DALLAS — Arkansas will refund three series of highway bonds with this week’s negotiated sale of $256.97 million of five-year general obligation bonds that will lower debt-service costs in fiscal 2011 by an anticipated $11 million.
Mark McBryde, executive vice president and director of public finance at Stephens Inc., the sole underwriter on the issue, said the state is taking advantage of an opportunity to refund highway bonds issued in 2000, 2001, and 2002.
“We’re doing it to save money and provide the highway department with some much-needed cash,” McBryde said. “We noticed, beginning in March, that the short-term interest rates were becoming favorable for a refunding of the earlier bonds.”
The bonds are rated AA by Standard & Poor’s and Aa1 by Moody’s Investors Service.
Friday, Eldredge & Clark LLC is bond counsel.
The bonds are expected to be priced on Wednesday.
“The deal will be structured to take the savings in the next year,” McBryde said. “Assuming that we will price as expected, we’re looking at about $11 million in debt-service savings in 2011.”
McBryde said the interest rates on the bonds to be refunded range from 5% on the 2002 bonds to 5.5% on bonds issued in 2000.
Arkansas intends to support the bonds with federal highway grants and some state highway-related taxes, but the debt carries a GO pledge by the state if those revenues are not sufficient.
Dedicated revenues totaled $98.7 million in fiscal 2009, but they are expected to drop to $95.2 million in fiscal 2010.
The final refunding bonds will mature in 2014.
The payment schedule calls for retirement of $48.6 million of principal in 2011, $67.3 million in 2012, $69.3 million in 2013, and $71.9 million in 2014.
Total debt service is expected to be $59.2 million in 2011, $74.9 million in 2012, $74.9 million in 2013, and $74.7 million in 2014.
McBryde said investors should show strong interest in the bonds due to their short amortization.
“We expect to attract a lot of attention because all the bonds will mature by 2014,” he said. “There seems to be significant demand for short-term product with uncertainties over where interest rates are going and the potential for higher taxes.”
No retail period is anticipated, McBryde said, though some bonds may be made available to retail investors.
“Arkansas is a good credit across the country, but one thing we know for sure is that Arkansas investors will buy Arkansas bonds,” he said. “Once we see how the pricing is going, we may try to carve out some of the maturities for retail sales.”
The bonds to be refunded are part of the $575 million of highway bonds authorized in 1999, all of which have been issued.
Lawmakers in 2007 approved a plan to seek a statewide vote on up to $575 million of federal highway grant anticipation and tax revenue bonds.
No date has been selected for the election, but if approved by voters the bonds have to be issued no later than Dec. 31, 2013.