BRADENTON, Fla. - Georgia prices $978 million of taxable and tax exempt general obligation bonds on Tuesday - the largest competitive deal of the week and one that should attract bidders due to its multi-faceted nature, a trader said.
The transaction, rated triple-A by all the major rating agencies, also features for the first time a bifurcated maturity structure in the largest series, in a design to attract aggressive bids.
Proceeds will fund K-12 and higher education school construction, loans to local governments for water, sewer, and reservoir projects, state capital needs, and transportation projects, that includes reconstructing an interchange state officials say is currently one the most congested in the U.S.
There will be five different competitive auctions: $649.9 million of tax exempt GOs, Series A; $151.1 million of taxable GOs; $13.7 million of direct-pay taxable qualified school construction GO bonds; and $162.9 million of current refunding GOs - all backed by the full faith, credit and taxing powers of the state. Taken together they represent the largest deal on next week's muni primary calendar.
The $649.9 million of Series A bonds will be sold as Tranche 1 with maturities between one and 10 years, and Tranche 2 with maturities between 11 and 20 years, breaking it into manageable sums, according to Lee McElhannon, director of bond finance with the Georgia State Financing and Investment Commission.
"We're doing that because we believe it will create a better bid environment for potential bidders," he said. "We believe we'll get good bids, and we're trying to make so [the firms] will give the best bid possible."
The $162.9 current refunding is being done for debt service savings within existing maturities. The state requires a minimum of 3% present value savings, though the savings is expected to be in the 8% range.
The offering should get "great reception" because Georgia doesn't bring a lot of paper to market, according to a trader who will be bidding on the taxable bonds.
"It's AAA across-the-board and they are great size deals with great block size," the trader said. "I think it will be good for the secondary as well because of the lack of paper lately."
Georgia's bonds typically sell at a premium and for the first time with Tuesday's sale, the state plans to take premiums and reduce the par amount of bond that will be sold.
McElhannon said the deal could attract as much as $50 million in premiums from buyers who would rather pay above par in return for the better-yielding 5% coupon.
If the par amount of the transaction is reduced, McElhannon said the legislature will be asked to de-authorize a like amount of bonds.
Rating agency analysts affirmed their AAA ratings on about $9 billion outstanding GOs, and said the top ratings reflect Georgia's conservative fiscal management. They also noted that the state has replenished reserves used during the recession.
Among the transportation projects being financed with $130 million of bond proceeds is the long-planned Interstate 285-Georgia 400 interchange project.
Along with bond proceeds, the state is using $81.5 million in state motor fuel funds to accelerate the reconstruction of the interchange, which is in an area that has evolved from farmland and pastures into one of the most dense residential and business areas near Atlanta.
"This interchange is one of the most congested intersections in the United States, and the time has come to bring much needed relief to commuters and area businesses," Gov. Nathan Deal said recently. "Improvements to the interchange will provide important economic and quality of life benefits and will expand Georgia's role as a major logistics hub for global commerce."
Deal also said the interchange funding plan would provide a "stop gap measure" to move the project forward as Congress works toward reauthorizing the federal transportation bill.
Public Resources Advisory Group is serving as financial advisor to the state.
Holland & Knight LLP is bond counsel on Tuesday's deal. Kutak Rock LLP is disclosure counsel.
