Wisconsin seeks the right moment to price refunding bonds

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CHICAGO — Wisconsin officials are watching the market closely, ready to jump in with a $362 million forward refunding of general fund annual appropriation-backed debt.

The state could sell soon depending on interest rate movement, said capital finance director David Erdman.

“The deal is still day-to-day, but with stability we have seen in the market the past two to three days, we are looking to potentially price as soon as Tuesday or Wednesday of this week,” Erdman said. The “forward delivery transaction locks-in the current excellent savings levels and removes market and mid-term election risk from this pending current refunding.”

The mid-term election will have a local impact with Gov. Scott Walker, a Republican, seeking a third term. He faces the Democratic challenger, state schools Superintendent Tony Evers. Assembly seats are up and half of the Senate seats. Republicans currently hold majorities in both.

The 2009 deal was issued with an appropriation backing to buy back the tobacco settlement revenues previously securitized by the state, freeing up the tobacco revenues for the general fund.

Stifel Nicolaus & Co. Inc. is the senior manager with the books and Citi is the co-senior manager with five other firms rounding out the syndicate. Quarles & Brady LLP is bond counsel.

Fitch Ratings and Moody’s Investors Service were asked for ratings. They affirmed their AA and Aa2 ratings, one notch lower than the state’s general obligation credit. The state has about $3 billion of outstanding appropriation backed bonds outstanding.

The rating reflects “the slightly higher degree of optionality associated with payment of appropriation debt,” Fitch said. “Wisconsin's AA-plus issuer default rating recognizes its considerable financial flexibility derived from its broad and diverse resource base and legal authority to control its budget, as well as a unique pension structure that contributes both to a low liability burden and lower risk of a significant increase in spending requirements in the future.”

The state’s finances have improved in recent years with reduced reliance on one-time resources and a stronger liquidity position. “This leaves the state well-positioned to address a moderate cyclical downturn,” Fitch added.

All four rating agencies recently affirmed the state’s GO credit ahead of a $259 million sale late last month. Kroll Bond Rating Agency rates the state’s GOs AA-plus and S&P AA.

“The rating reflects the moderately strong legal structure of this transaction and its greater essentiality,” Moody’s said. “The state GO rating reflects a very well-funded pension system and limited other post employment benefits liability, moderate but steady economic growth, conservatively managed budgets and adequate liquidity.”

The rating also reflects the state's low fixed costs despite Wisconsin's slightly elevated debt levels, which outweigh the credit challenge of the state's negative unassigned fund balances, Moody’s added.

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Primary bond market Refunding bonds Wisconsin