Pennsylvania Completes $811.6 Million Bond Sale

Corbett Administration Saves Taxpayers More Than $20 Million

HARRISBURG, Pa., Oct. 19, 2011 /PRNewswire-USNewswire/ -- Pennsylvania has completed an $811.6 million general obligation bond sale, obtaining one of the lowest interest rates ever on a commonwealth bond sale.

The Oct. 18 sale results reflect Wall Street's approval of Governor Tom Corbett's emphasis on fiscal discipline, Budget Secretary Charles Zogby said.

"Governor Corbett has made fiscal discipline and restrained government spending the watchwords of his administration, and Wall Street has taken notice," Zogby said. "This is a prudent course to follow in the best of economic times. Given the protracted sluggishness of the economic recovery, it becomes imperative. I am pleased that Wall Street has recognized these efforts."

The bond sale included $650 million for existing capital projects and $161.6 million to refinance previously issued bonds to achieve a lower interest rate for taxpayers.

The combined interest rate for both portions of the sale was 3.19 percent, and Citigroup Global Markets, Inc. was the winning bidder. The interest rate on the capital projects portion of the sale was 3.36 percent – the lowest rate the commonwealth has ever received for a non-refunding, non-Build America Bonds bond issue. The interest rate on the refunding portion of the sale was 2.34 percent.  

As a result of the refunding, Governor Corbett's administration was able to reduce the cost of the interest it pays on a portion of its existing debt. The estimated savings from the refunding is $20.2 million over the life of the refunding bonds, which runs through 2023. The present-value savings of the refunding bonds (the standard measure of savings for refinancing) is estimated to be more than 9.5 percent – the highest level of savings the commonwealth has ever received on any of its refunding bonds.

In a sign of the continued strength of Pennsylvania's bonds, eight underwriting firms signed up to bid, and six submitted bids. In addition to Citigroup, the firms that bid were: Bank of America Merrill Lynch; J. P. Morgan Securities LLC; Wells Fargo Bank, NA; Barclays Capital, Inc.; and Morgan Stanley & Co. Inc.

In advance of the sale, the state retained its AA credit rating with the three major rating agencies. In rating the bonds involved in the sale, Fitch Ratings said, "The commonwealth's 'AA+' GO rating reflects the lower moderate debt burden, a diversifying economy, improved financial performance, and recent efforts to return the budget to structural balance."

Standard & Poor's assigned an AA rating to yesterday's sale, and affirmed its AA rating of the state's existing general obligation debt. Moody's assigned an Aa1 rating to both the bond issue and the refinancing.

"The Aa1 rating reflects Pennsylvania's relatively low debt position which is challenged by a growing pension liability; the relative stability of its economy that demonstrated resilience out of the recession; an improved reserve and liquidity position in fiscal 2011; and a governance structure that allows it to make budget adjustments swiftly when necessary," Moody's noted in releasing its rating.

Standard & Poor's termed Pennsylvania's pension and other post-employment benefit (or OPEB) liabilities as "a source of significant pressure for the foreseeable future" and described its $15.27 billion OPEB liability as "elevated."

In labeling Pennsylvania's outlook  "negative," Moody's noted its assessment reflected "the risk that revenue shortfalls in fiscal 2012 will deplete much of the financial gains made in fiscal 2011, and that rapidly growing pension and OPEB liabilities during a period of slow revenue growth will materially challenge the commonwealth's return to structural balance."

Zogby said the strong market response to the sale demonstrates that the commonwealth and its citizens are benefiting from Governor Corbett's fiscal policies, while the note of caution sounded by the rating agencies reinforces the need for the administration to follow the precedent set with the 2011-12 budget.

"As we put together the 2012-13 budget, we will continue to exercise fiscal discipline and restraint," Zogby said. "The challenges we face – and the citizens we serve – demand our continued vigilance in protecting the commonwealth's resources and restoring Pennsylvania to fiscal stability."

Media contact: Susan Hooper, 717-265-8067

Editor's Note: For more information about the Oct. 18 bond sale, visit the Office of the budget website at www.budget.state.pa.us and click on the Bond and Tax Note Sale Information link in the left navigation bar.

SOURCE Pennsylvania Office of the Governor