CHICAGO — Wisconsin has decided to expand its use of Kroll Bond Ratings Agency from its general obligation credit to include its master lease certificates of participation ahead of a $37 million sale set for Wednesday.
Stifel Nicolaus & Co. is the senior manager on the issue, which marks the state's first use of a negotiated transaction for its master lease COPs program that had been traditionally sold competitively. "It allowed for more flexibility in structuring the deal and promoting a structure that will draw more investors" as the state seeks to cultivate a broader investor base for the credit and promote the fourth rating, Erdman said.
State capital finance director Kevin Taylor said he's received positive feedback from investors and brokerage desks on the state's decision to use Kroll and decided to expand the state's use of the firm to rate several of its short-term borrowing programs.
The COPs are secured by a proportionate interest in master lease payments that the state is required to make from any source of legally available funds, subject to annual legislative approval. The COPs are notched one level lower than the state's GO credit. Fitch Ratings, Kroll Rating Agency, and Standard & Poor's all assign an AA-minus and Moody's Investors Service assigns an Aa3.
The state will have a total of $73 million outstanding under the credit after the sale. Proceeds finance the purchase of a wide range of assets for use by all state agencies.
"The state budget office provides oversight of the inclusion of these lease payments in the state budget and lease payments are paid through an administrative process that, in KBRA's view, provides additional assurance for payment of lease payments," Kroll said in its report.
"In the event that the state budget passage is delayed, Wisconsin statute provides continuing authority for existing appropriations until a new budget is adopted, which, in KBRA's view, mitigates the risk of late budget passage," analysts added.
The state recently released revised estimates that show a more than $900 million increase in expected revenues. Republican Gov. Scott Walker has proposed returning more than $500 million of the surplus to taxpayers through income and property tax changes.
The House recently approved the package, but it stalled in the Senate. Leaders there say a compromise is expected to be announced in time for a committee vote this week and final vote next month. It would leave much of the tax cuts intact with other changes aimed at lowering the structural deficit heading into the next biennium.
Walker's plan would push the deficit up to $800 million from a projected $700 million, but the compromise plan would lower it reportedly to $660 million. The legislature is controlled by Republicans.
