SAN FRANCISCO — Alaska officials meet Monday to formally initiate the process of issuing up to $5 billion in pension obligation bonds.
"We do have a tentative schedule that would result in the sale of bonds sometime in September or October," said Deven Mitchell, who heads the debt management section of the Alaska Treasury Division.
Monday's meeting is the first of the board of the state's Pension Obligation Bond Corp., created by the legislation approved earlier this year that authorized the issuance of pension bonds.
Among the items of business is the formal selection of the deal team recommended by the selection committee.
The plan calls for Citi to run the books for a team that also includes two other senior managers, Merrill Lynch & Co., and Goldman, Sachs & Co., and five co-managers. First Southwest Co. is financial adviser. K&L Gates is bond counsel.
The Pension Obligation Bond Corp.'s board has three members: Commissioner of Revenue Patrick Galvin; Administration Commissioner Annette Kreitzer; and Commissioner of Commerce, Community, and Economic Development Emil Notti. They have all been involved in the selection process, Mitchell said.
The Legislature authorized the pension bonds this year as part of a package of bills designed to address governmental retirement liabilities.
Another bill committed the state government to picking up a sizable share of the retirement liabilities of local governments and school districts around the state.
The unfunded liabilities of the state's Public Employees' Retirement System and Teachers' Retirement System exceed $8 billion.
The bond legislation specifies that the interest on the bonds must be at least 150 basis points below the 8.25% assumed investment returns of the retirement systems.
"It will be a success from this corporation's standpoint if you have cost of capital of sub six, sub five-and-a-half [percent]," Mitchell said.
The state must also maintain double-A level bond ratings, which should not be too challenging as high oil prices continue to gush billions of unbudgeted dollars into the state's treasury.
Alaska general obligation bonds carry underlying ratings of AA-plus from Standard & Poor's, Aa2 from Moody's Investors Service, and AA from Fitch Ratings.