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Maryland to Sell $693 Million of Triple-A Rated Bonds

WASHINGTON — Maryland will sell $692.6 million of triple-A rated general obligation bonds by competitive sale on March 6, less than a week after the Old Line State's economy could be hit with big federal spending cutbacks.

The transaction will be sold in two series - $500 million of Series A new money bonds and $192.6 million of Series B refunding bonds.

Maryland carries a triple-A rating for its general obligation bonds from all three major credit rating agencies, although Moody's Investors Service has placed the state on negative outlook because of its particularly close economic ties to the fiscally constrained U.S. government.

Kutak Rock, LLP of Washington D.C. is bond counsel on the deal. Public Financial Management, Inc. of Philadelphia, Pa., is financial advisor. The sale will be overseen by the State Board of Public Works, a three-member panel comprising Maryland Treasurer Nancy Kopp, Gov. Martin O'Malley, and Comptroller Peter Franchot.

The bond transaction is expected to close on or about March 15.

In rating the bonds triple-A, Fitch Ratings noted Maryland's modest debt burden and conservative financial operations, as well as its pension reform efforts aimed at shoring up falling funding ratios of assets to liabilities.

Maryland has about $10.6 billion of tax-supported debt outstanding, with GO bonds accounting for about 70% of that. The state has consistently issued general obligation debt in similar amounts for the past several years, selling about $1.5 billion in 2012 and close to $1.3 billion in 2011, according to data from Thomson Reuters.

But unless Congress takes action to avert the $85 billion of across-the-board sequestration cuts currently slated to take effect March 1, the bonds will come to market just days after major slashes to the federal agencies and contractors that provide employment to thousands of Marylanders in the Washington metropolitan area. Because of the state's above-average reliance on government employment, it would be among the hardest hit by the sequester.

A White House report detailing the state-by-state effects of the cuts projected that in Maryland 46,000 civilian Department of Defense employees would be furloughed, $14 million would be cut from education and $3 million from environmental protection.

O'Malley, who earned praise from President Obama during a National Governors Association event at the White House Monday, submitted a budget last month accounting for the sequester.

"The governor's proposed fiscal 2014 budget, released in January 2013, assumes direct federal program cuts to the state of approximately 1% in both fiscal 2013 and 2014, or about $94 million," Fitch said in its rating report.

Kopp has said she disagrees with the Moody's assessment that Maryland relies so heavily on federal spending that her state's fortunes are automatically tied to the credit of the U.S. government. Maryland has continued to enjoy strong demand for its debt, earning near-record interest rates below 2% at times last year.

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