Bloomberg News

Georgia’s $1 Billion Issue Leads Weekly Offerings: Muni Credit

June 21, 2011

June 21 (Bloomberg) -- Georgia, one of seven top-rated U.S. states, led this week’s sales with $998 million in general- obligation debt as the pace of municipal-bond deals slows compared with the same period last year.

Georgia sold 10-year bonds priced to yield 2.63 percent, in line with top-rated tax-exempts, according to data compiled by Bloomberg. The spread on Georgia 10-year general-obligation bonds sold in 2007 and due December 2017, narrowed to about 0.18 point above 6-year a top-rated benchmark June 16 from 0.68 percentage point on Nov. 19, Bloomberg data show.

The state was expected to sell its bonds at low rates amid continued demand for high-quality securities and reduced supply, said Michael Brooks, a senior portfolio manager who oversees $30 billion in munis at AllianceBernstein Holding LP. The deal dominates this week’s calendar, which anticipates about $5.5 billion will be offered.

“There’s really such a lack of issuance,” he said by telephone. “There are people who are desperate” and will buy the debt at low rates.

Proceeds from Georgia’s offering will go toward education and highway projects as well as refund debt. The state sold $77 million in taxable qualified school construction bonds under the federal economic-stimulus program that covers the interest costs for issuers on education projects. The funds will help build and equip schools, said Lee McElhannon, director of bond finance at the state commission.

Education Projects

Money in the sale will fund higher-education projects, such as $35 million for a new biology building at Georgia Southern University in Statesboro; $16.5 million for a new nursing building at the University of West Georgia in Carrollton and $7.6 million for a teacher education and learning center at the College of Coastal Georgia in Brunswick, he said.

About $440 million of the offering will refund bonds to get lower yields, McElhannon said.

Georgia will have $8.8 billion in outstanding borrowing as of July 1, according to its preliminary offering statement.

The state has a “moderate” debt burden, Moody’s Investors Service said in June 17 report. Debt per capita of $1,103 ranked 24th among the 50 states, the report said.

Fitch Ratings in a June 16 report cited the state’s “rapid” amortization of principal, with 69 percent due in 10 years.

Weekly Issuance

States and municipalities are set to sell about 63 percent of the average of $8.7 billion for the same period in the past five years, according to data compiled by Bloomberg. Issuers have so far this year sold about half of the amount of the same period in 2010, the data show.

Brooks, at AllianceBernstein, said municipal governments are wary about issuing bonds in the current economic climate. In addition, he said that elected officials may face “political risk” if they borrow money for construction projects while cutting budgets and jobs.

“Mom and Pop don’t understand the difference between operating expenditures and capital expenditures,” Brooks said.

The municipal market was “kind of uncertain” as withdrawals from U.S. municipal-bond funds resumed last week, said Daniel Solender, who oversees $14 billion as head of municipal bonds at Lord Abbett & Co. in Jersey City, New Jersey.

Withdrawals Resume

Investors withdrew a net $172 million from U.S. municipal- bond mutual funds, data from Lipper US Fund Flows showed. The disposals resumed from the week before, when the funds logged their first net addition since November.

“There still appears to be money around for investment based upon bond-coupon payments and calls, so if deals are priced correctly, there is a good amount of interest,” Solender said in an e-mail.

Issuers yesterday were paying 2.64 percent on top-rated 10- year securities, compared with 2.575 percent on June 6, the lowest since mid-November, according to data compiled by Bloomberg.

Following are descriptions of pending sales of U.S. municipal debt:

NEW YORK CITY TRANSITIONAL FINANCE AUTHORITY, which funds capital needs of the most-populous U.S. city, will sell $200 million in tax-exempt building aid revenue bonds and $100 million in taxable school construction bonds as soon as tomorrow. The securities, which carry the fourth-highest investment grade from Moody’s and Standard & Poor’s, will be issued via competitive sale. (Added June 21)

KENTUCKY STATE PROPERTY & BUILDINGS COMMISSION, which sells debt on behalf of the state with a 9.8 percent unemployment rate, higher than the national 9.1 percent will issue $362 million in tax-exempt revenue and revenue refunding bonds as soon as today. Proceeds will be divided between $110 million for new projects and refunding of $150 million for a savings of $17 million and restructuring of $127 million, according to Tom Howard, executive director of the state’s Office of Financial Management. The bonds are rated A+, fifth-highest, by S&P. Citigroup Inc. will lead the sale. (Added June 21)

--With assistance from Sarah Frier in New York. Editors: Walid El-Gabry, Ted Bunker

To contact the reporters on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net; Margaret Newkirk in Atlanta at mnewkirk@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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