CHICAGO – Wisconsin takes competitive bids Wednesday on $325 million of new money general obligation bonds, with the state's shortest call feature to date.
The 20-year bonds will feature a seven-and-a-half year call.
For bonds maturing on May 1, 2025 through May 1, 2029, the coupon must be set at 4% or greater and for bonds maturing on or after May 1, 2030, the coupon must be set at 5.00% or greater.
"We are being a little more aggressive with the call because we continue to hear from our financial advisors and underwriting desks that the market will accept it without a penalty to the state," said capital finance director David Erdman. "We find there is a value to us in that it gives us more flexibility in the future on refundings."
The state has previously gone with an eight-year call instead of the traditional 10-year.
Proceeds of the sale will finance approved capital projects with about $200 million for transportation projects funded in the current biennial budget.
Transportation funding in the next budget is expected to be a hot issue with some of Gov. Scott Walker's fellow Republicans, who control the Legislature, upset that Walker won't consider a gasoline tax hike to fund transportation spending. The Department of Transportation's preliminary budget instead calls for $500 million of new transportation debt, including $473.9 million of transportation revenue bonds and $26.1 million of GOs, while delaying some projects.
In affirming its AA rating and stable outlook, Fitch Ratings said its rating recognizes the state's "considerable resources and power to control its budget, a broad and diverse economy, a low liability burden, with above average debt levels offset by fully funded pensions."
Limited reserves of just $280 million and a more than $2 billion deficit based on generally accepted accounting principles are weaknesses.
While the budget has absorbed tax cuts enacted in the last biennium, "In Fitch's view the full impact of recent changes on the state's finances will only be clear through a full economic cycle." The state operates on a $72 billion two-year budget.
"The AA rating on Wisconsin's GO bonds reflects our view of the state's moderate-to-moderately high debt burden and demonstrated ability to make midyear budget corrections," said S&P Global Ratings analyst Carol Spain.
The credit's weaknesses include economic and job growth that has lagged the nation, narrow general fund balances, and exposure to the manufacturing sector.
Moody's Investors Service, which rates the state's GOs Aa2 with a positive outlook, said in its new report that "while revenue underperformed projections in fiscal 2015 and 2016, recent improvements in liquidity, conservative management of retiree benefits that limits future budgetary pressures, and reductions in the state's long standing negative GAAP fund balance, if continued, would allow the state to improve its reserves and balance sheet."
Kroll Bond Rating Agency also affirmed the state’s AA rating and stable outlook on Tuesday.
Erdman said his office is also working with the Wisconsin Center District Board on a $40 million refunding of the junior lien bonds in the district's issue earlier this year for the new Milwaukee Bucks arena. The refunding is affordable because of lower interest rates and the junior lien's improved credit, Erdman said.
The state also recently converted about $200 million of its extendible municipal GO and petroleum inspection fee commercial paper to traditional CP or a longer term structure because of the potential impact of the Securities and Exchange Commission's money market rules taking effect Oct. 14.
The changes impact how investors account for the weighted average maturity of products. Because the state's EMCP offers an extended maturity in the event of a failed remarketing the state could see higher interest rates or lower demand from buyers interested in keeping their portfolios short.
Erdman said Wells Fargo Securities remains in the state's qualified list of senior managers and he is monitoring the fallout of its parent bank's phony accounts scandal. Some high-profile issuers are forgoing the use of Wells Fargo Securities on bond deals.
