BRADENTON, Fla. — Gilt-edged Georgia is expected to bring back to back competitive deals to market over two days the week of Dec. 10 when it sells $583 million of general obligation bonds.
The deals should sell well because it’s near the end of the year, and there are not a lot of triple, triple-A rated state general obligation bonds around in good block sizes, a muni trader said.
“These are competitive sales, and the big underwriters are all vying for their rankings for the year,” the trader said. “Also boding well for Georgia’s deals is the fact that this week is probably the last week of major supply for munis, and people will be thinking of the January investments.”
Georgia prices its first offering Tuesday with an estimated $290.57 million tax-exempt GO refunding.
The offering is expected to garner present-value savings of about $32 million or 11.4% of refunded par amount. The bonds are being refunded within existing maturities from 2019 to 2024.
The state will be back in the competitive market on Wednesday to sell $234.9 million of new money, 20-year GOs as part of the state’s second-annual offering for various projects that are ready for capital financing.
The new-money bonds have a plain-vanilla structure with level debt service, according to Lee McElhannon, director of bond finance with the Georgia State Financing and Investment Commission.
“What we try to do is ensure that we give as much flexibility as possible to structuring the coupons and yields so that we get good, aggressive competitive bids,” he said.
Along with the new-money bonds on Wednesday, the state will offer a $57.99 million taxable GO piece to refund outstanding tax-exempt bonds that have already been advance refunded once.
The refunding is estimated to bring $4.2 million in present-value savings or 7.27% of refunded par. The bonds are being refunded within existing maturities from 2013 to 2018.
“This taxable refunding is just because taxable interest rates work on a deal we couldn’t do on a tax-exempt basis,” McElhannon said. “We’re in a really unique interest rate scenario right now with the low-low rates, and the relationship of taxable versus tax-exempt rates.”
The bonds are rated triple-A by Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s.
Though some issuers are bringing forward deals because of historically low interest rates, McElhannon said that Georgia sells bonds based on its need for funds, and minimum refunding threshold requirements.
The state, however, expects to benefit from current market conditions and low interest rates.
“We believe that we will see good, strong bids this week, and we don’t know of any reason that rates are going to backup materially before the sale,” McElhannon said in an interview Friday. “We’re within one or two basis points of historical lows, so it’s a great time to sell in terms of absolute yields.”
The supply of Georgia paper in the secondary market is thin, he said.
Rating agency analysts said the state’s long-standing triple-A rating reflects its conservative fiscal management, historical willingness to make prompt and steep spending cuts in response to revenue shortfalls, and current efforts to replenish reserves depleted during the economic downturn.
The state’s major pension systems covering state employees and teachers have benefitted from consistent funding of annual required contributions, according to Fitch Analyst Douglas Offerman. As of the June 30, 2011 valuation, systemwide funded ratios for employees’ and teachers’ plans were reported at 76% and 84%, respectively
Georgia has large liabilities for unfunded retiree health benefits, said Moody’s analyst Kimberly Lyons. The state employees fund has $4.31 billion in unfunded, actuarial accrued liabilities, while the school personnel fund’s unfunded liability is $11.14 billion.
Public Resources Advisory Group is the state’s financial advisor.
King & Spalding LLP, is bond counsel. Kutak Rock LLP is disclosure counsel.
