CHICAGO — Ohio next week will price $170 million of taxable Build America Bonds that feature the state's highest credit rating to finance improvement projects.
The highway capital improvement bonds carry the state's general obligation pledge as well as a pledge of highway user revenue. Made up mostly of gas taxes, Ohio's highway user revenues totaled $2.6 billion last year, providing 12 times debt-service coverage, state officials said.
Standard & Poor's rates the debt AAA, Moody's Investors Service rates it Aa2, and Fitch Ratings rates it AA-plus. The latter two are based on the state's GO rating,
The sale is scheduled for April 14. Morgan Stanley & Co. is the senior manager. Fifth Third Securities Inc. and William Blair & Co. are co-seniors. Five additional firms will be co-managers. Scott Balice Strategies LLC is financial adviser. Roetzel & Andress LPA and Forbes, Fields & Associates Co. are co-bond counsel.
The transaction is expected to include $170 million of taxable BABs, though it could also include a small piece of traditional tax-exempt debt, said Jake Wozniak, director of the office of debt management in the state treasurer's office.
The debt will mature from 2018 through 2025. The 15-year final maturity is a shift for the treasurer's office, which typically pays off most of its debt within 10 years.
"Our highway bonds are structured on the very conservative end," Wozniak said. "Given that we're in such a low-rate environment and that we have this federal subsidy, we had an internal discussion and decided that moving from 10 years to 15 years is a reasonable and measured approach."
One of the state's most active debt issuers, the state treasurer has $648.5 million of outstanding debt. The average life of the outstanding bonds is three years. After this issue, the average life will be 4.7 years, Wozniak said.
The sale will mark the sixth taxable BAB transaction the treasurer's office has worked on since the program became available last year under the federal stimulus act. The program has worked well so far, Wozniak says, with subsidy payments coming in on time and the state saving thousands in interest payments.
If the direct-payment subsidy rate were to drop to 28% from the current rate of 35% — as proposed in President Obama's 2011 budget — it is uncertain whether the program would continue to be as popular with Ohio officials.
"It's a math equation," Wozniak said. "It's possible it can make sense, though in this [interest rate] environment, I would guess that we would probably be back in the tax-exempt realm."
Proceeds from the bond issue will finance eight major highway projects and 150 smaller projects across the state.
Next week the treasurer's office will begin to prepare for its next two bond issues — a Garvee issue that will total between $215 million and $250 million, and a smaller Innovation Ohio issue for $20 million. The Innovation Ohio bonds will fund loans for private businesses.