CHICAGO — Top-rated Missouri will take competitive bids Tuesday on its long-planned $164 million general obligation refunding that will achieve double-digit savings and provide some budgetary relief.
The bonds are being sold through the Missouri Board of Fund Commissioners in two series, one for $63.5 million of state water pollution control GOs and another for $100 million of fourth state building GOs. Columbia Capital Management is advisor on the sale and Gilmore & Bell PC is bond counsel with Fields & Brown LLC serving as co-bond counsel.
The deal wraps up the state’s two-pronged refunding plans that were included in Gov. Jay Nixon’s $24 billion fiscal 2013 budget. While rating agencies frown on one-time maneuvers such as debt restructuring that pushes off near-term debt maturities as a sign of fiscal stress, Missouri’s restructurings have been modest, incorporated traditional present-value savings, and, in some cases, shortened the original maturity schedule. Those factors have helped avoid negative commentaries. The state also did not draw on its reserves during the recession.
Ahead of the sale all three credit rating agencies affirmed the state’s triple-A ratings.
The sale will achieve about 13% in PV savings with $23 million being taken in fiscal 2013, about $11 million to $12 million in the final three years of the bonds in 2020, 2021 and 2022, and smaller amounts in between, accordin to Stacy Neal, director of accounting in the state’s office of administration.
Missouri is highlighting its status as a rare issuer offering high-grade paper. “This is our fifth refunding in the last two years but we have not had a new-money issue since 2007,” Neal said. The state Legislature did not approve any new borrowing this year.
The state last month sold $285 million of revenue refunding bonds that exceeded the state’s expected savings level. The sale saw 14.4% in PV savings generating $43.6 million. The state took $20.3 million of the savings for the current budget and another $14.5 million in fiscal 2014 with the remainder being taken over the remaining term of the bonds. “Our market timing has been very lucky,” Neal added.
Standard & Poor’s in its review cited as credit strengths the state’s strong reserves, moderate debt burden, and quick action to cut spending amid a sluggish recoverys. “In our view, Missouri has a strong and diverse economic base and good financial management,” S&P analyst Henry Henderson added. Challenges include the potential for significant reductions in federal funding that currently flows to the state.
The state’s recovery lags that of the nation but the governor’s ability to cut spending in response to revenue shortfalls is a plus, Moody’s Investors Service said. State reserves also provide a strong liquidity cushion. An ongoing challenge remains its limited ability to raise revenues and a requirement that revenue in excess of personal income growth be rebated to taxpayers under the Hancock Amendment, Moody’s said.
“The state has a long record of maintaining fiscal balance through spending restraint. The budget must be balanced, and the governor has strong constitutional authority to withhold funds as needed,” Fitch Ratings said. “Additional financial flexibility is provided by a budget reserve fund equal to 7.5% of net general revenues”
Missouri reported net general revenues of $7.34 billion during the last fiscal year. That was up 3.2% from the year before. The state closed out the last fiscal year with a cash balance $205 million.
The state has $4.4 billion of tax-supported debt but only 10% is backed by its full-faith-and-credit pledge. About 70% of state-related debt was issued through the highway commission and is repaid with transportation revenue. As of June 30, 2011, the state’s largest pension system was 79.2% funded and it regularly makes its actuarially required contribution.
