CHICAGO — Ohio will price $50 million of taxable general obligation bonds Tuesday to finance bonuses for veterans of recent wars in the Middle East.
The program is a pet project of Democratic Gov. Ted Strickland and comes as he faces a tough re-election battle against Republican opponent John Kasich.
Voters in November 2009 authorized $200 million of GO bonds to finance bonuses of up to $1,500 for veterans of the Persian Gulf, Iraq, and Afghanistan wars. Survivors are eligible for up to $5,000 under the program. Next week’s sale marks the first borrowing to finance the program.
The Ohio Public Facilities Commission will issue the debt.
Fifth Third Securities Inc. is senior manager. Blaylock Robert Van LLC, Jefferies & Co., PNC Capital Markets LLC, Ross, Sinclair & Associates LLC, and Siebert Brandford Shank & Co. round out the underwriting team.
Public Financial Management Inc. is the financial adviser. Dinsmore & Shohl LLP and Forbes, Fields & Associates Co. are bond counsel.
The Ohio Department of Veterans Services will administer the program, use sale proceeds to set up a computer system to process applicants, and establish a fund for the bonuses. The state’s full faith and credit, revenue, and taxing power back the bonds, which mature from 2012 through 2025.
Excluded from the pledge are highway user receipts and state lottery proceeds.
Ohio traditionally markets heavily to local retail buyers, but it probably will not hold a separate retail order period for the veterans’ compensation bonds, a state official said.
“We recognize that this was a voter-approved and popular program, and Fifth Third is leading, which has strong retail distribution,” said Liberty Ziegahn, debt and revenue analyst for the Office of Budget and Management. “But our ultimate goal is the cheapest method of financing, which this time may not be retail because it’s a pure taxable deal with a short maturity schedule.”
The state would like to put bonds in the hands of its residents, but does not wish to deter institutional interest, she said.
“We will be taking orders on both,” Ziegahn said.
The Veterans’ Services Department estimates that 20,000 residents will qualify for compensation under the program.
Qualifying veterans would receive $50 for each month of active service, and $100 for each month of service in combat zones, according to bond documents. The maximum bonus for each veteran is $1,500. Surviving family members are entitled to the same compensation that the deceased veteran would have received, and could receive a $5,000 bonus if the U.S. Department of Veterans Affairs determines that the soldier’s death was the result of injuries sustained in the war.
The bill creating the program was popular among all lawmakers, but Republicans opposed financing it with debt. Instead, they wanted to tap into the state’s rainy-day fund. Lawmakers spent much of 2008 and early 2009 debating the measure before passing the bond-financed version.
Fitch Ratings assigned a AA-plus rating to the debt and affirmed the same rating on the $7.1 billion of outstanding Ohio GO bonds. The outlook is stable. Moody’s Investors Service and Standard & Poor’s have not yet released ratings on the upcoming debt issue. Moody’s rates the state’s GO debt Aa1 with a negative outlook, and Standard & Poor’s rates it AA-plus, also with a negative outlook.
Fitch said that Ohio’s sound fiscal management has helped the state weather the recession, and that debt amortization is rapid, with all debt fully retired in 20 years and 73% of GO debt amortizing in 10 years.
Separately, the Ohio Building Authority is expected to enter the market in mid-August with $202 million of refunding bonds that will mark the fourth and final debt restructuring to achieve savings in the current budget.
Together the four refundings are projected to save the state $740 million in the current budget, mainly by pushing back principal and interest payments until 2013.
The Ohio Public Facilities Commission has already completed its two restructurings, and the OBA has also completed one transaction.
