DALLAS - New Mexico will sell about $219 million of severance tax bonds by competitive bid today to finance scores of projects throughout the state.
The annual deal encompasses capital spending authorized by the Legislature's recent session and follows a schedule that has become fairly predictable over the years. The State Board of Finance has developed the structure for the issue with financial advisers Fiscal Strategies Group Inc. of Swarthmore, Pa., and Public Resources Advisory Group of Los Angeles. Bond counsel Sutin, Thayer & Browne has certified the debt as tax-exempt.
This year, state lawmakers approved 65 projects, including an $800,000 renovation of New Mexico's sports arena known as the Pit, $5 million for new school buses, $1 million for athletic facilities at New Mexico State University, and $1.4 million for redevelopment of downtown Tucumcari.
The state retains double-A ratings that represent a threshold of investor interest in the risk-averse muni market. Bonds rated below that have struggled to find buyers without insurance, which has also become scarce due to a series of downgrades of bond insurers. The 11-year maturities are expected to appeal to investors looking for short-term positions.
Standard & Poor's last week affirmed its stable outlook along with its AA rating.
"The stable outlook reflects our expectation that despite the state's forecast of declining revenues and additional bond plans, severance tax collections will continue to provide strong debt service coverage in the bonds' relatively short 11-year life," said Standard & Poor's credit analyst Sussan Corson. "The outlook also reflects our expectation that natural gas and oil reserves will continue to be replenished to maintain sufficient production over the bonds' life."
Moody's Investors Service conferred its Aa2 with a stable outlook, also last week.
On the softer side of severance taxes is the volatility of natural gas and oil prices and production levels, which account for the bulk of pledged revenues. New Mexico also has geographic hurdles in transporting the fuel to the large markets.
Moody's analysts Kimberly Lyons and Maria Coritsidis noted the wild swings in energy production, with a decline of 4% in 2007, followed by a 13% surge in 2008. Fiscal 2009 revenues are projected to decline by 9%.
Revenues are projected to decline by an additional 36% in fiscal 2010 and then to rebound slightly in 2011.
"The state has typically exhibited a cautious approach to out-year projections that protects against over-leveraging, and has maintained debt service coverage levels above legal requirements," the Moody's analysts noted.
A lien on money deposited into the severance tax bonding fund - including net tax receipts generated from natural gas, oil and other natural resources in New Mexico - secures the severance tax bonds. A second lien on pledged revenues secures the supplemental severance-tax bonds.
"The state's capital management process allocates limited bonding capacity effectively, thereby reducing pressure to fully leverage pledged revenues, and debt management policies are conservative," according to Moody's.
