State Treasurer Denise Nappier touted three recent summer bond sales as a success for a state that’s beginning to replenish the Rainy Day fund it drained three years ago to balance the state budget.
“While many have been vacationing this summer, our office has been busy selling bonds at competitive rates to fund almost $900 million in new projects, helping to invest in our state’s future, create jobs and stimulate our local economy,” Nappier said Monday in a press release.
The first sale that closed July 31 involved $223.9 million in bonds for the University of Connecticut’s UConn 2000 infrastructure program. The sale resulted in a combined overall interest cost of 3.39 percent and consisted of two parts: 3.55 percent on 20-year bonds and 2.67 percent on shorter maturity refunding bonds.
The second sale, held on July 24, was a competitive auction for $200 million in 20-year General Obligation bonds. Siebert Branford Shank & Co. offered the lowest overall interest rate on the bonds at 3.57 percent.
The third sale, held August 13 and 14, was for $500 million in General Obligation bonds. Those bonds included $115 million variable rate Security Industry and Financial Markets Association Index bonds; $285 million tax-exempt fixed rate bonds; and $100 million in fixed rate taxable bonds. The overall interest rate on the tax-exempt bonds was 3.49 percent over 20 years and the interest on the 10-year taxable bonds was 3.19 percent.
“The fact that all of these very different bond sales produced attractive financing costs for the state demonstrates the continued strong investment quality of and enthusiasm for Connecticut debt,” Nappier said in a press release. “As for the state’s overall fiscal health, we ended the last fiscal year with a budget surplus, and are making significant progress in rebuilding our Rainy Day Fund, now estimated at $232 million. The state’s operating cash position likewise has improved over $300 million from a year ago.”
The sale of UConn 2000 bonds included a two-day individual investor retail order period and a single day institutional investor sale. Of the total proceeds, $172.7 million will be used for new construction at UConn’s Storrs Campus and the UConn Health Center. The remaining $51.2 million will refund outstanding bonds and will result in future debt savings of an estimated $4.8 million, according to Nappier’s office.
The UConn 2000 bonds received significant support from individual investors, with more than half of the bonds — roughly $123 million — sold during the retail period.
“Sales during the retail order period for UConn bonds were among the strongest the Treasury has had in recent memory,” Nappier said. “Our aggressive and diverse marketing approach that included radio, print, and Internet advertising was highly successful in alerting individual investors of the opportunity this bond issuance presented.”
The marketing of Connecticut bonds to individual investors is designed to ensure that Connecticut citizens have an opportunity to buy bonds that are exempt from federal and state income taxes, and that are attractive vehicles for savings for retirement, college and other personal financial goals.
Click here to read more about the marketing used to sell those bonds.
Nine firms submitted bids on the sale of $200 million in General Obligation bonds on July 24. Bids ranged from 3.57 percent to 3.79 percent. The winning bid was awarded to Barclay’s and Siebert Branford Shank & Co.
The proceeds of the General Obligation bonds, as previously authorized by the General Assembly and state Bond Commission, will finance $145.7 million of general state building projects; $19.1 million of improvements at state universities and community colleges; $16.5 million for Urban Act grants; $12.6 million for the state’s Capital Equipment Purchase Fund, and; approximately $6 million for energy saving projects in state buildings.
The bond sale comes on the heels of reviews from Wall Street rating agencies.
In July, Moody’s, Standard & Poors, and Kroll maintained their current ratings, all with stable outlooks for Connecticut and the university. Fitch Ratings maintained their AA rating for the state and AA- rating for the university, but lowered its outlook to “negative” for both.
“The Negative Outlook reflects the state’s reduced fiscal flexibility at a time of lingering economic and revenue uncertainty,” a Fitch analyst wrote. “The enacted budget for the new biennium delays repayment of deficit borrowing, adds to an already high debt load, and fails to rebuild the state’s financial cushion.”
Nappier has said a “negative outlook” generally means that a credit rating will be under review for one to two years, and “is less concerning than a credit watch.” She said 15 states have negative outlooks from one or more of the credit rating agencies.
Rep. Vincent Candelora, R-North Branford, applauded the interest rates Nappier was able to get on the bonds, but believes there’s still a disconnect — lower interest rates don’t address some of the underlying budget issues cited by Fitch in its review of the state’s financial position.
Borrowing to implement Generally Accepted Accounting Principles and delaying debt service payments are only going to catch up with the state in the future, he said.
“It’s not her job to point it out, but we should be conscious of it,” Candelora said.
The state has about $19.3 billion in outstanding debt that’s being managed by Nappier’s office. In March, Nappier’s office sold $400 million in General Obligation bonds at rates between 2.29 percent and 3.22 percent.