Wisconsin Readies Second GO Deal in a Month

CHICAGO - Wisconsin will refund $257 million of general obligation bonds Tuesday and may add another $56 million of forward delivery refunding bonds if the market cooperates.

RBC Capital Markets is senior manager with four firms acting as co-managers. Foley & Lardner LLP is bond counsel and Acacia Financial Group Inc. is advising the state.

The refunding is for traditional present value savings with at least $20 million expected to be shaved off interest costs, said assistant capital finance director David Erdman. The $56 million tranche has a forward delivery date of February. The state has included forward delivery options in its offering statements on its last few deals but has opted not to act due to interest rates.

The deal follows closely on the heels of a new money sale in early July in which the state offered bonds with two separate calls: a six-year and an eight-year.

Capital finance director Kevin Taylor said the state in its polling of underwriters that bid on the bonds received good feedback on the move with underwriters seeing strong interest in the coupons. The state likes the flexibility of the shorter calls but future use of both the shorter calls and divided call dates "will be market driven" if the state sees the potential for interest rate savings, Taylor said.

Fitch Ratings, Moody's Investors Service, Standard & Poor's, and Kroll Bond Rating Agency all affirmed the state's mid-double-A level rating assigned to $8 billion of GOs. All assign a stable outlook.

Kroll said the credit's strengths stem from the strong security provisions of the state's GO pledge, a fully funded pension system, and increased budgetary discipline that has resulted in the decreased use of one-time revenues to balance the books. Available cash balances also provide good liquidity.

Kroll said a key credit concern is uncertainty raised in the current two-year budget cycle by the tax cuts approved this spring given they are funded by increased revenue projections through June 30 next year. Other credit concerns include a moderately high debt burden, and a long term general fund gap based on generally accepted accounting principles of $1.7 billion.

Moody's said the Aa2 rating reflects the state's "improving budgetary performance, an improved liquidity position highlighted by the availability of up to $1.8 billion in alternate-fund liquidity, as well as a fully funded pension system and limited OPEB liability."

"The state's fiscal position coming into fiscal 2014 was stronger than it had been in recent history," said Standard & Poor's analyst Gabriel Petek. "The state's recently enacted tax reductions reduce its capacity to absorb weaker-than-expected revenue performance, but current economic and revenue projections indicate adequate fiscal performance through the remainder of the 2013-2015 biennium."

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