CHICAGO — After delaying the deal last week amid legal complications, Ohio on Monday and Tuesday priced $1.56 billion of liquor-profit backed bonds, with spreads on the taxable piece of the borrowing ranging from 60 basis points to 137 basis points above Treasury rates.

Gov. John Kasich proposed the transaction last year as a way to patch a budget shortfall, but the deal was delayed for months amid litigation. It comes now a week before Kasich is set to unveil his new two-year budget.

A new agency named JobsOhio will use proceeds to finance a 25-year lease of the state's liquor distribution system. The agency will give $1.43 billion of the proceeds to the state as a cash payment for the lease and to defease outstanding liquor-backed bonds. Another $5 million will be used for capitalized interest and $9.2 million for issuance costs. The private, non-profit group will use the remaining $125 million to fund economic development projects across the state.

The transaction was originally set for last Wednesday and Thursday but was delayed after the Ohio Supreme Court Wednesday announced it would hear a case that challenges the state law that created JobsOhio and authorized the bond sale.

After the court's announcement, the finance team put out supplemental bond information updating investors on the Supreme Court's decision and decided to come back to market early this week with the bonds.

One market source said Tuesday he heard the tax-exempt bonds were oversubscribed "from top to bottom," but added that his firm opted not to buy the debt in light of the legal complications. "We thought it would come a little cheaper given that the [Ohio] Supreme Court has said it would take up the case," the investor said. "Given the rate environment now, I'm not sure I want to buy anything with this kind of hair on it."

JPMorgan Chase and Citi were joint book-running managers on the deal. The team held a retail order period Monday followed by an institutional pricing Tuesday.

The borrowing was divided into two series: a $410 million tax-exempt piece and a $1.1 billion taxable series. The ratings were split, with Standard & Poor's assigning a AA and Moody's Investors Service A2.

Monday's retail pricing results on the tax-exempt series showed interest rates ranging from 0.50% on bonds with a 2015 maturity and a 3% coupon, to 2.13% for bonds with a 2022 maturity and a 5% coupon, and 3.39% for bonds with a 2038 maturity and 5% coupon. Tuesday's institutional prices on the tax-exempt series were roughly 5 basis points lower, with yields of 2.08% on the 2022 maturity and 3.34% on the 2038 bonds.

Tuesday's preliminary pricing wire showed that yields on the $1.1 billion taxable series ranged from 0.87% on 2015 bonds to 3.98% on bonds with a 2029 maturity and 4.53% on bonds maturing in 2035.

The spread to Treasury ranged from 60 basis points over Treasury on the 2015 bonds to 110 points over on 2022 maturity and 137.5 points over on the 2035 bonds, according to the wire.

"Although the underlying credit of this issue is strong, a lawsuit challenging the constitutionality of the state's establishment of this non profit issuer adds uncertainty for investors," Alan Schankel, head of fixed-income research and strategy at Janney Capital Markets, wrote in a market memo Tuesday on the deal, which is the largest in the market this week.

JobsOhio will give $500 million to the state, which will go into the general fund, and $100 million that will be used to pay remaining costs of environmental program called Clean Ohio that was financed with liquor bonds. Another roughly $850 million will be used to defease outstanding liquor-backed bonds.

The $500 million will not be included in the governor's budget or in the new revenue estimates that go into the spending plan, said budget spokesman Dave Penard. Legislators could rely on the money as they craft a final two-year budget between now and July 1.

Standard & Poor's Tuesday released a brief comment saying that the Supreme Court's decision to hear the case does not affect its AA rating on the bonds. JPMorgan, JobsOhio, and Kasich's office declined to comment for the story.

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