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Lower interest rates on refunding general obligation bonds


Gov. David Ige has announced the state will be saving $32.8 million following the completion of a $345 million refunding general obligation bond sale. The bonds were previously issued at a higher interest rate.

They fund construction or the acquisition of various public improvement projects that include public buildings, elementary and secondary schools and university facilities.

The lower interest rates are the result of the favorable bond market and increased investor demand as a result of the state’s improved financial outlook. Standard & Poor’s Rating Service recently improved the state’s outlook from “stable” to “positive” – the highest outlook possible. The “AA” or current rating of the state’s financial condition is good.

Moody’s Rating Service improved the state’s outlook from “stable” to “positive” in October, 2015. Fitch Rating has an “AA” rating with a “stable” outlook on the state’s bonds.

There are three rating outlook levels – positive, stable and negative. According to its consultant’s report, as of early March 2016, Hawaii is the only state in the nation to have two “positive” outlooks from the three rating agencies.

In February, Ige led the state’s financing team, which included Director of Finance Wesley Machida, in credit rating presentations with S&P, Moody’s and Fitch.

“We discussed with the rating agencies our conservative fiscal management policies and my focus on addressing and managing the state’s long-term pension and health fund obligations. We also discussed the need to maintain the state’s reserve fund balances to effectively manage our financial resources. Our goal is to manage our budget to live within our means and to best position the state to withstand future economic fluctuations,” Ige said.

“I am extremely pleased with the results of the negotiated refunding sale that resulted in the state obtaining its lowest historical borrowing costs versus the national municipal bond financing index,” said Machida. “The resulting refunding sale, which will save the state $32.8 million of debt service payments, along with the favorable low borrowing costs for the competitive new money bonds, enables us to achieve our goals of effectively managing the state’s expenses.”

In its rating report, S&P said the state-projected fiscal 2016 budgetary performance benefits from strong revenue trends that have enabled Hawai‘i to build its cash and reserve balances. “That could lead us to raise the state’s credit within the next two years,” S&P said. The favorable outlook improvements by Moody’s and S&P are allowing the state to more effectively market and sell the bonds at the lowest rates possible.

Bank of America Merrill Lynch served as lead underwriter for this offering with Goldman Sachs serving as co-senior manager for the negotiated refunding bond sale.

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