Connecticut $400M GO Sale Affected by Storm

Connecticut is among the issuers affected by Hurricane Sandy

The Constitution State was scheduled to go to market this week with a negotiated $400 million general obligation bond sale.

Pricing was scheduled for Tuesday, with closing Nov. 8. With bond markets closed Tuesday because of the storm, the office of state Treasurer Denise Nappier did not immediately announce rescheduling plans.

Morgan Stanley is lead manager for the sale of $220 million in taxable Series B bonds and $180 million in tax-exempt Series G bonds. Series B will mature from 2014 to 2022, with Series G to mature from 2013 to 2032. The state’s full faith and credit is backing the bonds.

Moody’s Investors Service rates the bonds Aa3, while Standard & Poor’s, Fitch Ratings and Kroll Bond Rating Agency assign AA ratings.

According to Fitch, which released a report Monday, key rating drivers were high wealth levels, conservative forecasting that offsets spending pressure, a slow recovery that delays fiscal improvement, high debt and significant pension obligations. “Tax-supported debt is high for a U.S. state,” said Fitch. “Most GO bonds, excluding GO bonds issued to fund the teachers’ retirement system, amortize rapidly.”

Fitch called pension funding levels in Connecticut a major concern. As of June 30, the state employees’ retirement system, or SERS, was funded at 42.3%, and the teachers retirement fund, or TRF, was funded at 55.2%. The 2008 issuance of pension bonds benefited the latter.

Fitch said its more conservative 7% investment return assumption, instead of the 8% rate assumed by SERS, and the 8.5% rate assumed by TRF,) reduces funding levels to 38.1% and 47.4%, respectively. The investment return assumption of SERS was lowered to 8% as of its 2012 valuation, from 8.25%, according to Fitch.

The rating agency praised Connecticut officials for passing a fiscal 2012-13 biennial fiscal 2013 budget with less reliance on stop-gap measures. Gov. Dannel Malloy is expected to release the state’s executive budget for fiscal 2014-15 in February.

Moody’s in January lowered Connecticut to Aa3 from Aa2, citing debt and pension costs. The move angered Nappier and other state officials. Kroll, which entered the municipal marketplace this year, rated Connecticut AA in its first state report, in March. Kroll was expected to release a new report on Monday, though the storm may have affected those plans.

Day Pitney LLP is lead bond counsel and lead disclosure counsel. Wiggin and Dana LLP and Hardwick Law Firm are co-underwriters counsel. Fixon Dinn & Herling LLP and Soeder & Associates LLC are co-disclosure counsel. Robinson & Cole LLP is lead tax counsel.

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