Buckeye Building Agency Offers $80M, Mostly BABs

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CHICAGO — The Ohio Building Authority today will price approximately $80 million of revenue bonds in a deal that includes traditional tax-exempt debt and taxable Build America Bonds.

The borrowing is divided into six series. Proceeds will finance a series of building projects, including construction of a juvenile correctional building.

Wells Fargo Securities is the lead underwriter. Prism Municipal Advisors LLC is financial adviser. The finance team began taking retail orders on the tax-exempt debt yesterday.

The offering includes two series of state facilities taxable BABs, one of $34 million and one of $11.5 million. Four traditional tax-exempt series are also included in the borrowing. Two series, for $10.8 million and $11.4 million, will be used to refund outstanding facilities debt. Two series, for $9 million and $5.4 million, are new money.
The bonds are a special obligation of Ohio, payable by lease payments. The payments are subject to annual legislative appropriation from the general fund. There is no debt service reserve fund and the legislature is required to fund debt service whether or not the projects are completed.

Moody’s Investors Service and Fitch Ratings rate the debt Aa3 and AA-minus, respectively, one notch below the state’s general obligation rating. The rating is based largely on Ohio’s fiscal position, which analysts said remains challenged by a weak economy but is boosted by strong financial management.

Standard & Poor’s rates the state’s GO debt AA-plus, with a negative outlook assigned last September. Moody’s maintains a negative outlook to all the state’s debt, and Fitch maintains a stable outlook.

The authority is next expected to enter the market in July or August with $130 million that will be restructured in order to achieve debt relief in the state budget.

The restructuring will be the final of four similar deals that together are expected to generate $740 million in near-term cash flow by delaying debt-service payments originally scheduled for this year and 2011 until 2012. Nearly 70% of the state’s GO debt amortizes in 10 years.

Ongoing economic and fiscal challenges that have prompted negative outlooks on the state’s GO debt are unlikely to threat payments on its appropriation-backed debt, which makes up nearly 25% of all its tax-supported debt, analysts said.

“Ohio’s reliance on continued market access for subject-to-appropriation lease debt, in general, indicates a high probability that appropriations will continue to be made in a timely manner,” Moody’s analyst Edward Hampton wrote.

In a report on the upcoming deal, Hampton noted that the interest payment dates on the bonds, April 1 and October 1, are far away enough from the July 1 start of the state’s fiscal year to “limit risk of an event of non-appropriation due to late budget adoption.”

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