WASHINGTON — North Carolina today expects to competitively sell $487.7 million of general obligation bonds, its first new-money GOs in three years.
The triple-A rated state issued limited obligation bonds and other appropriation-supported debt in 2008 and 2009. However, this will be its first new-money GO sale since Citi bought $502.7 million in February 2007 at a true interest cost of 4.08%.
The Series A public improvement GOs are expected to mature between 2011 and 2030.
The bonds are rated triple-A by Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings.
Parker Poe Adams & Bernstein LLP and the Banks Law Firm PA are co-bond counsel.
The deal will not include Build America Bonds, which have not yet been issued at the state level in North Carolina.
The state consulted with First Southwest Co. about issuing BABs and found that the securities “did not generate significant cost savings” for the state, according to a spokesperson in Treasurer Janet Cowell’s office.
North Carolina has had its share of budget troubles amid the recession. But strong executive-branch intervention to cut spending has aided the state’s credit, rating analysts said.
General fund revenue is expected to decline 1.6% in fiscal 2010 and to grow 2.8% in fiscal 2011.
In February, the state estimated a revenue shortfall of $450 million to $500 million, or 3% of the biennial budget’s revenue.
But Gov. Beverly Perdue in September ordered all state agencies to cut spending by 5%. The cuts saved about $469 million for the state, essentially covering the revenue shortfall.
“Having that unilateral power to go in and cut spending has really helped a lot of states,” said Kimberly Lyons, the lead analyst on North Carolina for Moody’s. “We’ve seen how important that has been.”
North Carolina’s jobless rate has been running above the national average.
In January, it 11.1% unemployment rate was the second highest among states rated Aaa by Moody’s, following South Carolina’s 12.6% rate.
North Carolina’s retirement liabilities pose a growing credit concern. The state has a $28.2 billion unfunded liability in its other post-employment benefits — the highest among states rated Aaa by Moody’s based on the annual contribution of the liability as a percent of the state’s annual revenue.
About $854 million, or 11%, of the state’s outstanding debt is variable rate, according to Moody’s.
North Carolina has five interest-rate swaps outstanding with a mark-to-market value of negative $76.2 million as of June 30, 2009, Moody’s said.
The state has not had to post collateral and the swaps do not pose a credit risk, Lyons said.