CHICAGO — Ohio will price two bond deals Wednesday and return to market next week with $118 million of capital appropriation bonds.
Wednesday’s sale includes $120 million of new-money general obligation bonds that will be sold competitively by the Ohio Public Facilities Commission. The borrowing will raise money for grants and loans to local governments for infrastructure improvement projects.
Also Wednesday, the Ohio Water Development Authority will price $64 million of triple-A refunding bonds to achieve savings. That sale is negotiated, with RBC Capital Markets as the senior manager.
The water authority expects to save $9 million, or 16%, by refunding the debt. Much of the savings will be achieved by shortening by six years the bonds’ final maturity, to 2025 from 2018.
“That lets us take advantage of the slope of the yield curve,” said Scott Campbell, the water authority’s chief operating officer.
The agency will achieve the high savings despite the fact that it needs to replace the tax-exempt bonds with taxable debt. The shift to taxable debt is required due to the federal Tax Increase Prevention and Reconciliation Act of 2005. The TIPRA law requires blind pool issuers, like the Ohio water authority, to spend down 30% of proceeds within the first year and 95% within three years in order for the debt to qualify as tax-exempt.
The law took effect in 2005, the same year the authority issued the original tax-exempt bonds that will be refunded this week. The proceeds from the 2005 bonds have been spent, but the agency has decided to be conservative in case the time frame wasn’t met.
“We’re conservatively retroactively applying the law,” Campbell said. “A lot of the state [revolving funds] across the country who are blind pool issuers are also dealing with TIPRA and applying it to their bond issues.”
Because the water bonds are taxable, state debt officials decided it would not be a problem for the authority to price its debt the same day that Ohio is offering GO bonds, a scheduling conflict that would typically be avoided.
Ahead of the sale, Moody’s Investors Service and Standard & Poor’s affirmed their triple-A ratings on the water and wastewater bonds, praising the high debt-service coverage levels and strong borrower credit profile and repayment record.
Rating agencies also affirmed their existing ratings on Ohio ahead of Wednesday’s competitive sale of GO infrastructure improvement bonds.
Standard & Poor’s and Fitch Ratings rate the state AA-plus with a stable outlook. Moody’s rates it Aa1 with a negative outlook.
Next week, the state is expected to bring $118 million of new-money, capital facilities lease appropriation bonds to market. The issue is divided into six separate series, and proceeds will be used to finance various capital projects at state facilities. The General Assembly has already approved the projects.
The borrowing — which is rated one notch below the state’s GO rating — comes as Gov. John Kasich prepares to unveil a new two-year capital budget in the next few weeks.
