Wednesday, November 4, 2009

Bond Sale Nets Historic Low Interest Rates

$35 million in one-time savings captured in FY 2010; Annual debt service reduced by $10 million

Governor Sonny Perdue announced today that this week's general obligation bond sale netted the lowest interest rates in the history of the state, resulting in $35 million in budget savings in Fiscal Year 2010 and annual debt service reductions of $10 million in future years.
“This bond sale funds needed projects and creates jobs throughout Georgia,” Governor Perdue said. “Our strong bond ratings and sound fiscal management have allowed us to achieve significant budget savings that will continue to benefit Georgia for years to come.”

This week, the State of Georgia successfully sold $793,855,000 in general obligation bonds to fund new schools, public safety projects, road projects and other crucial infrastructure. The state was able to lock in a rate of 1.49 percent – the lowest rate in state history – for 5-year bonds and 2.99 percent for the 20-year bonds – also a record low rate.

The historic low rate on the 20-year bonds was the result of the state’s decision to issue Build America Bonds, an option provided to governmental issuers in the American Recovery and Reinvestment Act. Under this option, the state will receive a 35 percent interest rate subsidy from US Treasury. Build America Bonds, combined with traditional tax-exempt bonds, proved to be the most cost effective strategy for the transaction.

The rates translate into an annually recurring debt service savings of $10 million compared to originally budgeted amounts. This is in addition to annual savings against budget of $8.2 million attained in February and May, when the state sold more than $900 million in bonds collectively.
This week’s bond sale is a portion of the capital outlay program approved in the state’s 2010 budget. The sale was completed on a negotiated basis with both retail and institutional investors showing solid demand for Georgia's high-grade bonds. The state also accomplished a defeasance of maturities coming due in FY 2010, resulting in additional debt service savings of just over $35 million.

Moody's, Fitch, and Standard & Poor's assigned the triple-A bond rating with a stable outlook to the state’s General Obligation bonds last month. The rating firms’ individual ratings are Aaa, AAA and AAA, respectively. The triple-A ratings reflect the highest rating available to government issuers and demonstrate what a great value Georgia municipal bonds are to investors.
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