With a bankruptcy in Central Falls and pension-debt problems engulfing her state, Rhode Island General Treasurer Gina Raimondo has announced a bond sale for next week, accompanied with a marketing campaign.
Calling the bond issuance “Invest RI,” Raimondo said a two-day retail order period will begin Monday, with the institutional sale scheduled for Wednesday. Rhode Islanders will get first priority, she said.
The deal contains a $145 million Series A -- of which $144 million will be sold in $5,000 increments and $1 million in $1,000 increments -- and a $24.2 million Series B, which will be sold entirely in $5,000 increments. Raimondo said the $1,000 increments might attract smaller investors.
The state will spend $35,000 to advertise the bonds in newspapers and on radio, in an attempt to market the bonds while portraying Rhode Island in a positive light.
Central Falls, a city of one square mile and about 19,000 people, filed for Chapter 9 bankruptcy protection on Aug. 1 and faces an $80 million unfunded pension plan.
The state’s pension fund, meanwhile, plummeted in value to $6.1 billion in June 2009 from $8.4 billion in January 2008, a 27% drop. In May, five months into her first term, Raimondo, issued a report saying the annual costs of pension funds could skyrocket to $1 billion by fiscal 2022. She called for an overhaul of the state’s pension system.
Raimondo also said Rhode Island’s retirement plan for state employees and teachers could run completely out of assets between 2019 and 2023, much sooner than most public plans in other states.
The Securities and Exchange Commission, meanwhile, is investigating the state’s bond-disclosure practices.
Raimondo and first-term Gov. Lincoln Chafee began a 12-member pension advisory panel in late May. The group was scheduled to hold its third meeting on Wednesday and is expected to craft a proposal for a special session of the General Assembly in October.
According to Raimondo, the bond proceeds will support transportation, education and open-space projects, including improvements to the Rhode Island Public Transit Authority bus fleet, a new chemistry building at the University of Rhode Island, completion of a public park at the site of the former Rocky Point Amusement Park in Warwick, and renovations to Fort Adams State Park along Newport Harbor.
Robert Childree, a director in the global public sector group at consulting firm Grant Thornton LLP and a former Alabama treasurer, said lowering the denominations could be an effective means for a bond issue that is well-executed.
“That’s a decision the issuing government must make,” he said. “If it’s for an issuance to pay for a short-term GO debt, then it might not be wise. But if it’s for an investment such as a capital improvement, education or economic development, then the citizens and the rating agencies will be inclined to look at it more positively.”
Rhode Island in July sold $32 million of Series A 2011 energy conservation project certificates of participation. According to Raimondo’s office, the state sold $7 million to individual Rhode Island investors, who received priority. Proceeds were to benefit the University of Rhode Island; the Pastore Complex in Cranston, which houses state administrative offices; and Zambarano State Hospital in Burrillville.
Moody’s Investors Service on May 31 revised the outlook on Rhode Island to negative from stable and affirmed its Aa2 rating on the state’s GOs. Standard & Poor’s and Fitch Ratings each rate the state AA.
JPMorgan is the senior managing underwriter. Barclays Capital is senior co-manager. Co-managers are Fidelity Capital Markets, Goldman, Sachs & Co., Janney Montgomery Scott, Morgan Stanley, and Oppenheimer & Co.
Edwards Angell Palmer & Dodge LLP is bond counsel, Adler Pollock & Sheehan PC is disclosure counsel, and Hawkins Delafield & Wood LLP is special disclosure counsel, advising on pensions. Moses & Alfonso Ltd. of Providence is counsel to the underwriters.