Washington Rides Muni Rally to Curb Costs After Outlook Cut
February 08, 2012, 9:07 AM ESTBy Brian Chappatta
(Updates with treasurer’s comments in third paragraph.)
Jan. 31 (Bloomberg) -- Washington, which had its credit outlook cut to negative by Moody’s Investors Service, issued about $1 billion of bonds at lower relative borrowing costs than a year ago as the $3.7 trillion municipal market rallied.
The $734 million part of today’s tax-exempt sale included 10-year general-obligation bonds priced to yield 1.9 percent, according to data compiled by Bloomberg. That’s 32 basis points below a benchmark for similarly rated debt. On Jan. 19 last year, the state sold 10-year debt at 16 basis points below the benchmark. A basis point is 0.01 percentage point.
“Our state continues to maintain the fiscal discipline necessary to access to the bond markets so that we can reduce the interest rates we’re paying on old debt,” Treasurer James McIntire said in a statement.
Today’s sale, held through auctions, will save about $15 million in the current budget cycle, McIntire said. Washington needs about $1.5 billion to close a deficit in its two-year budget and replenish reserves, according to Ralph Thomas, a spokesman for the state financial management office.
Local-government debt has rallied after the U.S. Federal Reserve policy makers said Jan. 25 they expect the bank’s target for overnight rates to remain near zero until at least late 2014.
Outlook Cut
Bank of America Merrill Lynch beat eight other bidders for the larger portion of the deal. Wells Fargo & Co. outbid eight banks for the $271 million segment, with July 2022 debt yielding 1.93 percent, data compiled by Bloomberg show.
Moody’s joined Fitch Ratings in lowering Washington’s outlook, citing revenue shortfalls and depleted reserves. It maintained its second-highest Aa1 rating on the bonds, according to a report yesterday. Fitch and Standard & Poor’s also assigned their second-best AA+ grades.
Today’s sale is Washington’s largest for refinancing debt, McIntire said in an interview yesterday. It is also the largest municipal-bond sale in 2012, data compiled by Bloomberg show.
Benchmark 10-year municipal securities yielded 1.81 percent at 3:01 p.m. New York time, according to BVAL index data. The yield touched 1.75 percent this month, the lowest since the index began in January 2009.
--Editors: Mark Tannenbaum, Mark Schoifet
To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
