CHICAGO -- Ohio will sell $400 million of new-money general obligation bonds in a competitive sale Tuesday morning.
Proceeds will finance grants for technology-based startup companies under a state program called Third Frontier Research and Development, as well as capital projects for K-12 schools across the state.
In a first, the state will divide the $300 million schools series into two separate maturity groups in an effort to attract more buyers.
The first group will feature maturities from 2014 through 2023 and the second group from 2024 to 2033. The Third Frontier debt, which is taxable, matures from 2014 through 2023.
The three series will be sold in three separate sales in 15 minute increments Tuesday morning, Larry Scurlock, the state’s assistant debt manager, said.
“The rationale for this is to attract bidders who have different risk profiles and could potentially provide stronger bids on just one of the maturity groups,” Scurlock said. “For example, firms who have a strong retail platform might offer a lower interest rate on the first maturity group than if they were going to have to bid on the entire series,” he said. “The overall intention is to lower the state’s cost of borrowing.”
The Third Frontier sale is the state’s second so far this year and the 11th since voters authorized a $1.2 billion issuance for the program in 2002. Voters in May 2010 reauthorized the borrowing for another 10 years. After this week’s sale, the state will have tapped about $660 million of that authorization.
Fitch Ratings, Standard & Poor’s and Moody’s Investors Service affirmed their AA-plus and Aa1 ratings on the Buckeye State ahead of the deal. Analysts said Ohio’s credit is strengthened by a broad and diverse economy with a moderate debt burden and conservative financial practices that tend to quickly tackle shortfalls.
“The recession had a widespread impact on the Ohio economy, accelerating a longstanding slump in manufacturing and weighing on the slowly growing service sector,” Fitch said in its report on the deal. “However, the state has recorded consecutive months of year-over-year job gains since July 2010, largely incorporating gains in the manufacturing sector as well as in the service sectors.”
The state’s budget stabilization fund was fully funded at 5% of general revenue fund revenues, Fitch added.
Moody’s noted that the state’s economy remains vulnerable to disruptions because of its exposure to the manufacturing sector, but that the ratings firm expects the overall economy to remain stable.
Thompson Hine LLP is bond counsel on Tuesday’s deal and Public Financial Management Inc. is the financial advisor.
The state has several more GO sales on the horizon.
In November it expects to offer just over $100 million of debt. That includes $12 million of so-called veteran’s compensation bonds, where the proceeds are used for bonuses to veterans of the Persian Gulf, Iraq and Afghanistan wars. An infrastructure GO sale is set for January.
Ohio has $8 billion of outstanding GOs and another $2 billion of appropriation-backed bonds.