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State sells $721.6M in general obligation bonds


Gov. Linda Lingle announced today that the State of Hawaii successfully sold $721.6 million of general obligation bonds to fund various State capital projects, including public school facilities, University of Hawaii projects and other statewide capital projects.

The $721.6 million bond sale included $500 million of taxable Build America Bonds authorized under the American Reinvestment and Recovery Act of 2009 to fund new capital improvement projects.

Due to very favorable market conditions and strong demand for the bonds, the size of the Build America Bond sale was increased from the planned $312 million to $500 million. Unlike the traditional tax-exempt general obligation bonds, the State pays investors a higher taxable interest payment under the Build America Bonds.

However, the State receives an interest rate subsidy from the federal government when issuing the Build America Bonds which results in an overall lower cost to the State than traditional tax-exempt bonds. The net interest rate on the Build America Bonds, after the interest rate subsidy from the federal government, was 3.27 percent.

The State also sold $221.6 million of tax-exempt refunding general obligation bonds at an average interest rate of 2.79 percent to refinance general obligation bonds currently outstanding, which will generate debt service savings of approximately $90 million in fiscal years 2010 and 2011.

Similar favorable market conditions and strong investor demand for the State’s tax-exempt bonds allowed the State to generate an additional $48 million of debt service savings in fiscal year 2012, in addition to the $90 million savings achieved in fiscal years 2010 and 2011.

Moody’s Investors Service, Standard & Poor’s Ratings Service and Fitch Ratings affirmed the State’s bond ratings of Aa2, AA and AA, respectively.

Standard and Poor’s Ratings Service cited one of the State’s credit strengths as, “the governor’s willingness to implement aggressive solutions to balance the fiscal 2010-2011 biennial budget given lower general fund tax revenue forecasts.”

“The State of Hawaii, like most other states, is faced with significant fiscal challenges due to the global and national recession,” Lingle said. “We are very pleased that the bond rating agencies have recognized our efforts to address our budget issues in a responsible manner, protect our State’s credit rating and provide needed funds to support jobs for the construction and related industries.”

The municipal bond market has improved in the weeks leading up to the State’s bond sale and the timing of the sale resulted in significantly improved borrowing costs for the State.

The State’s sale was well received by a variety of investors, with significant demand from retail investors. The sale received approximately $234.1 million in retail orders, many of which were from Hawaii residents.

“We were able to take advantage of this opportunity to borrow additional funds for construction projects at very attractive interest rates,” said Georgina Kawamura, director of budget and finance.

The bonds were sold by a financing team with Citigroup Global Markets Inc., serving as senior manager and Bank of America Merrill Lynch serving as co-manager.

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