CHICAGO -Wisconsin will enter the market as soon as today with a $185 million transportation revenue bond sale and will return later this month to issue about $300 million of general obligation bonds before the state's capital finance team shifts its focus to a long-planned tobacco bond restructuring.
The state is tentatively scheduled to price the new-money, fixed-rate transportation revenue bonds today, but may hold off until Thursday depending on possible market fluctuations as the Federal Open Market Committee meets, said capital finance director Frank Hoadley.
The deal and the state's $1.3 billion of outstanding transportation revenue bonds carry a AA rating from Fitch Ratings, a AA-plus rating from Standard & Poor's, and a Aa3 from Moody's Investors Service. Proceeds will fund major new construction and major rehabilitation projects that qualify under the state's transportation bonding statutes.
Lehman Brothers and Ramirez & Co. are co-senior managers, with Cabrera Capital Markets LLC, Goldman, Sachs & Co.,and Merrill Lynch & Co. serving as co-managers. Depfa First Albany Securities LLC is financial adviser and Quarles & Brady LLP is bond counsel.
The bonds are secured by a first claim on pledged program revenues generated primarily by vehicle registration fees. Total pledged revenues in fiscal 2007 reached nearly $450 million, a 1.7% increase over the previous year, and provided at least 2.5 times coverage of debt service.
The credit's strength comes from strong coverage levels and a first claim on pledged revenues for repayment of the bonds.
"Vehicle registration fees tend to be a stable source of highway-related revenues and have increased in Wisconsin in all but two years since 1999, including fees generated by rate increases," Fitch wrote. Offsetting some of the credit's strength are the large size of the state's transportation capital program, the narrow source of revenues, and the lack of a constitutional dedication of revenues.
Tomorrow, the state will seek approval from the state building commission to sell about $300 million of new-money GOs competitively in a deal Hoadley hopes to complete this month. The state will use proceeds to fund various infrastructure projects. The need for new funds has been hastened by the budget repair measures to eliminate a $500 million deficit approved by the Legislature and signed into law after some tweaking by Gov. Jim Doyle.
The plan to shore up the state's current $57 billion biennial budget relied on the use of about $106 million in cash from the state's transportation funds. Rehabilitation projects - which do not qualify for transportation revenue borrowing - will instead be funded with bond proceeds.
"Our capital improvement fund is being depleted faster than expected, so there is a need to replenish funds," Hoadley said. The state is also using cuts, reserves, and $150 million in upfront savings from a tobacco bond restructuring to cover the shortfall.
The state carries current GO ratings of AA-minus by Fitch and Standard & Poor's and Aa3 with a negative outlook by Moody's.
While Wisconsin's narrow balances and looming structural deficit of $1.7 billion worry rating agency analysts, the state's latest cash flows for June show current revenue projections to be on target. "That is a positive," Hoadley said.
The state will release updated revenue projections in November that will be used to craft a new budget for the fiscal biennium beginning July 1, 2009.
Wisconsin soon plans to launch a new request for proposals for financial advisers, underwriters, and bond counsel to refine the team for the restructuring of the $1.6 billion tobacco issue that sold in May 2002. About $1.4 billion remains outstanding.
Revisions are needed because of the significant staffing and business developments among broker-dealers stemming from losses tied to the collapse of the subprime mortgage market and ensuing credit crunch. Bear Stearns & Co. was originally chosen as lead underwriter on the deal.
The tobacco bonds are repaid with Wisconsin's share of payments under the 1998 national settlement between most states and the major tobacco companies, but the state will put an annual appropriation behind the restructured bonds. In addition to the $150 million in upfront savings earmarked for the budget deficit, officials also expect to generate at least $50 million in annual savings to establish an endowment to support health care and antismoking programs.
"We hope to have a team in place by the end of September," Hoadley said.
