BRADENTON, Fla. — Mississippi expects to price this week’s largest negotiated deal with a $650.7 million taxable general obligation bond transaction that represents only its second issuance of Build America Bonds.
The fast-growing taxable BAB tool, set to expire Dec. 31, is expected to account for 75% of the deal. The state’s only other sale of BABs since the federal stimulus funding was authorized in February 2009 was a $98.3 million deal last year.
The $650.7 million issuance is only the second negotiated transaction ever brought to market by Mississippi, which typically sells debt competitively. The state traditionally sells a large amount of taxable GOs to support its economic development programs.
Proceeds from this week’s sale, pricing Wednesday and Thursday, will refinance $96.5 million of short-term notes sold earlier this year and provide new money for transportation, general capital, and economic development projects.
The deal is expected to be structured as $234 million of traditional Series D taxable GOs, $45 million of Series E recovery zone economic development bonds, and $371.7 million of Series F BABs. A tax-exempt Series G component may be added if market conditions warrant.
The state will receive a 45% subsidy from the U.S. Treasury Department for the RZED bonds and a 35% subsidy for the BABs. The subsidies are not pledged as security for the bonds.
The Series D bonds are expected to have serial maturities between 2011 and 2023 and the RZED bonds have bullet maturities in 2034 and 2035. The BABs will have serial maturities from 2023 to 2034 and a term bond maturing in 2034 to generate additional investor interest, officials said.
A “very favorable response” from investors is expected, according to Treasurer Tate Reeves.
“This bond sale will benefit Mississippians in all areas of the state,” he said. “Whether it is improvements to our highway infrastructure or aiding in economic development projects, our ultimate goal is to stimulate our economy and spur job creation and economic growth.”
The bonds are rated AA-plus by Fitch Ratings, Aa2 by Moody’s Investors Service, and AA by Standard & Poor’s. All three agencies affirmed the ratings and stable outlooks to the state’s $3.5 billion of outstanding GO debt.
Mississippi has been hit by the economic downturn, particularly with its reliance on the manufacturing sector. Analysts praised state officials for strong financial practices and for taking action to make necessary budget cuts in response to declining revenues. Other concerns include its high debt and pension burdens.
“Mississippi has significant unfunded pension liabilities, leaving state retirement systems with an aggregate funded ratio of 67% as of June 30, 2009,” said a report by Moody’s analyst Ted Hampton.
In response, the state passed legislation this year increasing the employee pension contribution rate to 9% of gross salary, up from 7.25%. Liabilities for other post-employment benefits are $755 million.
Bank of America Merrill Lynch is the book-runner for the Series D bonds and Morgan Stanley is running the books for the Series E and F bonds.
The syndicate for both deals consists of Crews & Associates Inc., Duncan-Williams Inc., Jefferies & Co., Kipling Jones & Co., Loop Capital Markets LLC, Mesirow Financial Inc., Morgan Keegan & Co., and Stephens Inc.
Baker, Donelson, Bearman, Caldwell & Berkowitz PC and Butler, Snow, O’Mara, Stevens & Cannada PLLC are co-bond counsel. Harris, Jernigan & Geno PLLC is underwriters’ counsel.