Hawaii Pricing $1.1B Next Month, After New Governor Elected

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LOS ANGELES — Hawaii will sell $1.1 billion general obligation a week after voters select a new governor.

The state plans to issue the $575 million series 2014 EO general obligation bonds, $503.3 million of series 2014 EP GO refunding bonds, and $25 million series 2014 EQ taxable GO bonds the week of Nov. 10, according to Hawaii's finance director, Kalbert Young.

Earlier this week, Standard & Poor's revised Hawaii's outlook to stable from positive, affirming its AA general obligation bond ratings, partly citing the uncertainty that a new administration could bring.

Hawaii Gov. Neil Abercrombie lost in the Democratic primary, meaning a new governor will take office in January.

"A change in administration that will take place when a new governor is inaugurated in January introduces some uncertainty with regard to the state's budget management," S&P credit analyst Gabriel Petek said.

Young said he has reassured the rating agencies that the three leading candidates in Hawaii's gubernatorial race share Abercrombie's fiscal conservatism.

"All three credit agencies have asked about the transition," Young said. "There are three leading potential candidates. I know each of the three and their financial philosophies are consistent with what we have put in place."

The leading candidates are Hawaii Sen. David Ige, who defeated Abercrombie in the Democratic primary; Republican Duke Aiona; and former Honolulu mayor Mufi Hannemann, an independent. Libertarian candidate Jeff Davis is also running.

The caveat is that a lot will depend on the financial team appointed by the next administration, which would include Young's position and the deputy finance director, Young said.

Rarely in Hawaii history has a new administration kept the existing finance team, Young said.

"I am pretty confident that same financial conservatism will continue on with any of the three leading candidates, but I don't know who the next finance director will be and what that person's philosophy would be," he said.

At the same time, Young described S&P's outlook revision as being cautious and reflective of the fact the state's revenues remained flat in fiscal 2013-14 although growth of 2% for this fiscal year, and 5% for the year after, are anticipated.

According to S&P, the outlook revision just reduces the likelihood it will raise the rating within a one-to-two year period.

S&P also affirmed its AA-minus long-term rating on the state's certificates of participation.

S&P raised the outlook to positive a year ago based on a favorable view of Abercrombie's financial plan that was built around a policy objective of maintaining rainy day fund balances of 10% or more.

S&P viewed the policy favorably for the state's credit outlook, but the policy was informal and raters "make no assumption about whether a new administration will adhere to this," Petek said.

The strengthening U.S. dollar also was a factor in S&P's report, because it makes Hawaii a more expensive destination for tourists. The state's visitor numbers dipped during the final quarter of 2013 and the first quarter of this year after 17 quarters of growth, Petek said.

The deal has three co-seniors: JP Morgan as book runner, Bank of America Merrill Lynch, and Morgan Stanley. It also has seven co-managers: RBC, Goldman Sachs, Citi, Wells Fargo, Piper Jaffray, Barclays, and Stifel, Nicolaus & Co.

Other members of the financial team include FirstSouthwest as financial advisor and Orrick, Herrington & Sutcliffe as bond counsel.

The underwriters are represented by co-counsel Hawaii-based Alston Hunt Floyd & Ing and New York-based Katten Muchin Rosenman.

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