CHICAGO - Minnesota is accepting proposals from financial advisers interested in assisting debt manager Kathy Kardell in remaking the state's debt management style with plans to improve investor relations and expand the cadre of financing tools, including the ability to negotiate general obligation sales.
The deadline for financial advisers to submit proposals is 2 p.m. Central Daylight Time on May 1. The state will select a roster of firms to advise on individual financings, new structures, and special projects, as well as to provide general market updates, Kardell, assistant commissioner for treasury in the state's Office of Management and Budget, said yesterday.
Under its existing advisory contracts, the state uses Public Financial Management Inc. to advise on its GO refundings and Ehlers & Associates Inc. on its 9-1-1 revenue bonds.
Financial advisers picked by the state would assist officials in exploring the option of marketing some portion of GO sales to retail investors, of creating a state Web site to promote bond sales, and of developing a more formal "targeted and effective investor relations strategy," according to the RFP.
"Anything we can do to make state information more available and helpful to investors, I think, is going to be useful in making our bonds as attractive as possible," Kardell said.
Minnesota would also seek advice from firms on a proposed $1 billion appropriation-backed deal that Gov. Tim Pawlenty has included in his fiscal $57.6 billion 2010-11 budget with repayment tied to the state's $200 million in annual tobacco settlement payments. Officials would use proceeds to pay debt service on other bonds as part of a plan to eliminate a nearly $5 billion deficit.
The state is also looking at financing statewide accounting and tax systems using certificates of participation and pursuing public-private partnerships. Assistance would also be sought in updating 30-year-old debt management guidelines.
The office also is seeking help in assessing the value of Build America Bonds and wants an adviser with experience in cash-flow certificate issues as an option to help liquidity if needed. The state's goals in seeking advice from firms is to keep borrowing costs down, maintain and improve state ratings and improve its standing with investors to ensure market access.
Kardell said it was always her intention when she took over the reins of debt manager early last year from Peter Sausen to look at what additional financing tools and advice would be needed to best manage Minnesota's debt, but the market turmoil of the last year has heightened the need for action.
"We really need to be able to have comprehensive guidance available for all of our existing programs and additional programs that might be authorized," Kardell said, adding that without a general financial advisory contract she has little access to market data unless she calls personally upon industry friends for a favor. "That, to me, feels like a handicap."
Although it's a rare issuer, Minnesota felt directly the impact of the market turmoil last fall. As Kardell's team was readying a $440 million transaction last fall, the market froze following Lehman Brothers' bankruptcy. The state delayed the transaction and watched for other large competitive deals to hit the market first, but was forced to put off the deal until earlier this year as it awaited the latest formal revenue forecast.
Minnesota typically holds two new-money GO sales annually, with their size each in the $200 million to $500 million range depending on cash-flow demands for projects. All of the state's GOs are in a fixed-rate mode, as the state lacks statutory authority to issue floating-rate debt.
The state also faces a 20-year limit on maturities, and GOs must be sold competitively. It has $4.65 billion of outstanding GOs that are rated Aa1 from Moody's Investors Service and AAA by Fitch Ratings and Standard & Poor's, although Fitch assigns a negative outlook.
While the budget is still winding through the legislative process ahead of a May 18 deadline for passage, authority to give the state the ability to sell GOs through negotiation is currently before a conference committee. It's part of the state's bonding bill package.
The House package relies on $200 million of debt and the Senate version $330 million. A separate bill before a conference committee would allow the state to issue BABs.
The state has $75 million of outstanding 9-1-1 bonds with authority to sell $153 million more, and the state's next GO issue is expected in July although it has not yet been sized, said Kardell, who has spent much of her career working for independent financial advisory firms in Minnesota.
She left Ehlers to join the state last year. Before moving over to Ehlers in 2006, she had long worked for PFM and Evensen Dodge, which was acquired by PFM in 2003. Prior to 1988, she worked for local and state governments.