SAN FRANCISCO — Oregon will sell $245 million of general obligation debt this week in a deal that demonstrates the strong demand in the market because much of the sale are second refinancings.
The sale will price for retail on Tuesday and for institutions on Wednesday, selling four series of bonds that will have only around $37 million of new money for university capital projects, according to Laura Lockwood-McCall, director of the debt management division at the Oregon State Treasury.
Lockwood-McCall said that even with rules that require the state to get present value savings of 5% or at least 3% if the escrow has an efficiency of at minimum 50%, Oregon will still be able to hit those goals with this sale with a sizeable amount of debt that has already been advanced refunded, and is thus taxable.
“That is why there are so many taxables in there, it’s just rates are great. That’s really the story,” Lockwood-McCall said. “We are looking at more than $20 million in present savings right now.”
The deal will be split into four series with $144 million of the bonds taxable, some of which will be because of taxable debt refundings.
The debt management division worked through the holiday season to prepare the sale for January, a traditionally light month for issuances, according to Lockwood-McCall.
“Hopefully the market is strong this week and we will just walk in and take savings,” she said.
The municipal market was mostly unchanged Monday afternoon trading, according to the Municipal Market Data benchmark yield indexes. Yields on two-year bonds fell one basis point to 0.25%, the 10-year yield also dropped on basis point to 1.86%, and the 30-year yields held at 3.05%.The major ratings agencies kept their AA-plus, Aa1 ratings and stable outlooks for Oregon steady ahead of the sale.
Fitch Ratings said in its report last week that rating is based on the state strong financial management, diversified economy, as well as revenue volatility and a moderate debt load.
“Strong financial management is critical to the rating given a revenue structure largely dependent on the cyclical personal income tax, exposure to voter initiatives with negative fiscal impact, and constitutional ‘kicker’ provisions requiring return of surplus revenues to taxpayers,” Fitch said.
Personal income taxes make up 85% of the state’s general fund revenues, according to Fitch. In 2000, voters approved a constitutional “kicker” provision that requires the state to give back income tax revenues that exceed budget forecasts by 2%.
Standard & Poor’s made similar comments in its report, also released last week, saying Oregon’s credit rating appears to have peaked.
“We do not currently anticipate raising the rating during the two-year outlook horizon due to the state’s proclivity toward revenue volatility and difficulty in accumulating reserves,” S&P said.
Bank of America Merrill Lynch and Citi are co-managers on the sale. Orrick, Herrington & Sutcliffe is the bond counsel.