“Our financial advisor believes that our best timing to sell would be before the FOMC meets,” said Sandra Thompson, director of Tennessee’s Office of State and Local Finance.

BRADENTON, Fla. – Tennessee plans to price $416.3 million of top-rated general obligation bonds ahead of the FOMC’s upcoming two-day meeting.

A retail order period is set for Monday, with priority to purchases given to Tennessee residents, followed by institutional orders Tuesday.

Morgan Stanley & Co. is the book-runner. Public Financial Management Inc., is the state’s financial advisor.

Tennessee’s annual GO offering will largely finance capital needs, and the timing for the sale is strategic, a top state official said.

The Federal Open Market Committee meets Tuesday and Wednesday, amid ongoing conjecture that interest rates will rise before the end of the year.

“Our financial advisor believes that our best timing to sell would be before the FOMC meets,” said Sandra Thompson, director of the Office of State and Local Finance.

Tennessee’s GOs are backed by the state’s full faith and credit, as well as a lien on all fees, taxes and other revenues allocated to the state's general fund, debt service fund, and highway fund, a factor noted by several analysts.

The offering is larger than some in recent years partly because it is financing economic development incentives, according to Thompson.

The transaction is structured with $320 million of new, 20-year GO bonds and about $96.3 million of bonds that will refund a portion of debt issued in 2009 and 2010.

The transaction will only include serial bonds as is the state’s custom to maintain level debt service, Thomson said.

The refunding is estimated to achieve present value savings of $7.6 million or 7.33%, although the savings and size of the refunding depend on market conditions.

The new-money bonds will take out $106 million in commercial paper that the state uses as short-term financing for capital needs, and will provide another $214 million for local, state and higher education projects as well as grants for new and expanding businesses.

“We haven’t issued long-term bonds for [the Department of] Economic and Community Development since 2012, so that is driving the larger size of this deal,” Thompson said.

Projects benefitting from bond proceeds include Hankook Tire, a Korean company building its first U.S.-based production facility in Clarksville; Beretta, the Italian firearms company that is moving its U.S. manufacturing facility from Maryland to Gallatin; and a pending expansion project of a major vehicle manufacturer.

The bonds are rated AAA by Fitch Ratings and Aaa by Moody's Investors Service, both with stable outlooks.

Standard & Poor's changed the state’s outlook to positive from stable while rating the bonds AA-plus, saying that it expects to raise the rating in the next 12-to-18 months based on continued improvement to the state's financial position.

“The revised outlook reflects what we view as an improvement to the state's short-term and long-term financial performance as evidenced by the state's growing reserves and positive year-to-date performance, as well as its continuous sound management of its long-term liabilities,” said S&P analyst John Sugden.

All three agencies noted that Tennessee maintains a conservative, low-debt profile that includes a well-funded pension system that has benefited from four decades of funding its required annual contributions.

While the state’s growing economy includes a large manufacturing sector, analysts said that also makes the economy vulnerable in recessions.

S&P said revenues are performing well relative to the budget, although there could be some economic fallout due to “a strong dollar, lower demand from its trade partners, or issues at Volkswagen.”

According to Sugden, “it is still too early to tell what impact, if any, the recent emissions testing scandal will have on Volkswagen's operations in the state.” The German automaker employs 2,500 at its Chattanooga plant and has invested $500 million of a $900 million expansion project that the state estimates could add 1,000 to 1,500 jobs.

While the state has provided incentives to assist with the expansion, payments must meet certain milestones, S&P said.

Tennessee’s GO bonds receive high demand from investors, Thompson said.

“There is some pent-up demand for it because we only go to market for GO debt once a year normally,” she added.

Co-managers on the deal are Bank of America Merrill Lynch, Piper Jaffray, and Raymond James & Associates Inc.

Hawkins Delafield & Wood LLP is bond counsel. Bass Berry & Sims PLC is counsel to the underwriters.

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