Washington's $1.3 billion GO deal attracts strong investor interest

Melissa Ponder

The market readily absorbed Washington state's $1.3 billion combined tax-exempt and taxable bonds sold competitively Tuesday despite the recent lawmaker-governor scuffle over a millionaire's tax as officials try to close a budget deficit.

The ratings on the issue — Aaa from Moody's Ratings and AA ratings from Fitch Ratings and S&P Global Ratings — helped it achieve solid demand. All agencies assigned stable outlooks.

"Our credit ratings are the key to obtaining low interest rates, reducing interest payments on the state's capital and transportation projects, and ensuring we're able to withstand external economic pressures for an extended period of time," Washington State Treasurer Mike Pellicciotti said in a statement.

Moody's said its Aaa rating reflects the state's "strong economic fundamentals with real GDP growth outperforming the U.S. in 19 of the past 20 years, healthy per capita income representing 106.8% of U.S. and favorable demographic trends."

Revenues came in $500 million below forecast in September, meaning lawmakers face more tough choices in this year's supplemental budget after approving a fiscal 2025-27 budget in May that included $8.7 billion in tax increases over the four-year budget outlook and $5.9 billion in program cuts in a $77.9 billion balanced two-year budget.

"All U.S. states face emerging credit challenges amid deteriorating macroeconomic conditions and a less supportive federal policy environment and we expect that Washington is well-positioned to navigate these headwinds given its fiscal autonomy and budgetary flexibility," Moody's analysts said in the ratings report.

The state's bonds "remain an attractive investment thanks to Washington's long-term fiscal stability," Pellicciotti said.

The state sold $774 million in various purpose general obligation bonds, $220 million in taxable GOs, and $298 million in motor vehicle fuel tax and vehicle-related fees GOs in its' first competitive sale of 2026.

Montague DeRose and Piper Sander were co-municipal advisors. Foster Garvey was bond counsel.

Proceeds from the $774 million Series 2026C bonds will pay for K-12 school renewal and replacement projects, facilities for state universities and community and technical colleges, affordable housing and various other capital expenditures.

The $298 million Series 2026D bonds will pay and reimburse state expenditures for construction of state and local highway improvement projects identified as Move Ahead Washington or Connecting Washington transportation projects, and other improvements, included in the state's 2025-27 biennium budget.

The $220 million 2026T-2 Series taxable bonds will fund or reimburse the state for various capital purposes, including affordable housing, water supply and broadband improvement projects and clean energy and basic infrastructure projects. 

The $773.6 million tranche was split into more digestible bid groups, according to the state treasurer's office.

The state received six bids for the $235.8 million sold as Bid Group 1 (maturities 2035-2041). BofA Securities submitted the best bid with a true interest cost of 3.27%.

The state received five bids for the $537.7 million sold as Bid Group 2 (maturities 2042-2051). BofA Securities won the bid with a 4.45% TIC.

On a combined basis, the $773.6 million Series 2026C VPGO bonds sold at an aggregate TIC of 4.16%. The final maturity date for Series 2026C bonds is February 1, 2051.

The $229.1 million taxables garnered seven bids for the MVFT/VRF GOs (maturities 2027-2035) with J.P. Morgan Securities submitting the winning bid with a TIC of 3.98%.

The $297.9 million tranche attracted five bids for the MVFT/VRF GOs (maturities 2027-2051) with Wells Fargo submitting the winning bid with a TIC of 4.02%.