CHICAGO — Missouri, a triple-A rated and rare borrower, will competitively sell $125 million of refunding and restructuring general obligation bonds today in a deal crafted to achieve near-term budget relief and long-term debt-service savings.
Columbia Capital Management Inc. is the state’s financial adviser. Gilmore & Bell PC is bond counsel. The Martinez Law Firm is co-bond counsel.
The state is required under law to issue its GOs competitively. Missouri typically receives three to seven bids on its sales and is hoping for even more competition, since it has received heightened interest from potential bidders interested in high-grade, tax-exempt paper from an infrequent issuer.
“Our financial adviser is getting calls from underwriters who have expressed interest in bidding and have said it’s been a while since they’ve seen this paper,” said Mark Kaiser, director of the state’s division of accounting in the Administration Department who manages debt issuance with assistant director Stacy Neal.
Columbia proposed a debt restructuring last year to provide budgetary relief by delaying some maturities coming due in fiscal 2011 and 2012. Kaiser said given the state’s tight budget and faltering revenue performance, officials were interested, but only if there was also a significant savings with present-value savings built into the transaction.
“We didn’t want to do a restructuring just for budget savings but we feel what we’ve put together, with Columbia’s help, is a nice package now with economical savings, too,” Kaiser said.
Missouri will push off $30 million in debt service due this year and $5 million next year. At the same time, it will cut 10 years off the final maturities on various bonds series, increasing debt service in 2013 through 2023 to do so. Overall, the transaction will achieve a level of 8% in net present-value savings. The bonds being refunded with the transaction include stormwater control, water pollution control, and state building GOs.
The state has no other refundings slated, and no new-money transactions were approved by the General Assembly during its spring session. Kaiser said during tough economic times, lawmakers typically focus on budget management and shy away from issuing new debt. The Missouri Highways and Transportation Commission has also exhausted its bonding capacity.
State revenue has faltered under overly optimistic projections, resulting in several rounds of budget cuts. After pushing government reforms and trimming $650 million to balance the fiscal 2011 budget, Democratic Gov. Jay Nixon last month slashed another $300 million when he signed into law the new $23.3 billion budget for the fiscal year that began July 1.
Missouri is not yet in the clear. Budget officials last week reported that fiscal 2010 revenue of nearly $6.8 billion was down 9.1% from the previous year, with income taxes falling 7.6%.
Ahead of the sale, all three rating agencies affirmed Missouri’s top marks on $530 million of outstanding GOs. They also affirmed $627 million of appropriation-supported debt at one notch lower.
“The rating reflects our view of the state’s strong and diverse economic base, good financial management, and strong reserves in the form of a budget reserve fund that can only be accessed under certain circumstances,” Standard & Poor’s analyst Corey Friedman wrote.
The budget reserve is equal to 7.5% of net general revenues, totaling $527 million, and has not been tapped to offset revenue shortfalls. The government can dip into the reserve for liquidity purposes but it must repay any draws during the fiscal year by May 15.
“Missouri’s highest-quality credit rating is based on a history of financial discipline demonstrated by the state’s consistently high available fund balances,” according to Moody’s Investors Service.
The state continues to lose manufacturing jobs. Its economic growth lagged that of the U.S. as a whole between 2004 and 2007, but Missouri has fared better than the nation in the current recessionary period, Fitch Ratings noted. Employment in the state fell 3.6% in 2009, compared to a 4.3% decline nationwide.
The fiscal 2011 budget does not assume — as some other state spending plans for fiscal 2011 do — an extension of special Medicaid funding.