Last-Minute Halt for Alaska's Big Pension Bond Sale

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PHOENIX - Alaska Gov. Bill Walker called off a $2.35 billion pension obligation bond deal due to a lack of legislative support.

Walker scrapped Wednesday's planed pricing for the taxable bond after a meeting with lawmakers indicated they were not supportive.

The cancellation knocks the second largest deal off what was a massive $16.5 billion primary calendar this week.

Walker still believes the POB issuance is the right move, because his administration believes the state's pension fund earnings can earn enough to more than offset the 4% interest rate they anticipated on the bonds.

The POB plan led S&P Global Ratings to place Alaska on creditwatch with negative implications Oct. 7, saying it would downgrade Alaska to AA from AA-plus if the deal went through.

"The Walker-Mallott administration takes our fiduciary duty to Alaskans very seriously," Walker said in a statement. "While we believe the financial benefits of issuing state pension obligation bonds significantly outweigh the financial risks, we recognize the need for legislative input. I invited the Senate Finance Committee to meet with administration officials and me this week to discuss the transaction. Given their lack of support, I have decided not to proceed with the issuance at this time. Building a collaborative relationship with the legislature will be necessary to reach our primary goal, which is a long-term fiscal plan for our state. In this time of fiscal uncertainty it is critical that both branches of government work together to address all the difficult decisions that stand before us."

The Government Finance Officers Association recommends against POBs for many reasons, among them that pension earnings often fail to outpace the cost of the bonds.

Alaska's debt manager, Deven Mitchell, told The Bond Buyer that those concerns wouldn't have applied to Alaska's POBs because the state wouldn't be taking a pension holiday or using variable-rate debt, which has created problems for other POB issuers.

Walker wants the legislature to undertake significant fiscal reforms, which has experienced significant revenue losses that cost it the unanimous triple-A ratings it had coming into 2016. A major culprit is the extremely low price of crude oil, the state's primary economic driver.

Walker wants ambitious comprehensive fiscal reform plan, the centerpiece of which is a plan to use the state's Permanent Fund to support government spending. Walker's plan did not make it through the legislature before it adjourned this past session, and the state ended up passing another imbalanced budget for 2017 with about $1.2 billion of projected revenue against $4.4 billion of authorized spending.

The state Department of Revenue did not immediately respond to a request for information about when or if the state might revisit the plan to issue the POBs.

 

 

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Alaska
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