Alaska Bank to Bond for Energy and Education Projects

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LOS ANGELES -- The Alaska Municipal Bond Bank is planning to price $77 million of general obligation bonds on Thursday to help fund local school and water improvements.

A retail order period will be held on Wednesday, with the possibility of accelerating institutional orders on Wednesday if conditions warrant, according to Deven Mitchell, the bank’s executive director and treasurer.

The bank is issuing the bonds to finance loans to five of Alaska’s cities and boroughs, which will help save a combined total of over $9 million in estimated borrower present value savings, according to Mitchell.

Approximately $27 million will be loaned to the city and borough of Sitka to fund improvements to its hydroelectric system, $23 million to the Kenai Peninsula Borough for K-12 school capital projects, and $20 million to the Lake and Peninsula Borough, also to fund school capital projects.

Around $8.1 million will be loaned to the city and borough of Juneau for upgrades renovations at Auke Bay Elementary School and $800,000 will be loaned to the city of King Cove to go toward improvements to the city’s hydroelectric system.

The deal will be structured with serial and term bonds, with the serial bonds maturing from 2014 through 2048.

The bonds are general obligations of the Alaska Municipal Bond Bank, a public corporation established to aid Alaska municipalities in funding capital improvement projects, and are backed by a moral obligation of the state.

Alaska maintains a standing appropriation of state general fund resources to replenish the bonds’ reserve fund in the event of a borrower default.

Fitch Ratings assigns the bonds a AA-plus rating and stable outlook, based on the state’s GO rating.

“The state of Alaska includes as part of its annual debt service appropriation in its operating budget an appropriation for reserve fund replenishment in the event of a draw related to default by a participating municipality, resulting in a rating one notch below the state’s ‘AAA’ GO rating,” Fitch analyst Marcy Block said in a report.

The bonds are being issued under the bank’s 2005 GO bond resolution, which is funded at approximately $40.5 million as of Oct. 1, according to Fitch. About $702.5 million of parity bonds issued under the bank’s 2005 resolution are outstanding, in addition to about $65 million under other resolutions.

Moody’s Investors Service assigned a slightly lower rating to the bank’s bonds, and a stable outlook.

“The Aa2 rating on the bond bank securities incorporates bond bank program structural elements, such as a state-aid intercept mechanism and, to a lesser degree, the diversity of borrowers in the program,” analysts said.

Moody’s assigns the state a triple-A rating and stable outlook.

Michael Pietronico, chief executive officer at Miller Tabak Asset Management, said the bond bank’s programs have a sound history of debt repayment, and the state has demonstrated a history of support for and involvement with the bank.

“The bond bank has consistently worked with the state to strengthen bondholder protections while achieving its programmatic goals,” Pietronico said. “The state’s own financial resources are substantial.”

Miller Tabak, which owns this credit for some of its clients, has an internal rating of Aa3 on the bonds, Pietronico said.

RBC Capital Markets is the lead underwriter on the deal. Wohlforth, Brecht, Cartledge & Brooking is bond counsel and Western Financial Group, LLC is financial advisor.

The next sale of Alaska’s bond bank debt is expected to be considered by the bank’s board in January.

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