Rhode Island today will competitively sell $220 million of general obligation tax anticipation notes to provide sufficient cash flow for the state. First Southwest Co. is the financial adviser on the deal, and Partridge Snow & Hahn LLP is bond counsel.Tax revenues that come in to the state and other government entities tend to flow in more heavily toward the end of the fiscal year, according to Peter Kerwin, spokesman for Treasurer Frank T. Caprio. “To tie us over until we receive those revenues, we use Tans, which are issued with the understanding that they will be paid back by June 30,” he said. Rhode Island’s fiscal 2008 ends June 30. Fitch Ratings assigns the six-month Tans a short-term rating of F1-plus, Moody’s Investors Service gives it a MIG 1 rating, and Standard & Poor’s gives a rating of SP-1-plus, all of which are the agencies’ highest short-term ratings.The $220 million of Tans is $100 million more than Rhode Island issued last year at this time for cash-flow management. While the state did not need cash-flow borrowing in fiscal 2005 and 2006, it sold $90 million of Tans in fiscal 2002, $150 million in fiscal 2003, and $200 million fiscal 2004.“The amount of cash-flow borrowing is close to double what it was last year,” said Moody’s senior analyst Nicole Johnson. “It indicates that they’re definitely tighter [financially] and they don’t have much in a way of available reserves to draw on.”Still, Rhode Island’s issuance is “manageable” at less than about 5% of unrestricted receipts, excluding federal aid, according to Moody’s. Additionally, on a percentage basis, the borrowing level remains well below amounts issued in the recession of the early 1990s, a Moody’s report said.The deal amount is “consistent with the financial situation” of Rhode Island, Fitch senior director Laura Porter said. In November, Fitch placed Rhode Island’s approximately $1.5 billion outstanding GO and related state appropriation-backed bonds on rating watch negative after the state’s Nov. 9 revenue estimating conference showed weak tax revenue collections this year, and lowered revenue forecasts for the current and upcoming fiscal years.Moody’s rates Rhode Island’s GO credit Aa3, while Fitch and Standard & Poor’s rate it AA.Rhode Island’s latest budget projections show a roughly $152 million deficit for fiscal 2008 and $383 million for fiscal 2009. The state is constitutionally required to resolve the 2008 budget gap before the fiscal year ends.Standard & Poor’s director Richard J. Marino said that while the state has not yet made any changes to the spending side, it has “been successful in the past years” with balancing the budget. Despite Rhode Island’s budget problems, there is optimism about today’s issuance.“The market is showing interest,” First Southwest managing director Maureen Gurghigian said. “I think a lot of the firms that are going to bid are talking to major institutional investors.”
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