SAN FRANCISCO – Alaska, fresh from winning a final upgrade to triple-A, sells $164 million of bonds next week to fund school construction.
The state’s first sale of the year will come just after an upgrade to triple-A status on its $575 million of outstanding GO debt from Fitch Ratings, the last holdout of the rating firms.
Fitch upgraded Alaska Monday to AAA from AA-plus, matching the gilt-edged ratings by Moody’s Investors Service and Standard & Poor’s. All outlooks from the companies are stable.
Alaska will sell the debt to investors in two series sometime next week - $153 million of tax-exempt general obligation bonds and $11.9 million of taxable qualified school construction bonds, according to Deven Mitchell, the state’s debt manager.
Even with yields in the market so low, Alaska’s triple-A sale is likely to be sought after by institutions that are after quality.
“I think it will be received smooth as velvet,” said Marilyn Cohen, founder of Envision Capital Management Inc. in Los Angeles, and who holds Alaska bonds.
“I don’t think they are going to have a problem at all,” she said. “All of these yields are so shockingly low that a triple-A probably shouldn’t freak anybody out.”
The benchmark Municipal Market Data yield index finished Friday with the 10-year municipal bond yield marker at 1.80% and the 30-year at 2.89%.
The big piece of the sale will have an average amortization life in the seven-and-a-half year to eight-year range, Mitchell said.
“Just because of the shorter amortization on the tax-exempt bonds we anticipate true interest cost somewhere in the 1.5% to 2% range,” Mitchell said about the sale.
Citi is the lead manager on the sale. The state is expected to release the preliminary official statement for the sale early this week.
State voters approved the bond authorization in 2010 to fund construction of library, research and other education-related facilities.
Fitch said it raised its rating because of Alaska’s “maintenance of very substantial and growing reserve balances and the continuation of conservative financial management practices at a time of strong revenue performance.”
The state gets 92% of its unrestricted general fund revenues from oil-related activities, according to Fitch.
Another strength has been Alaska’s ability to put away money.
S&P noted in its report last week that the state has budget reserves equal to more than 200% of its annual operating expenses.
Moody’s said in its report that Alaska has benefitted from elevated oil prices and from conservative management of oil-related revenues.
On the other hand, Moody’s said in last week’s note, the state is vulnerable to the global economy because of its oil revenues and it expects it to benefit more in the future from its vast natural gas resources.
“The outlook for Alaska is stable, based on expectations the state will continue to make conservative oil revenue forecasts and plan for the eventual depletion of its oil resources, and that its large budgetary reserves will allow it to withstand short-term production disruptions,” Moody’s said.