LOS ANGELES — The historic political crisis in Oregon that resulted in the sudden end of its long-serving governor's political career was a non-event for the municipal bond market.
The turmoil had no impact on a $31.1 million competitive general obligation bond sale Wednesday, said Patrick Clancy, a managing partner with Western Financial Group, the state's financial advisor.
The bonds were priced on the same day Oregon got a new governor.
John Kitzhaber's sudden resignation was announced Friday, but officially executed on Wednesday, less than six weeks after he was sworn in for his unprecedented fourth term.
Secretary of State Kate Brown became governor at 10 a.m. Wednesday under the state's succession plan.
She will serve until the election of a new governor at the next general biennial election on November 8, 2016, according to a supplement attached to the bond documents.
Kitzhaber, a Democrat, resigned under pressure from his own party's leadership after the FBI launched an investigation into allegations that his fiancé, Cylvia Hayes, a green energy lobbyist, was misusing the governor's office to gain contracts for her company.
Brown is also a Democrat.
"Everyone was sad," Clancy said. "He was a well-respected governor who got caught up in something that none of us can quite explain."
Oregon State Treasury officials decided to go ahead with the sale because it had been planned for four months and a lot of state agencies were counting on the bond proceeds, said Laura Lockwood-McCall, director of the debt management division.
With AA-plus ratings and a stable outlook, Lockwood-McCall said they didn't consider not selling the bonds.
Roughly $28 million is funding local government grants for seismic safety. The remainder will fund environmental quality projects.
"All of the money is spoken for - and we need to get the money out the door," she said.
Lockwood-McCall also didn't anticipate the governor's resignation would impact the bond sale since it didn't directly impact state finances, but was, she said, more of a personal matter related to the actions of Kitzhaber's fiancé.
The bonds drew nine bidders on each of the three series. Bank of America Merrill Lynch won the $13.9 million 2015 Series C with a true interest cost of 2.876%. R.W. Baird won the $12.6 million 2015 Series D bonds with 3.871% TIC.
"We could feel that folks wanted some of the bonds," said Clancy, adding that the numbers on the bids were very close.
R.W. Baird came in second on the first series.
"Our feeling was that R.W. Baird sharpened its' pencil before bidding on the second set of bonds," he said.
Goldman Sachs won the third round with a 2.679% TIC on the $4.5 million 2015 Series E bonds.
The state, which doesn't sell competitively often, generally sees 8 to 10 bidders when it does, Clancy said.
"We like to do it on straightforward, mid-size sales that provide deals for the folks who are not in the underwriter pool for the state," Clancy said.
The abrupt change at the top of its executive branch is also not expected to affect Oregon's plans to price $362.2 million in a negotiated GO sale planned for the week of March 2. Citi is lead manager on that sale.
The lead manager rotates up from a pre-selected pool of underwriters, Lockwood-McCall said.
"Government goes on," Lockwood-McCall said. "The projects are still authorized. The rest of the organization and entity continues on."
With the general upward trend in interest rates, Clancy said he is happy the state sold its lottery revenue bonds earlier in January.
The market rallied in January and it is back down to levels seen in December, said Mark Stephenson, a senior vice president and municipal bond trader in D.A. Davidson's Portland office.
Only one rating agency, and no investors, called to ask about how the change in governors might impact the bonds, Clancy said.
"This matter didn't raise questions about the fundamental financial dealings in the state," Clancy said. "It raised questions about the character of a long-time politician, but it didn't raise questions about Oregon government."
One Democrat replacing another Democrat doesn't presage a sea change in policy.
"Oregon has been in the national news for all the wrong reasons," Brown said Wednesday after she was sworn in.
"That changes starting today. It's time for us to get back to work," she said.
"It is our impression that it wouldn't be a radical departure from the prior governor," said Standard & Poor's Analyst Gabriel Petek.
Brown, who was in her second four-year term as Secretary of State, served 15 years in the state legislature in the House of Representatives and Senate. Her stint includes two years as the Senate majority leader.
Petek mentioned the game of gubernatorial musical chairs in a Wednesday rating report that affirmed the state's AA-plus ratings on the GO debt ahead of the negotiated sale as well as its AA rating on appropriation-backed debt. Fitch Ratings and Moody's Investors Service rated the bonds AA-plus and Aa1.
"It is likely, in our view, that in the future, any number of Governor Kitzhaber's policy priorities will be replaced by those of the incoming governor," Petek and analyst David Hitchcock wrote in the report. "However, the process of developing the 2015-17 biennial budget - premised on Gov. Kitzhaber's recommendations - is already well underway."
Oregon gets an earlier start on its budget process than some other Western states, in which the governor releases a budget in mid-January or early February. Oregon's governor presented his budget in early December.
S&P's view of the outgoing governor's fiscal proposals, including targeting incremental discretionary revenue growth rather than providing across-the-board funding increases, remains in effect, Petek said.
Kitzhaber's budget anticipated $1.8 billion in discretionary general and lottery fund revenue growth. The outgoing governor's proposal was to put the majority toward education, rather than ratchet up growth across-the-board, Petek said.
"It is not a credit factor, because generally who the governor is is not part of our rating analysis," said Marcy Block, a Fitch analyst. "We look at the state's economy, debt position and overall if the management of the state is effective."
The state has very strongly managed fiscal operations, robust employment growth fueling economic expansion, revenue growth and well-funded pensions, Block said of Fitch's reasoning for its AA-plus rating.
