CHICAGO — Minnesota today launches its first formal retail-order period for a general obligation sale before opening the $475 million issue of new-money bonds and possibly some refunding bonds to institutional buyers on Thursday.

The state issued a preliminary offering statement early last week that alerted the market to the possible issuance of up to $906 million as the drop in interest rates earlier in the month opened up a range of advance refunding opportunities. However, the rise in rates over the last two weeks has sapped much of the potential savings, and this week’s heavy calendar and expected issuer concessions to attract buyers may not help.

“We are still evaluating refunding opportunities but don’t expect as much unless the market rallies in our favor,” said debt manager Kathy Kardell. The state aims for a minimum threshold of 5% net present-value savings on refunding bonds.

Barclays Capital is the senior manager and Banc of America Securities-Merrill Lynch & Co. and Wells Fargo Securities are co-senior managers. The deal includes a mix of general purpose and trunk highway-supported bonds and a small taxable piece, although all the debt is secured by the state’ full faith and credit pledge.

Fitch Ratings on Monday affirmed Minnesota’s AAA rating on the new sale and $4.6 billion of outstanding GOs. The state expected rating reviews from Moody’s Investors Service and Standard & Poor’s shortly. Moody’s rates the state Aa1 and Standard & Poor’s rates it AAA.

The state’s rating is supported by its debt structure, broad-based economy, and track record of strong management that responds quickly to revenue changes. Factors that offset those strengths includes the recession’s impact on its revenue collections and its depletion of reserves. Minnesota closed a $6.4 billion deficit going into the current fiscal 2010-11 biennium through spending cuts and one-time measures like the use of stimulus funds and the deferral of payments.

“The negative outlook reflects the severity and duration of revenue deterioration in the current downturn and the magnitude of the state’s budgetary challenges in an environment of depleted reserves and limited financial flexibility,” Fitch wrote. “Future rating action will be based on the state’s ability to sustain a budgetary and cash position consistent with the triple-A rating category while maintaining its strong debt profile and practices.”

Kardell said she is interested in seeing the results of the first retail order period. “This will be our first opportunity really to test state and national retail interest,” she said. Minnesota offers residents an exemption on interest earnings from state income taxes.

The debt manager opted to go with a negotiated sale to test the retail waters. Minnesota previously was required by statute to sell all of its GOs competitively, but lawmakers granted Kardell the ability to use negotiated sales for two years beginning July 1 — a measure included in the fiscal 2010-2011 budget — due to the market turmoil that started last year.

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