SAN FRANCISCO — Washington State will sell $1.29 billion of general obligation bonds next week, its largest deal ever, partly to finance a new floating bridge.
The GOs will be broken into two sales that will price on Oct. 13 — $516 million of new money backed by the “triple pledge” of the state and $772 million to refund outstanding debt.
The overall sale will be the largest ever done by Washington, beating the previous record, last year’s $1.16 billion of motor vehicle fuel tax GO bonds.
“It is a lot of bonds,” said Kenneth Naehu, managing director at Bel Air Investment Advisors in Los Angeles. “The lack of issuance over the past six months has really set up a deal like this.”
Naehu said it’s going to be more imperative for some of the larger mutual funds and possibly crossover funds to participate in such a large deal if it is to be successful in the current market.
The new-money bonds for the State Route 520 floating-bridge replacement project are backed first by toll revenues, then by motor vehicle taxes, and finally by the general obligation of the state. They will have maturities ranging from 2017 through 2041 weighted toward the end years.
The refunding piece will be split into about $656 million of various-purpose GO refunding bonds and $116 million of motor vehicle fuel tax GO bonds.
“We think this is a good time to finance and refinance, as we are in a very low interest rate environment right now,” said Chris McGann, a spokesman for state Treasurer James McIntire.
McGann said the state has specific rules governing refinancing rates, and at the current rates it has quite a bit of debt it could refund.
The benchmark 10-year municipal bond yield index rose 15 basis points Wednesday to 2.44%, according to Municipal Market Advisors. It has risen 47 basis points since its record of 1.97% on Sept. 23.
The sale will also be negotiated, something that never happened under the previous treasurer, Michael Murphy, who served from 1997 to 2009.
After McIntire took office, he used negotiation to price taxable Build America Bonds in 2009 and 2010. In July, McIntire sold tax-exempt bonds in a negotiated pricing to offer retail investors a piece of a more than $300 million deal.
“The treasurer campaigned on the idea we will generally go with competitive sales, but in some cases we feel we have some opportunities to get a better deal for the taxpayer through negotiated,” McGann said. “This is a tool in our tool chest.”
JPMorgan will be the lead banker on both sales.
The deal carries Washington’s double-A-plus across-the-board ratings.
Moody’s Investors Service said in a report last week that its Aa1 affirmation stems in part from the state’s strong financial management, but added that Washington is still exposed to the cyclical aerospace industry and above-average debt ratios.
“Washington’s rating outlook is stable, reflecting Moody’s expectation that the state’s finances will remain well-managed despite its recent sizeable budget shortfalls, continuing revenue underperformance, and uncertainty surrounding the timing and strength of the economic recovery,” analyst Nicole Johnson said in the report.
In the state’s current two-year budget, the Legislature closed a projected $4.9 billion shortfall mainly using cuts. The state’s most recent revenue forecast revealed a further $1.4 billion budget gap for the current biennium.
Gov. Chris Gregoire has called a special session next month to tackle the deficit. She has already asked state agencies to prepare for budget cuts of between 5% to 10%.
Most of the new money raised by the sale will be used to fund the construction of the replacement for the State Route 520 floating bridge, a main artery connecting Seattle with Bellevue across Lake Washington.
The new bridge project is expected to cost around $4.65 billion.
The state has so far identified $2.43 billion in funding for the 520 bridge — $1.75 billion from tolls and future federal funds, $550 from state gas taxes, $120 million in sales tax deferral, and $100 from the federal government, according to the state Department of Transportation.
As it stands, Washington is more than $2 billion short.
The bridge tolling, which is expected to bring in $1 million a week, will be mostly used to pay off debt service.
All-electronic tolling will start in December.
Tolls for cars will vary from nothing during low traffic times to $3.50 each way during peak congestion hours, with higher tolls for trucks and other larger vehicles.
Drivers will be charged through transponders attached to their car, and if they lack the electronic pass, a camera will record their license plate and they will be mailed a bill plus a $1.50 surcharge.
According to the state Department of Transportation, 115,000 vehicles use the current bridge each day, though it was designed to handle only 65,000.
Washington has also studied setting up tolls on the other Lake Washington crossing, carrying Interstate 90, to help pay for the 520 bridge that runs parallel. While no decision has been made, the suggestion has spurred opposition from anti-tax crusader Tim Eyman, who has gotten an anti-toll initiative on the state’s November ballot.
It won’t be the first time the 520 crossing has been tolled. The state set up tolling on the original 520 bridge on the day construction finished in 1963 until its debt was paid off in 1979.
In 2007, the state also revived tolling to pay for the upgrade of the Tacoma Narrows Bridge.
The new bridge, which is expected to be open to traffic by July 2015, will expand to six lanes from four and will include space for pedestrians, and the capacity to add light rail.
In November 2008, voters in the Puget Sound region approved a measure to fund light rail across Lake Washington and bus rapid transit on the 520.
The bridge, which will be 115 feet wide with the roadway 20 feet off the water, will use 77 pontoons to support four basic traffic lanes and two transit and high-occupancy vehicle lanes split in both directions. The current 60-foot-wide floating bridge is supported by 33 pontoons and the roadway is 13 feet off the water.
Floating bridges are typically made of large, watertight concrete pontoons connected end to end.
One of the bridge’s pontoons — 28 feet tall, 75 feet wide, and 360 feet long — weighs more than 11,000 tons, equal to 23 Boeing 747 jets, according to the DOT.
The pontoons will be built on land near the lake and then floated to the bridge site and held in place by steel cables connected to anchors in the lake bed.
Washington has more floating bridges than anywhere in the world, and the four longest and heaviest floating bridges — the current 520 bridge, the two Interstate 90 bridges across Lake Washington, and the State Route 104 Hood Canal Bridge.
