BRADENTON, Fla. - Alabama saved nearly $20 million on a recent refinancing of $200 million of outstanding general obligation bonds, officials said.
The State Bond Commission approved the deal following pricing on July 24, officials said.
"Due to a very favorable interest rate environment and Alabama's solid credit ratings, the bonds were sold on a competitive basis with average true interest cost of 2.13%," the state reported.
Wells Fargo Securities won the competitive auction for the bonds.
Officials said debt service savings will be realized in the general fund and the education trust fund through lower annual debt service payments. The state budget consists of two funds - one for general operations and the other for education - and each is funded from separate sources.
The bonds refunded debt sold in 2006 and 2007. They were rated AA-plus by Fitch Ratings, Aa1 by Moody's Investors Service, and AA by Standard & Poor's.
Alabama depleted its budget reserves after the recession leading to negative operating fund balances, according to Moody's. The state also took steps to draw from a trust fund created from natural gas production revenue to fund a portion of its operations.
"Despite somewhat lagging economic growth versus the U.S., Alabama is rebuilding reserves, helped by its adherence to conservative fiscal practices," said Moody's analyst Edward Hampton.
Challenges facing the state include the lack of best financial management practices such as multi-year financial planning, high poverty levels, low labor force participation, and elevated reliance on the manufacturing sector, he said.
Alabama's pension liability ratios are below average to weak, according to S&P. The pension funded level for the three multi-employer statewide pension plans as of Sept. 30, 2012 was 66% with an unfunded actuarial accrued liability of $14.38 billion.
"We consider the state's other post-employment benefits burden to be moderate," said S&P analyst Henry Henderson. "Officials indicate that 57.7% of the unfunded liability for the three systems is for state employees, with the remaining 42.3% for local government employees."
The GO bonds in the deal mature from 2017 to 2026, with yields ranging from 0.55% and a 5% coupon in 2017, to 1.98% with a 5% coupon in 2022, to 2.6% with a 3% coupon in 2026.
Spreads from benchmark MMD scale for those maturities ranged from zero, to seven basis points, to 19 basis points.
Rice Advisory LLC is the state's financial advisor. Maynard, Cooper & Gale PC was bond and disclosure counsel for the GO refunding.
