CHICAGO - Ohio plans to enter the market up to eight times over the next four weeks with a series of new-money and refunding issues, including a $300 million single-family housing mortgage revenue bond issue.
"We've got a fairly busy schedule in the next few months," said Kurt Kauffman, Ohio's state debt manager at the Office of Budget and Management.
The state's planned borrowing comes as Gov. Ted Strickland pushes for a new $1 billion jobs-creation program that would rely fully on the sale of new bonds. The program is meant to jump-start Ohio's slowing economy, which is also partly to blame for a recently announced budget shortfall of at least $733 million.
State officials expect to have draft legislative language embodying the $1 billion borrowing to the General Assembly by early March. Voters would also need to approve the plan.
Seven of the eight upcoming bond issues will use a fixed-rate structure, while the mortgage revenue bonds may include a floating-rate piece. "We're not planning on increasing our variable-rate debt exposure at this time, but we have had a lot of success with that mode," Kauffman said. "Obviously we wouldn't be moving into the auction-rate mode - no one is."
Ohio has roughly $725.4 million of outstanding general obligation variable-rate debt - about 8% of the state's total $9 billion GO portfolio. The state has also entered into eight swaps, seven synthetic-fixed and one synthetic-variable. Ohio has no auction-rate securities that are backed by state revenues, though a few state bond-issuing agencies have some auction-rate debt, according to Kauffman.
The Ohio Housing Finance Agency's $300 million sale, tentatively scheduled for the week of March 10, may include some floating-rate debt as the finance team puts together the final structure, said Bob Connell, director of debt management for the housing agency.
The issue will likely include a mix of taxable and tax-exempt debt - the agency began issuing taxable bonds in mid-2006 as a way to avoid hitting up against its tax-exempt volume cap limit. The housing agency typically enters the market three times a year to finance a program designed to assist first-time homebuyers. Demand dictates the size of each issue, said Connell, who expects the agency will likely issue a total of about $900 million this year - an amount on par with last year.
George K. Baum & Co. is the lead underwriter on the deal, and RBC Capital Markets is the financial adviser. Bond counsel is Peck, Schaffer & Williams LLP.
The housing agency is also considering selling taxable bonds to finance its existing refinancing program, which is currently financed with agency funds, Connell said.
The Ohio Building Authority plans to enter the market Feb. 27 with a pair of $50 million new-money special obligation bond sales. Proceeds of one sale would finance improvements to the state's prisons and local jails, while proceeds from the other would fund a series of facility improvements and construction for a wide range of state agencies. The bonds are special obligations subject to biennial appropriations, with debt service being paid with lease payments.
JPMorganis underwriter on the transactions, with Porter, Wright, Morris & Arthur LLP as bond counsel.
The Building Authority is also considering a $40 million special obligation refunding.
Meanwhile, the Ohio Public Facilities Commission has three planned refundings totaling $125 million that the agency will move to sell only if the market proves favorable, Kauffman said.
State finance officials are watching interest rate movement as current spreads between treasuries and municipals would result in negative arbitrage that would cut too deeply into planned savings. "If we were doing it today it's unlikely, because of the negative arbitrage in the escrows," Kauffman said. "The significant negative arbitrage is hurting the economics of refundings. We have to make sure we can mitigate that," he said. "But we still have enough time between now" and the current sale date of Feb. 28.
The state also plans to sell $34 million of certificates of participation notes that would fund the continued transition to a new comprehensive software system.
The state's GOs are rated in the double-A-plus category, while its special obligation debt has a double-A rating.