CHICAGO – Wisconsin heads into the market over the next week with nearly $1 billion of debt in three deals, including a transportation revenue deal amid debate over how to address the state’s unfunded transportation needs.
The transportation issue totals $285 million and will price Tuesday, said capital finance director David Erdman. It will raise $96 million of new money to fund highway and facility projects with the remainder refunding outstanding bonds for savings. The fixed-rate bonds mature from 2020 through 2037.
The state also will price on Tuesday a $403 taxable appropriation-backed refunding and return next week with a $271 million environmental improvement fund revenue bond issue that includes $202 million of tax-exempt paper and $69 million of taxable securities.
JPMorgan is running the books on the transportation sale. Loop Capital Markets LLC is co-senior and three other firms round out the syndicate. Robert W. Baird & Co. is advising the state. Quarles & Brady LLP is bond counsel.
The bonds carry ratings of Aa2 from Moody’s Investors Service, AA-plus from both Fitch Ratings and S&P Global Ratings, and AAA from Kroll Bond Rating Agency.
The state is tapping a $144 million new money authorization and a $375 million refunding authorization approved in 2016 for Tuesday’s sale.
“The credit has a first lien pledge of program income which includes vehicle registration fees and other vehicle registration related fees,” Erdman said. Pledged income flows directly to a redemption fund that’s operated separately from the state’s transportation fund which is not pledged.
Vehicle registration fees make up more than 80% of the income pledged to bond repayment with title transaction and other vehicle registration related fees making up the rest. Maximum annual debt service coverage is 3.22 times with $1.9 billion of total debt outstanding under the program established in 1986 and $89 million of subordinated commercial paper.
Moody’s said its rating reflects the long stable trend of pledged revenues, conservative debt structure, and adequate leverage constraint as well as the state’s proven track record of active program management, including increasing fees when necessary.
Debt service is not subject to appropriation and the state pledges not to limit terms of repayment or impair bondholder rights.
"The ratings reflect our view of the strength and quality of the pledged revenue," said S&P Global Ratings analyst Carol Spain.
The state’s “substantial” transportation needs, which have the potential to pressure debt service coverage from current and projected levels through additional debt issuance, offset the credit’s strengths, Spain added.
Transportation funding is among the legislative debates heating up as the Joint Finance Committee – the legislature’s budget writing group – will begin voting on pieces of the budget. The group uses Gov. Scott Walker’s proposed biennial budget as a starting point, holds hearings, and then crafts a final plan to send to the legislature.
While the Republican governor enjoys GOP majorities, they are at odds over items like his proposal to cut University of Wisconsin tuition, which has been frozen since 2011, and his $6.1 billion transportation funding package.
Walker has rejected calls to raise taxes to help cover an estimated $1 billion funding shortfall and has proposed $500 million in borrowing. He has vowed to veto a gasoline tax hike. GOP leaders dislike more borrowing and the Joint Finance Committee in early April scrapped Walker’s proposal and said they will formulate their own plan.
Walker’s $76 billion budget offers a mix of tax cuts, more school funding although it’s tied to district’s adherence to a state law that curbs union powers, and the lowest bonding authorization in years.
The two-year plan authorizes a little more than $1 billion of borrowing, including general obligation debt of $334.8 million, $165.2 million of revenue-backed bonding, and $500 million of transportation related borrowing, the lowest level since 2003. The budget calls for a direct transfer of $20 million to the state’s modest reserves.
Tuesday's $403 million of annual appropriation refunding bonds mature between 2018 and 2033. It’s a “well recognized credit” in the market” that was first introduced in 2003 with $3.14 billion currently outstanding, Erdman said.
The deal is being led by Wells Fargo Securities. Stifel Nicolaus & Co. is co-senior and four other firms round out the syndicate. Acacia Financial Group is financial advisor and Quarles & Brady is bond counsel.
The appropriation bonds are notched one level below the state’s general obligation ratings all of which are at the Aa2/AA level. Moody’s assigns a positive outlook.
The state’s environmental improvement bonds will price on May 9. With the sale proceeds and additional funds on hand, the state will defease its clean water revenue bonds.
It will refinance all existing loans that secure the state’s separate clean water revenue bond program, transferring those loans to pledged loans under the environmental improvement fund. The clean water and safe drinking water fund make up the environmental improvement fund program.
All totaled the pledged loan pool includes 285 borrowers and totals $1.7 billion. The Milwaukee Metropolitan Sewerage District, which carries high-grade ratings, accounts for 35% of the total amount.
Citi is running the books. Piper Jaffray & Co. is co-senior and another four firms round out the syndicate. Public Financial Management Inc. is advising the state and Foley & Lardner LLP is bond counsel. The bonds carry triple-A ratings from Fitch and S&P.
