WASHINGTON — Virginia expects to sell competitively tomorrow $328 million of new-money and refunding general obligation bonds, which could include the first Build America Bonds issued by the state.
Virginia, which has held a triple-A rating longer than any other state, will use the new-money proceeds to fund higher education, parks and recreation projects, and other capital needs. The refunding bonds will refinance outstanding GO debt from 2001 through 2006.
Virginia has suffered steep tax revenue declines amid the economic recession, but the state’s military bases and its proximity to Washington, D.C., have insulated employment, analysts said. However, Virginia has made the spending cuts that are familiar to most states.
The legislature’s April amendment to the biennial budget cut higher education appropriations up to 15%, closed two state correctional facilities, and laid off at least 593 employees.
The bonds will be divided into four series. The $100.2 million Series 2009B GOs will mature between two and 25 years. The refunding will be made up of $183.2 million of Series C and D bonds. The Series C bonds will mature between five and 15 years. The Series D bonds will mature between one and 13 years.
The state will accept bids for the Series E bonds as either tax-exempt or taxable Build America Bonds. The $45 million of Series E bonds will mature between two and 20 years.
Virginia debt “always gets a good reception,” said Joseph Paucke, senior vice president at Davenport & Co. in Richmond. The large amount of high-quality debt coming to market this week might compete with the state’s GOs, however. “Virginia gets a premium price” compared with other credits, he noted.
The deal can expect to see less retail demand because of low absolute municipal yields, “but people are always in the market to buy quality,” Paucke said.
Virginia’s last sold GO bonds on June 10 to Merrill Lynch & Co. at a true interest cost of 3.69%. Since then yields have dropped to near record lows. A 10-year triple-A bond yielded 2.57% yesterday, down from 3.32% on June 10, according to Municipal Market Data.
Virginia faces a $1.5 billion budget shortfall by the end of fiscal 2010 and expects to withdraw $283 million from its rainy-day fund to compensate for declining revenues. Following the withdrawal, the fund’s balance will be $300 million, or about 2% of the estimated fiscal 2011 revenue, according to Moody’s Investors Service.
The new balance is “a narrower cushion than recently, but still adequate to help meet unforeseen shortfalls,” Moody’s analysts said in a rating report. Virginia has held a triple-A rating from Moody’s since 1938 when Moody’s first began to rate state and municipal governments, according to the governor’s office.
The state’s unemployment rate has risen during the recession, but it remains below the national average. The state had a 6.5% unemployment rate in August compared with the 9.7% national average.
Analysts expect Virginia’s per capita personal income, the eighth-highest in the country, to remain strong thanks to above-average level of government employment.
Virginia’s ratio of state debt to per capita personal income is 1.9%, below the U.S. median of 2.5%, Moody’s analysts said. Virginia has about 3% of its debt is in variable-rate obligations though the state does not have any outstanding interest-rate swaps, according to analysts.
Richmond-based Troutman Sanders LLP will serve as bond counsel and New York-based Public Resources Advisory Group is financial adviser.
