CHICAGO — Wisconsin will competitively sell $322.6 million of new-money tax-exempt general obligation bonds and taxable GO Build America Bonds tomorrow to finance traditional “bricks and mortar” projects around the state, and will return next week with a roughly $150 million negotiated GO refunding.
The deal is divided into $143.5 million of tax-exempt bonds with short- to medium-term maturities through 2019 and $179.1 million of BABs maturing from 2020 through 2030 that include a traditional 10-year municipal call feature.
The division between BABs and tax-exempt bonds reflects “our estimate of the current breaking point” where BABs are more economical and so is subject to change depending on the market, said state finance director Frank Hoadley.
Proceeds will back various capital projects in Wisconsin. The deal is the latest to tap the federal stimulus BAB program and its direct-pay interest subsidy. The state last year issued GO BABs and earlier this year sold clean water revenue BABs.
Wisconsin will return next week with an advance refunding expected to generate at least 5% in net present-value savings, according to Hoadley. Citi is the senior manager. Loop Capital Markets LLC is co-senior manager.
Any debt-service savings are welcomed — especially from a traditional economical refunding — given the state’s ongoing struggles with revenue collections.
It is facing a $219 million deficit in its current budget due to lower-than-expected revenue and the cancelation of a tax reciprocity agreement with Minnesota, according to estimates issued earlier this year by the Legislature Fiscal Bureau.
The state last month issued $200 million of bonds in a restructuring that pushed off maturities coming due this year.
The $61.8 billion budget for fiscal 2010-11 signed into law last year by Gov. Jim Doyle relied on the restructuring of $285 million of debt along with a mix of federal stimulus funds, spending cuts, and tax and fee increases to wipe out a $6.6 billion deficit.
Wisconsin last summer restructured some GOs and petroleum inspection fee bonds as part of the plan.
Wisconsin’s GOs are rated AA by Standard & Poor’s, AA-minus by Fitch Ratings, and Aa3 with a negative outlook by Moody’s Investors Service. The agencies had not yet issued reports on either of the upcoming issues at press time.
Strengths include the state’s diverse economy and moderate debt levels. Weaknesses include an ongoing structural budget imbalance, weak reserve levels, and the recession’s impact on revenue.
Moody’s negative outlook reflects analysts’ “concerns that the state’s narrow operating margins and financial resources leave the state vulnerable to the continuing impact of economic decline.”
“While the state has enacted various tax increases and revenue enhancements, the budget remains vulnerable to lower revenue forecasts straining the state’s ability to close potential mid-year budget gaps,” analysts said. “The state’s narrow liquidity and continued efforts to address structural budgetary issues will continue to be important considerations in future credit analyses.”