Georgia will test its triple-A ratings in an uncertain and volatile market when it sells $1.16 billion of general obligation bonds next week.
Georgia’s GOs are rated triple-A by Moody’s Investors Service, S&P Global Ratings and Fitch Ratings. Of the states that issue GOs, only nine carry the top-tier ratings.
“Securing the highest possible state bond ratings for yet another year is the result of decades of conservative state leadership and our balanced approach to protect both lives and livelihoods throughout the COVID-19 pandemic,” Gov. Brian Kemp said in a statement.
The competitive sale is made up of three separate issues: $494.215 million of Series 2022A tax-exempts, $186.565 million of Series 2022B taxables and $482.445 million of Series 2022C tax-exempts.
The deals are selling on Wednesday, June 22, starting at 10 a.m., ET.
Public Resources Advisory Group and Terminus Municipal Advisors are co-financial advisors. Gray Pannell & Woodward LLP is the bond counsel while Kutak Rock LLP is the disclosure counsel.
Colin MacNaught, CEO and co-founder of BondLink, which counts Georgia among its investor relations platform clients, said the state is being cautious and transparent with investors.
“In a market this challenging, they are being proactive and uber transparent with the market,” McNaught told The Bond Buyer.
Since the beginning of the year, municipal bond yields have risen dramatically, according to Refinitiv Municipal Market Data's triple-A GO scale. As of Monday, the muni 5% GO 10-year is up 187 basis points to 2.91% from 1.04% in January while the 30-year muni has risen 188 basis points to 3.38% from 1.50%.
U.S. Treasury yields have also moved higher, into ranges not seen in over a decade. Stocks have fallen sharply since the beginning of the year and have now moved into bear market territory.
Moody’s, S&P and Fitch all cited the strength of the state’s economy and noted positive employment trends, a fully funded rainy day fund and a balanced approach dealing with revenue sources.
Moody's said its rating reflected the state's large and diverse economy, employment growth that has outpaced the national average, solid reserves and liquidity, strong fiscal governance and low direct leverage from debt, pension and OPEB liabilities.
"Very strong revenue performance year-to-date in fiscal 2022 will fund the state's recently enacted tax cuts — including a gas tax holiday, one-time rebates and permanent cuts to income tax rates — with limited impact on financial reserves," Moody's said.
Fitch noted Georgia's ratings reflect the state's willingness and ability to maintain fiscal balance and a broad-based, growth-oriented economy that supports solid revenue growth. The state's long-term liability burden is low, Fitch added.
S&P said the state's rating is buttressed by its strong credit fundamentals, including a large and diverse economic base that has seen sustained population growth and economic development efforts that have attracted a lot of investment.
"Georgia's rating is also supported by our view of a strong governmental framework that supports its ability [to] control its expenditures and manage its liquidity," S&P said.
“A rating this strong reflects more than a deep economy and robust balance sheet; it reflects strong financial management,” McNaught said. “And beyond the rating, Georgia is a top issuer because it knows the value of being transparent to bond investors.”
Proceeds from the sale will go toward funding $754 million in capital projects with the majority going to K-12 education, higher education, public safety and economic development projects.
The governor’s office added that if interest rates permit, the deal will also refund some outstanding GOs for debt service savings.
On May 21, Kemp signed the $30.2 billion fiscal 2023 budget, which increased spending about 10% from last year’s plan.
The budget “funds our priorities and sets our state on a strong footing for continued recovery and growth; not just over this next year, but for years to come,” said Kemp, who is up for re-election this year after winning the Republican primary in May.
“Our approach — which continues to include working closely with the General Assembly — allowed us to pass both budgetary and legislative measures that cut taxes and put money back into the pockets of our citizens,” Kemp said.
In April, Georgia's unemployment rate remained at a record low of 3.1%. Employers added 19,000 jobs in April after a revised gain of 18,200 jobs in March, up 6,100 from the 12,100 increase originally reported.
“The latest job figures show employment in Georgia is now 2.1% above its pre-recession peak,” Wells Fargo Securities said in a research report. “Hiring has gotten off to a strong start this year, with employers adding an average of 22,700 jobs each month during the first four months of this year. Some of the strongest gains have come in high-contact parts of the economy hit the hardest by the pandemic.”
Hiring was up at restaurants, bars and hotels, while retailers and professional and business services added jobs.
“While Georgia's economy has gotten off to a strong start this year, the resurgence in inflation has built up to the point that it is now a considerable headwind for the broader economy and Georgia in particular,” the report said.
Higher food and energy prices and a persistent surge in housing costs are hitting Georgians particularly hard, Wells Fargo said, noting that Atlanta’s Consumer Price Index was up 10.8% year-over-year. This was higher than the 8.3% increase nationwide and ranked as the second largest gain behind Phoenix’s 11.0% increase.
“Inflation has outpaced wage growth and consumers are beginning to cut back on discretionary purchases,” the report said. “Several major retailers warned of diminishing sales and building inventories, which may soon fall back on Georgia's outsized wholesale trade, warehousing and transportation industries.”
Wells Fargo also said talk of a recession had increased as the financial markets have sold off as interest rates have risen.
“The financial markets appear to be assigning a greater risk of recession in the near-term than most economists are,” Wells Fargo said. “One of the reasons the financial markets are showing so much concern about the economic outlook is that the Fed has seldom been able to avoid a recession when it needed to raise interest rates as aggressively as it need to today in order to combat inflation.”
Since 2011, Georgia has sold almost $14 billion of bonds, with the most issuance occurring in 2016 when it sold $2.3 billion. It sold the least amount in 2013 when it issued $857.7 million.
Georgia’s sale next week won’t be the last large deal in the Peach State this year.
Voters in
The referendums authorize the city to issue up to $213.01 million of GOs this year to fund building various public facilities while proceeds from the $192.99 million sale will go towards various roads, pathways, parks and playgrounds.
Atlanta's GOs are rated Aa1 by Moody's Investors Service, A by S&P Global Ratings and AA-plus by Fitch Ratings.
