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Tennessee to Competitively Sell $170.5 Million of Bonds Wednesday

BRADENTON, Fla. — Tennessee expects to sell one of the largest competitive deals this week with $140 million of tax-exempt general obligation bonds and $30.5 million of taxable refunding GOs backed by the state's full faith and credit.

This is the state's first competitive offering since 2010, and for investors seeking high-quality paper it is expected to be the last time Tennessee is in the bond market for about a year, according to Mary-Margaret Collier, director of state and local finance.

"I'm hoping this will be one of the big deals" this week, Collier said. "We want the attention of the market."

Bids for the $170.5 million of bonds will be taken Wednesday on Ipreo's Parity electronic bidding system.

The deal is structured in two parts as $140 million of tax-exempt bonds and $30.5 million of taxable refunding bonds.

The bonds are rated triple-A by Fitch Ratings and Moody's Investors Service, and AA-plus by Standard & Poor's. The agencies also affirmed those ratings on $1.9 billion of outstanding GOs.

All but about $10 million of the $140 million in tax-exempt GOs will pay off commercial paper used as initial financing for capital needs mostly at universities, corrections facilities, and economic development projects. The remaining proceeds will be used for project financing and issuance costs.

The tax-exempt GOs are scheduled to mature serially between 2013 and 2032, and are structured to provide level debt service. Bonds maturing between 2013 and 2020 are not callable.

The $30.5 million of non-callable refunding bonds with maturities from 2013 to 2020 are being sold as taxable debt because the state had already taken advantage of the one advance refunding that is allowed.

"We can now refund these bonds using taxable interest rates and more than achieve our savings goal based on current market conditions," Collier said.

The state typically requires a minimum of 4% present value savings for refundings. The taxable bonds could achieve more than 6% savings in recent calculations.

"If the bond market continues to rally this refunding should be fine," Collier said. "Right now we can sell at taxable rates and save."

Overall, she said, Tennessee is in a comfortable position with revenues over budget projections and ongoing economic development projects that will be a positive influence on employment levels.

"We are anxious to get into the market, and close before the end of the year," Collier said.

While Fitch and Moody's have stable outlooks on Tennessee's GOs, Standard & Poor's gave the state a positive outlook and said that it could lead to a rating upgrade.

"In our view, the rating on Tennessee reflects its strong financial management practices and the recent improvement to its reserves that are projected to grow based on fiscal 2012 unaudited performance and the enacted fiscal 2013 budget," said S&P analyst John Sugden.

Sugden said that the state's economy continues to recover and is led by strong growth in manufacturing, construction, and government. He also noted that Tennessee has a decades-long record going of funding 100% of the annual required contribution to the state retirement system.

"The positive outlook reflects the ongoing rebound of the state's key tax revenues, specifically the sales tax," Sugden said. Tennessee does not have a state-level personal income tax.

Though the state has relied on base budget reductions, revenue enhancements, and reserves during the economic downturn, Sugden said management plans to build "healthier" reserve levels as the economy rebounds while maintaining active cost-containment measures.

"Should the state be successful in meeting its forecast, all other things equal, we believe a AAA rating would be achievable over the outlook horizon," he said.

Public Financial Management Inc. is the state's financial advisor. Hawkins Delafield & Wood LLP is bond counsel.

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Too bad their football team isn't very good.
Posted by THOMAS D | Tuesday, November 13 2012 at 5:58PM ET
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