PHOENIX - Alaska is unlikely to find another good opportunity to issue pension obligation bonds soon after abruptly pulling the plug on a $2.3 billion pricing, a state official said.
"Improbable that we would have another opportunity like the one we passed on this week," said Deven Mitchell, Alaska's debt manager. "The market response was looking to be extraordinarily strong, treasuries were slightly improved, and we could still achieve a double-A rating resulting in a taxable interest rate for a long term fixed-rate structure that would have been the lowest for a state issued POB, ever."
"Difficult for the state to get that attention again, for the market to align," said Mitchell.
Gov. Bill Walker canceled the $2.3 billion sale of POBs that had been planned for Wednesday. Walker said that he called the sale off after a meeting with state Senate Finance Committee members who told him they didn't support the issuance.
Walker wants to build a consensus with lawmakers in his effort to get them to sign off on comprehensive fiscal reform for the state government, which his administration and analysts agree Alaska needs due to the decline of the oil industry revenues that have kept Alaska's state government afloat for years.
The pension bond deal would have reduced by a few percentage points the unfunded accrued actuarial liability of to the state's two largest pension systems: the State Teachers' Retirement System and Public Employees' Retirement System. Mitchell said earlier this month that Alaska's pension earnings have historically far outstripped the 4% interest rate the state expected to achieve on the POBs.
Some good news came for Alaska on Thursday when S&P Global Ratings, which had warned that it expected to downgrade Alaska after the POB deal, announced it will hold the state's general obligation rating at AA-plus, its appropriation rating at AA, and its moral obligation rating at A-plus.
It removed the state from review for a possible downgrade after the POB deal was cancelled, but the outlook remains negative, the rating agency said.
"Suspension of the POB transaction now means that, in our view, the state's credit quality remains as it was prior to the CreditWatch placement: currently strong, but under significant pressure due to the state's deeply misaligned fiscal structure," said S&P analyst Gabriel Petek. "Consequently, the negative outlook we have assigned to Alaska's debt ratings reflects the possibility that, absent significant correction of the state's fiscal imbalance, we may lower its rating in the coming months despite the state having canceled the POB transaction at this time."
Walker's administration initially remained supportive of the deal despite S&P's downgrade warning, and some traders said the threatened downgrade would not affect pricing because investors were already penalizing the state for its budget problems.
