St. Paul Port Authority Readies State Office Building Refunding

CHICAGO – The St. Paul Port Authority, Minn. expects roughly 20% in present value savings on Tuesday’s planned $117 million current refunding of lease revenue bonds supported by a state appropriation pledge.

RBC Capital Markets will underwrite the issue. The original bonds – issued in 2002 and 2003 -- financed new office buildings and parking facilities in the capital St. Paul.

The bonds will refund $53 million of lease revenue bonds issued for the Freeman office building, which houses the state’s departments of health and agriculture and another $64 million for the Andersen office building, which houses the department of human services. The state will take ownership of the buildings once the bonds are paid off.

About $30 million in savings is expected although that number could change based on market conditions, said Laurie Hansen, the authority’s chief financial officer. The final maturity on the refunding bonds is 2025. The new issue shaves two years off the original maturity schedule.

The bonds are secured by lease rental payments from the state of Minnesota, subject to biennial legislative appropriation. Ahead of the sale, two of three rating agencies affirmed the bonds’ ratings – both one notch lower than the state’s general obligation credit. Fitch Ratings affirmed the AA rating and stable outlook.  Moody’s Investors Services affirmed the Aa2 rating with a negative outlook. Standard & Poor’s had not yet released a report. It rates the state’s GOs AA-plus.

The rating is supported by the state’s solid economic profile and low debt levels. The state’s rating of AA-plus “reflects the state’s broad-based economy with above-average wealth levels, its sound debt profile, and a track record of management that is sensitive to changes in the state’s fiscal environment, with regular reviews of revenue forecasts,” Fitch wrote.

The state’s recovery is all the more important to its credit stability given its reliance on non-recurring revenues – from tobacco bond proceeds and delays in school aid – to balance its last two-year budget after political differences resulted in government shutdown.

“The negative outlook of the state reflects the negative GAAP fund balance, political intractability that resulted in the reliance on one-time measures to solve a $5 billion budget gap in the current fiscal 2012-2013 biennium and the 2011 government shutdown,” Moody’s said.

“We acknowledge the state is at the tail end of the negative effects of the recent recession and passage of a structurally balanced budget will put the state back on a solid fiscal path,” Moody’s added.

The state’s political landscape last November shifted with Gov. Mark Dayton’s Democratic-Farmer-Labor Party taking control of the Legislature.

Reacting to rosier revenue projections last month, Dayton offered a revised two-year $37.9 billion budget proposal that drops earlier proposals to change to the state’s sales tax but leaves intact a proposed income tax increase on top earners.

The income tax hike would raise about $1.8 billion in new revenue over the next two years. It would erase a looming deficit of $627 million and fund $640 million in additional spending on education and provide more funds for economic development initiatives.

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