BRADENTON, Fla. - Triple-A rated Georgia reported $136.4 million of present value savings on an $890 million general obligation refunding deal, a level of savings state officials attributed to improved negative arbitrage conditions.
The majority of the bonds advanced refunded debt, while $127 million of proceeds current refunded outstanding bonds.
The bonds priced Wednesday. Bank of America Merrill Lynch won the competitive bid for the $509 million Series 2016F, and a syndicate led by Citi won the $380.5 million Series 2016E.
Closing is set for Nov. 17.
On a present value basis, the combined advance and current refunding saved 15.2% of the present value of the par amount refunded and results in $152 million less in future debt service payments, according to Diana Pope, director of Georgia's Financing and Investment Division.
"We were real pleased," she said.
The deal refunded $1 billion of bonds originally issued in 2007, 2008, 2009 and 2011 with no extension of maturities.
Georgia's target minimum savings threshold to conduct a current refunding is 3% while an advance refunding is 5%, Pope said.
As state officials monitored market conditions, short-term interest rates last week rose enough to overcome "just what even six months ago was a prohibitive negative arbitrage number," said bond finance director, Lee McElhannon.
"We've got some pretty distant call dates on some of these bonds, but when short-term rates kept going up and arbitrage going down, it was time to move," he said.
The 2016 bonds achieved a blended true interest cost of 1.7%. They were rated triple-A by Fitch Ratings, S&P Global Ratings, and Moody's Investors Service.
While the majority of the deal was an advanced refunding, it included a $127 million piece that currently refunded the state's only outstanding floating-rate notes, a privately placed issue in 2011.
Gov. Nathan Deal said in a statement that the state's diligence in maintaining its triple-A ratings combined with market conditions allowed it to "save taxpayers millions of dollars."
"We will be able to use these savings to help fund other priority services for our citizens," Deal said.
The Central Florida Expressway Authority said Monday that the combination of low interest rates and reduced negative arbitrage paved the way for upsizing what it initially expected to be a $425 million advance-refunding revenue bond deal last month.
Lower credit spreads and greater demand from investors enabled the toll-road agency to clear $631.33 million of bonds at pricing on Sept. 23, said Lisa Lumbard, chief financial officer.
The bonds were rated A by Fitch and S&P, and A2 by Moody's.
The deal resulted in $92 million in cash-flow savings over the life of the bonds, and present value savings of $65.2 million or 10.4% of refunded par amount.
"The deal exceeded our expectations," Lumbard said. "We are very excited that the market was so interested in our bonds."
