Rhode Island’s $144.7 million, three-part bond deal tomorrow will be the first in which an entire state has been designated a “recovery zone.”

The state’s general obligation deal includes $80 million of recovery zone economic development bonds. It will be the second-largest RZEDB deal sold since the taxable recovery zone bonds were created under the American Recovery and Reinvestment Act of 2009. Issuers are provided with a 45% federal subsidy on interest costs for capital projects in areas designated as recovery zones due to high unemployment, foreclosures, and economic distress.

“Sometimes we see counties — which presumably might be an equal size to the state of Rhode Island — issue some recovery zone bonds that declare the entire county a recovery zone,” said Fitch Ratings analyst Alexandra Edwards. “That’s not directly comparable, but it’s something you see on the local side.”

The five counties of Rhode Island were allocated a combined $87 million of RZEDBs. Providence also received an allocation of $13.9 million. Whereas Providence is able to issue the bonds itself, the state’s counties could not.

“In Rhode Island, we don’t have a county government structure that’s capable of issuing debt,” said Mark Dingley, chief of staff and chief legal counsel to state Treasurer Frank Caprio. “Since we don’t have counties officially in Rhode Island other than for geographic reasons, the counties could not issue the debt so it was generally felt it made sense to issue it at the state level and to consolidate it.”

Last month, Gov. Donald Carcieri signed legislation that ceded the counties’ RZEDB allocations to the state.

“It made sense to have all of Rhode Island designated as a recovery zone since we are one of the unfortunate states leading the unemployment race and by doing that we were able to take advantage of the financing opportunities,” Dingley said.

In March, the state’s unemployment rate was 12.6%, tying California for the third-highest in the nation, according to the U.S. Bureau of Labor Statistics. Nationally, the rate was 9.7%.

Using the taxable recovery zone bonds in place of traditional tax-exempts will save the state an estimated $10 million, Dingley said.

The RZEDB proceeds will be used for statewide transportation projects. The bonds will be marketed as a mix of serials and term bonds with expected maturities from 11 years to 20 years.

In addition to the RZEDBs, the state plans to market $40.9 million of tax-exempt bonds with serial and term maturities from one to 20 years and $23.8 million of federally taxable bonds with serial maturities from one to 10 years. The taxable bond proceeds will be used for certain housing programs.

Barclays Capital is book-running senior manager on the deal.

First Southwest Co. is financial adviser. Partridge Snow & Hahn LLP is bond counsel.

Like Build America Bonds, RZEDBs are taxable, but unlike BABs they have not been widely used as they can only be issued by qualified counties and municipalities. And while BABs receive a 35% subsidy, the larger RZEDB subsidy has resulted in them being dubbed “super-BABs.”

Rhode Island’s RZEDB deal will be the second-largest to date, after Chicago’s January deal, which included $133.2 million of the bonds. Since last year, 122 RZEDBs deals totaling $1.13 billion have been sold, according to Thomson Reuters.

“We haven’t bought one in our group just because there haven’t been that many of them,” said Evan Rourke, portfolio manager at Eaton Vance. Rourke said he had not looked at the Rhode Island deal but was intrigued by the structure.

“It’s something we might take a look at,” he said.

Rhode Island has sold $856.1 million of new-money GO bonds since 2000, according to Thomson Reuters. The state has approximately $1 billion of GO debt outstanding.

Fitch Ratings rates the deal AA with a negative outlook. “Rhode Island’s economic performance has been among the worst of the states in the downturn,” it said in a rating report. On the positive side, Fitch said that the state’s “long-standing financial controls remain in place.”

Moody’s Investors Service rates it Aa2 with a stable outlook and Standard & Poor’s rates it AA with a negative outlook.

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