Iowa Plans One-Two Market Punch After Long Absence

fitzgerald-mike-iowa-treasurer.jpg

CHICAGO – Iowa will return to the market twice this month after a six-year absence to snag refunding savings.

First up, the state this week will refund $264 million of special obligation bonds from a 2009 issue under its IJOBS capital program.

The state will return with a roughly $80 million refunding of moral obligation backed prison infrastructure bonds next week, according to Stephanie Devin, deputy to state Treasurer Michael Fitzgerald, who manages state borrowing.

The IJOBS refunding was initially planned for later this week or next but the state opted to move the pricing up to Tuesday due to appealing market conditions where rates are hitting record lows.

"We wanted to get it done before there's a change," Devin said, adding that "significant" present value savings on the refundings.

The IJOBS bonds enjoy a primary lien on the first $55 million the state collects in gambling fees with "strong secondary support" of liquor taxes in the event of a shortfall in gaming receipts, Devin told investors in an online presentation. A moral obligation also is pledged to the bonds.

The state collects a tax on adjusted gross receipts from gambling revenues at riverboat and racetrack casinos, which offer slot machines, table games, and other games of chance. Gambling revenues totaled $277.8 million in fiscal 2015 with 67% coming from riverboats, 32% coming from wagering taxes at racetracks, and the remainder coming from admissions and daily license revenues.

State gambling revenues are slowly recovering from a 4% decline across fiscals 2013 and 2014, but have yet to reach the fiscal 2012 high of $284 million, Moody's Investors Service said.

After the $55 million for debt service, the state sets aside the next $3.75 million in a federal subsidy holdback account to mitigate any delays in federal interest rate subsidies from IJOBs bonds issued under the Build America Bond program.

Net beer and liquor tax revenues have steadily grown in the past five years to $104.1 million in fiscal 2015 and are projected to maintain steady growth in the next several years.

The bonds mature from 2017 to 2029. Citi is senior manager and RBC Capital Markets is co-senior with five co-managers rounding out the team. Public Financial Management Inc. is advising the state.

Bank of America Merrill Lynch is lead manager on the prison refunding with William Blair & Co. as co-senior.

The state has about $817 million of debt outstanding, including $637 million issued for the IJOBS program. The state saw total tax revenues grow by 6% last year with 5% growth in other receipts bringing total overall growth of its general fund revenues to 5.7% in 2015. Its reserve fund balance stands at $738 million.

Ahead of the sale, Moody's and S&P Global Services affirmed the state's special obligation credit rating of Aa2 and AA, respectively. The state carries triple-A issuer credit ratings.

"The stable outlook on Iowa's moral obligation bonds reflects our outlook on the state ICR," said S&P analyst David Hitchcock. "The stable outlook on the ICR reflects our expectation that Iowa, aided by its good management practices, will maintain a sound financial position."

Former Gov. Chet Culver won legislative support for the $750 million program, promoting it as a means to create jobs by funding shovel-ready water, sewer, and other projects and rebuild infrastructure damaged by severe floods and storms in 2008. Incumbent Gov. Terry Branstad has been more averse to taking on any new debt since taking office in early 2011.

For reprint and licensing requests for this article, click here.
Iowa
MORE FROM BOND BUYER