ATLANTA -North Carolina today will issue $200 million of capital improvement debt that will be sold as limited obligation bonds, marking the first time the state is using such a structure.
The bonds, Series 2008A, will be sold competitively with First Southwest Co. as the financial adviser and Robinson, Bradshaw & Hinson PA as bond counsel. Serial maturities range from 2010 through 2028.
Because they are limited obligation bonds that require the General Assembly to authorize the appropriations to secure them, the bonds have been rated one notch below the state's general obligation bond rating of triple-A. Series 2008A is rated AA-plus by Fitch Ratings and Standard & Poor's and Aa1 by Moody's Investors Service.
Deputy state treasurer Vance Holloman explained that state law has allowed the state to incur different forms of special indebtedness, which is known as the appropriation-supported debt. He noted that an example of that kind of indebtedness includes lease-purchase and installment-purchase indebtedness such as certificates of participation. Instead of using COPs issued by the North Carolina Infrastructure Finance Corp. as it has done traditionally, the state decided to issue these bonds using the limited obligation bond structure.
"We are excited about the introduction of a new, streamlined issuance structure for the state's appropriation-supported debt," Holloman said. "Over the last five years, the state of North Carolina's use of special indebtedness has matured into a financing program. It made sense to develop a structure and documents that reflect the programmatic nature of the debt, rather than a series of stand-alone financings."
In rating this deal, Moody's analyst Kimberly Lyons pointed out in a rating report that going forward the state will be the issuer, centralizing all of its debt issuance through state Treasurer Richard Moore's office.
Lyons also noted that the governor, Mike Easley, must include a request for appropriation in his biennial budget proposal.
"We believe the new structure will benefit both the state and investors," Holloman said. "The state benefits from a streamlined issuance process that should minimize costs over time. Investors, credit analysts, and the rating agencies will benefit from the clarity and standardization and also enjoy better secondary market performance as the program grows through successive issues."
This deal is the first from the state for this calendar year and fiscal year. Sara Lang, a spokesperson for the treasurer, said the lack of paper from the state government reflects the state's practice of going to market on a cash flow need basis only.
She said the state expects to issue grant anticipation revenue vehicle bonds, or Garvees, either late this calendar year or early next year.
"We expect to bring another issue of limited obligation bonds next spring," Lang said. "We also plan a sale of general obligation bonds this fiscal year, probably late next spring."
Including tomorrow's Series 2008A issue, the state has about $2.3 billion of authorized special indebtedness that is expected to be issued utilizing the new structure. Additional issues will be sold as the authorized projects require additional funding.
