Georgia to borrow $1.13 billion to maintain financing program

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Gilt-edged Georgia continues its long tradition of financing capital projects via the competitive market, even though the ongoing coronavirus pandemic has negatively affected the state’s economy.

The state plans to competitively sell $1.13 billion of triple-A rated general obligation bonds Wednesday.

The new-money deal is structured in two series as $809.13 million of tax-exempt GOs and $329.94 million of taxable debt. Both series will have maturities up to 20 years.

The bonds will finance capital projects for local schools, roads and bridges for the Department of Transportation, state corrections facilities, and maintenance on state-owned facilities, among others.

Georgia is a bellwether credit for the market at large. Recent trading of Georgia GOs showed 5s of 2025 trading in blocks at 0.25%-0.28% as recent as Thursday and the state has been actively traded throughout the pandemic. As the crisis has unfolded, participants monitor issuers such as Georgia to gauge where the broader market is headed and it moves AAA benchmarking services as a result.

"Rates have backed up a bit, but there is strong demand for AAA paper," John Hallacy, founder of John Hallacy Consulting LLC said about Georgia's deal in The Bond Buyer's market report Friday.

While Georgia in recent years has issued GOs for capital needs in July, Diana Pope, director of the Georgia State Financing and Investment Commission, said this year's sale was delayed a month because the General Assembly suspended its session in March to help contain the spread of COVID-19 and didn't finish work on the budget and bond authorizations until mid-June.

Earlier in the year Georgia had planned to borrow $990 million in the fiscal 2021 budget, but that was increased to more than $1.1 billion to help stimulate the economy, Pope said.

"The bond package that was passed by the General Assembly ensures previous investments in the state’s existing facilities are preserved and that the facilities continue to meet both current and future needs of our citizens, supports economic growth, and provides job opportunities for Georgia’s construction industry," Pope said, adding that additional funds were provided for transportation projects as well as repairs and renovations.

"We are, as the old expression goes, priming the pump of the local economic engine, which will help to sustain employment in Georgia," she said. "It is important that facilities be kept up to standard and proper service levels [because] deferred maintenance is more expensive in the long run."

Fitch Ratings, Moody's Investors Service, and S&P Global Ratings gave triple-A ratings to the deal.

Analysts at all three agencies lauded Georgia's conservative fiscal management.

On June 30, Gov. Brian Kemp signed a fiscal 2021 budget that cut $2.4 billion from his original spending plan due the impact of COVID-19 on state revenues. The state's unemployment rate was 7.6% in June compared with 3.1% in February.

Kemp in a statement praised the maintenance of the state's bond ratings, and said they demonstrate Georgia's "commitment to fiscal balance and ensuring we can meet our present and future obligations, even as we combat the COVID-19 pandemic’s significant effects on the health of Georgians and the state’s economy."

"Consistent with its strong management practices, the state has taken proactive measures to align its budget to the changing economic landscape and does not rely on extraordinary federal aid or significant one-time measures for budgetary balance in fiscal 2021," said S&P analyst Timothy Little.

Little noted that the state appropriated $100 million from its revenues shortfall reserve fund in fiscal 2020 that is expected to be reimbursed with funds from the Coronavirus Aid, Relief, and Economic Security Act. Budget cuts of 8% were enacted for the fiscal 2021 budget along with the use of $250 million from reserves to mitigate revenue loss and prevent steeper budget cuts, he said.

"In the recently ended expansion, Georgia maintained a conservative approach to fiscal management by limiting spending growth and rebuilding the revenue shortfall reserve balance, which Fitch views as strengthening its resilience as it now confronts budgetary challenges emerging from the coronavirus pandemic," said Fitch analyst Douglas Offerman.

Offerman added that an initial rebound to the state's economy has been set back by a surge in new cases, as in much of the nation, that is "subsequently tempering the momentum of recovery."

With volatility in the market around state lockdowns, Georgia in April considered doing a rare negotiated deal and requested qualifications from underwriters.

Pope said her agency received "many great responses," although the request for qualifications made it clear the state's preference was to sell competitively if possible.

"At that time, we did not know the market would recover as well as it has," she said. "What we are seeing right now is that we can sell competitively and believe that approach will achieve the best result for the state."

Public Resources Advisory Group and Terminus Municipal Advisors LLC are co-financial advisors to the state.

Gray Pannell & Woodward LLP is bond counsel; Kutak Rock LLP is disclosure counsel.

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Infrastructure General obligation bonds State budgets Brian Kemp Ratings State of Georgia Georgia
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