by issuers seeking to use the program before its expiration.
“The market was getting pretty sloppy and we didn’t need the money that critically,” Hoadley said. “On a price basis, BABs were not looking as good so we figured we could do better by waiting.”
The state used the BAB program on seven issues totaling $1.1 billion under its GO, water revenue, and transportation revenue credits for an estimated savings of $121 million over traditional tax-exempt issuance.
It stuck with a structure that included a mix of tax-exempt and taxable BABs, with the division landing on the yield curve where taxables became more beneficial towards the longer end.
The state used a traditional municipal 10-year call feature on all the deals instead of the make-whole call taxable buyers favored.
Hoadley said he was pleased with the savings but remained neutral on extending the BAB program beyond 2010.
“While it was providing a financial benefit, there were a number of concerns raised by issuers and policy-makers,” he said.
Those worries centered on stepped-up scrutiny by the Internal Revenue Service, concerns about possible federal offsets of the federal interest subsidy, and concerns the program could be pushed as a long-term replacement to the tax-exempt market.
The deal marks the first in a series of new-money financings and possible refundings slated for 2011. Wisconsin has authority from its State Building Commission to issue up to $571 million of refunding GOs.
A $184 million issuance has been on hold awaiting improved market rates. A $54 million sale to current-refund GO bonds maturing in May is planned in the first quarter.
The state issued $800 million of operating notes in July that mature in June, but no decision has been made on whether to issue notes for cash-flow purposes in the next fiscal year.
Investment bankers have offered the state financing ideas for repaying its $1.4 billion in loans from the federal government for unemployment insurance. More than 30 states have borrowed $41 billion from the government and must begin paying insurance this year.
By repaying the loans through a bond financing, Wisconsin would increase its flexibility in how the costs are passed along to employers.
Its remains unclear what role debt management might play in helping freshman Gov. Scott Walker eliminate an estimated $3.3 billion deficit in the fiscal 2012-13 budget to be unveiled next month.
Walker, who took office Monday, will deliver his state of the state speech Jan. 25.
Included in the deficit is $200 million owed to a medical malpractice fund account that must be repaid following a Wisconsin Supreme Court ruling overturning the state’s use of the funds.
The $61.8 billion budget for fiscal 2010-11, signed into law last year by former Gov. Jim Doyle relied on the restructuring of $285 million of debt along with a mix of federal stimulus funds, spending cuts, and tax and fee increases to wipe out a $6.6 billion deficit.
“We have gone through a transition period and have a new administration,” Hoadley said. “They are getting settled in and getting their agenda set up, so it’s too early to talk about the shape of the budget.”
Wisconsin’s credit strengths include its diverse economy and moderate debt levels.
Its weaknesses include an ongoing structural budget imbalance, weak reserve levels, and the impact of the economic slowdown on revenue collections.
The latest projections anticipate revenue growth of 4.7% in fiscal 2012 and 3.3% in fiscal 2013.
