Connecticut's issuance of variable-rate remarketed obligations, or VROs, could set a national precedent, according to state Treasurer Denise Nappier.
"We are excited to be the inaugural issuer of VROs in the country," Nappier said of the $314.3 million of general obligation refunding notes which included the VROs. Proceeds will refund a portion of the state's outstanding Series 2009A economic recovery notes and extend the final maturity from 2016 to 2018.
The refunding notes and $560.4 million of general obligation bonds to fund the state's conversion to generally accepted accounting principles both closed on Oct. 24. The state legislature approved both bond sales in this year's session.
Barclays was the creator and sole underwriter for the VROs.
VROs, according to Nappier, are distinct from traditional variable-rate and other floating-rate securities in that no standby bond purchase agreement from a bank is necessary. She said they have a broader demand base of buyers, are callable at any time and offer competitive pricing relative to other floating-rate products now available.
"We have been surveying the market for innovative variable-rate structures that can provide the state with optimal debt structures. I am delighted with the potential this product delivers," said Nappier.
The initial rate on the VROs was 0.5% according to Nappier, who said they generated demand in excess of $550 million from a "diverse mix" of 18 institutional investors.
The GAAP conversion bonds featured a 15-year final maturity and an overall interest cost of 3.01%. They included a covenant that commits the state to pay down a GAAP deficit estimated at $1.2 billion over a 15-year period through annual budget appropriations.
GAAP conversion was a campaign theme of Gov. Dannel Malloy in 2010.
"The great results of the state's recent financing demonstrates that the capital markets' confidence in Connecticut continues to grow," said state budget Director Benjamin Barnes. "These transactions are important parts of our efforts to deal honestly and directly with the debts and liabilities built up over many years of less-than-transparent budgeting."
Retail orders for the GAAP conversion bonds accounted for nearly 24% of the total bonds available for sale, she said. Ramirez & Co. led the underwriting syndicate.
Moody's Investors Service rated both series of bonds Aa3, while Standard & Poor's, Fitch Ratings and Kroll Bond Rating Agency assigned AA ratings.
Day Pitney LLP and Finn Dixon & Herling LLP were disclosure counsel for the GO sales. Robinson & Cole LLP and Soeder & Associates LLC were tax counsel. Acacia Financial Group Inc. and A.C. Advisory were the financial advisors.
