SAN FRANCISCO — The prospect of selling Build America Bonds may lead Washington State to a negotiated bond sale for the first time in more than 12 years.
The state treasurer’s office this week issued a request for qualifications for underwriting services.
The Build America Bonds program prompted the state to look at negotiated underwriting, said Chris McGann, spokesman for Treasurer James McIntire.
The BAB program, enacted as part of federal stimulus legislation, allows governmental issuers to issue taxable bonds and receive a direct federal subsidy, as an alternative to issuing bonds on a tax-exempt basis.
“There have been a couple of Build America Bond deals done competitively, but it looks like the large ones have required a negotiated arrangement,” McGann said. “We by no means are abandoning our policy of seeking competitive sales whenever possible, but in some cases the negotiated sale may have better outcomes.”
Washington could issue BABs as soon as September, according to the RFQ, to fund the state’s ongoing transportation capital program, which is financed through motor vehicle fuel taxes with the double-barreled backing of the state’s general obligation pledge.
If the state does issue bonds through negotiation, it would mark a departure from the policies of Michael Murphy, the former treasurer, who insisted on competitive sales through his 12 years in office.
McIntire won the 2008 election to replace Murphy, who retired after three terms.
The state’s last negotiated deal was in January 1997, according to Thomson Reuters.
“Treasurer McIntire ran for office stating pretty clearly that he did not want to limit his access to tools that may be beneficial to taxpayers,” McGann said. “We view this as a tool in the box that could save the state money in borrowing rates.”
The method of sale, and the decision to issue any bonds as BABs, will ultimately depend on what delivers the lowest cost of borrowing, he said.
The state’s official policy for bond sales — one that McGann said has not changed under McIntire — remains to issue fixed-rate debt by competitive bid “unless otherwise necessary to minimize the costs and risks of state borrowing.”
Underwriting firms added to the pool through the RFQ process would be required to submit an additional RFP to participate in each negotiated bond sale.
“We are taking a competitive approach to the negotiated process,” McGann said. “I can’t overstate that.”
Responses to the RFQ are due July 24. The underwriting pool is to be named July 31.
The treasurer’s office issued requests for proposals for financial advisers in early June. Final responses were due today.
Washington plans to issue more than $2.2 billion of GO debt during the current fiscal year, according to the RFQ for advisers.
The state plans to price more than $760 million of bonds competitively Tuesday.
There will be three distinct auctions: for $401.4 million of tax-exempt, double-barreled fuel tax GOs; for $298.8 million of tax-exempt GOs; and $64.9 million of taxable GOs.
Seattle-Northwest Securities is financial adviser.
Standard & Poor’s this week affirmed its AA-plus rating for Washington GOs and Fitch Ratings affirmed its AA rating. Moody’s Investors Service most recently affirmed its Aa1 rating in June.