Pennsylvania expects to save employers up to $100 million in interest payments over seven years with its $2.8 billion sale of unemployment compensation bonds, according to the Department of Labor & Industry.
The Series A and Series B fixed-rate bonds are scheduled to price Oct. 3. The Pennsylvania Economic Development Financing Authority is the conduit issuer.
The state in June passed a law providing for the bond sale to pay off the debt to the federal government for unemployment compensation benefits. Gov. Tom Corbett said when he signed the bill that he expects the move to make Pennsylvania's unemployment-compensation fund solvent by 2019.
His administration paid off the principal debt through a short-term loan from Citibank, which state officials said saved $18 million to $24 million for businesses that pay into the unemployment compensation fund. By refinancing federal unemployment loans, Pennsylvania is avoiding federal interest at a rate that would exceed the state's cost of tax-exempt borrowing.
Standard & Poor's assigned a AA-plus rating, while Moody's Investors Service assigned a preliminary rating of Aaa. The issuance will consist of three series, including $302 million in variable-rate Series C bonds, which are scheduled to price Oct. 17.
Series A and Series B are for $1.4 billion and $1.1 billion, respectively. A letter of credit provided by PNC Bank will provide liquidity support for the Series C bonds.
Pennsylvania borrowed roughly $3.9 billion from the federal trust fund to cover unemployment benefits during the recession.