CHICAGO — Double-A rated Ohio Wednesday will price two series of bonds totaling $58 million to finance cultural, sports, parks, and recreation projects across the state.
The Ohio State Treasurer will issue the bonds. Bank of America Merrill Lynch is the senior manager on the deal. Brennan, Manna & Diamond LLC is bond counsel and Public Financial Management Inc. is financial adviser.
The $58 million of debt comprises a $28 million series that matures through 2020 and a $30 million series that matures through 2025. Debt payments for both series begin in 2013.
The debt is secured by lease agreements that stipulate that the obligation to make payments is contingent upon appropriation of funds by the legislature.
The debt is rated one notch below the state's rating, reflecting the risk that the General Assembly will not appropriate the money needed for debt service, analysts said. That risk, however, is offset by several factors, including Ohio's ongoing reliance on the market for lease-appropriation debt, making timely appropriations more likely, analysts said.
Two of the three rating agencies maintain a negative outlook on Ohio, warning that the state faces several fiscal challenges and has relied heavily on one-time measures to balance recent budgets.
Ohio currently faces an estimated $8 billion shortfall and depleted reserves. Republican Gov. John Kasich is set to unveil a 2012-13 spending plan on March 15.
Moody's Investors Service rates the bonds Aa2 — below the state's Aa1 rating — with a negative outlook in keeping with its negative outlook on the state. Fitch Ratings rates the bonds AA with a stable outlook, below the state's AA-plus, and Standard & Poor's rates it AA with a negative outlook.
Like most states, Ohio has suffered falling revenues over the last few years and has relied on federal stimulus funds to balance its budgets. It also drained its $1 billion rainy-day fund.
"Although the steps taken in the fiscal 2010-2011 biennial budget and the conservative estimate of revenues resulted in balanced operations in fiscal 2010, the reliance on one-time revenues to achieve balance and the expansion over several biennia of the state's responsibility for education funding leaves the state with a structural gap to be addressed in its next biennial budget," Fitch analyst Marcy Block wrote in a report on the upcoming sale.
But the state has started to enjoy a pick-up of revenues so far in 2011, analysts noted. Collections for the first six months of the year were 3.7% above estimates and 6.7% above collections for the same period last year.