Washington Bringing Competitive $765M Refunding Deal

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SAN FRANCISCO - Washington will sell $765 million of general obligation bonds in a competitive offering on Wednesday.

The bonds, which will refund the state's outstanding GO bonds for debt service savings, will include $238.6 million of motor vehicle fuel tax GO bonds and $526.1 million of various purpose GO bonds.

Washington's GO bonds carry the second highest ratings from all three credit ratings at AA-plus from Standard & Poor's and Fitch Ratings, and Aa1 from Moody's Investors Service.

"We believe the state's liquidity, financial trends, and strengthening economy point to an improving financial position," said Standard & Poor's credit analyst Gabriel Petek. "Coupled with the state's strong financial management policies and institutions, we see the state's credit rating as stable through the outlook period."

Fitch analysts also noted the state's solid economy, driven by strength in construction, aerospace, and technology sectors, as well as a commitment to fiscal balance.

Credit strengths are offset by the state's "concentrated revenue system," which relies on consumption based revenues since it has no income tax.

"This makes Washington particularly vulnerable to reductions in consumer spending," analysts said.

Another credit challenge is the state's above-average debt load, according to Fitch. This reflects funding of substantial capital needs, particularly for transportation.

The state currently has around $18.7 billion of GO bonds outstanding, including bonds additionally secured by fuel taxes and tolls.

Moody's said significant future increases required in K-12 education will also pose financial challenges for the state. However, analysts believe the state will continue to address any budget gaps that emerge, as it has in the past, and absorb the substantial increase in education funding.

Washington's GO bonds carry a full faith, credit, and taxing power pledge. The motor vehicle fuel tax GO bonds are first payable from state excise taxes on motor vehicle and special fuels.

Piper Jaffray and Montague DeRose and Associates are financial advisors on the deal and Foster Pepper PLLC is bond counsel.

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