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The Honolulu Advertiser
Posted on: Friday, February 12, 2010

State's bonds sale exceeds expectations by $188 million


Advertiser Staff

The state, citing good investor appetite and favorable market conditions, said it sold $188 million more of bonds than had been planned to fund construction and other projects.

The state this week made presentations to bond investors in New York, seeking buyers for $312 million in taxable and $221.6 million of tax-exempt bonds. But it said investor interest was such that it was able to sell $500 million of the taxable bonds.

"We were able to take advantage of this opportunity to borrow additional funds for construction projects at very attractive interest rates," Georgina Kawamura, state director of budget and finance, said in a statement released by the state.

The state is tapping bond markets to help fund capital improvement projects that are intended to jump-start the economy and a construction industry that's been hit hard with unemployment. The issue was notable with respect to ratings agencies, with two having maintained the state's bond rating at a fairly high level, but signaling they might lower it in the future.

Gov. Linda Lingle's administration branded the bond sale a success, saying it garnered funds for a number of capital projects, including those involving public school facilities and the University of Hawai'i.

The sale also was unique in that it was the first under a stimulus package program in which the federal government provides an interest rate subsidy. The Build America Program helps states issue taxable bonds that pay higher interest rates and attract a wider audience of investors, including those from foreign countries who aren't usually interested in the tax-exempt bonds states typically issue.

Hawai'i sold $500 million of the Build America Bonds with the net interest rate, after the interest-rate subsidy, of 3.27 percent.

The state also sold $221.6 million of tax-exempt general obligation bonds that will go to refund other debt issued at higher interest rates. The average interest rate on this sale was 2.79 percent.

The state said it will achieve about $138 million in debt service savings through 2012 because of the bonds.

It also said there was significant demand from so-called retail investors, or people who wanted the bonds for their individual investment portfolios. The state said about $234.1 million of retail orders were received, many of which were from Hawai'i investors.

Moody's Investors Service and Fitch Ratings have "negative" outlooks on their bond ratings for the state of Hawai'i, meaning they may lower the ranking of the bonds in the next two years if the state's financial picture doesn't brighten.

Moody's noted a derailing of tourism's recovery and that attempts to raid the hurricane relief or rainy day funds might lead to a downgrade of ratings. That's something that could cost the state millions of dollars in interest costs when it goes to issue debt.