Alaska Governor Bill Walker has called off the planned sale of up to $3.3 billion in state pension obligation bonds due to a lack of support from members of the state senate, he said on Tuesday.
Low oil prices have contributed to a multibillion budget deficit for the current fiscal year and the sale of the bonds was seen by Walker’s administration as a way to help shore up the state’s Public Employee and Teachers’ Retirement System.
“While we believe the financial benefits of issuing state pension obligation bonds significantly outweigh the financial risks, we recognize the need for legislative input,” Walker said in a statement.
Walker met with Senate Finance Committee members this week where they warned against proceeding with the sale out of concern about taking on more debt.
I suppose the governor may try to twist arms to convince legislators, and wants to be able to spread blame around if and when the POBs go sour.
I’d like to think it was my armada of animated gifs that convinced the governor, though.
Now, to convince the legislators:
NOT QUITE THE MAGIC THEY THOUGHT
To be sure, I think this bit may be the most pertinent:
“It expects to be able to borrow money from Asian pension funds at 4 percent interest.”
Oh I expect all sorts of things.
Might turn out their expectations couldn’t be met.
I see that munis at even 30 years is less than 3%… but that’s for certain types of munis. Like, having high ratings.
Let’s see what the rating companies had to say about the POB idea:
New York, October 07, 2016 — Issue: Pension Obligation Bonds, Series 2016; Rating: Aa3; Rating Type: Underlying LT; Sale Amount: $3,329,155,000; Expected Sale Date: 10/26/2016; Rating Description: Lease Rental: Appropriation;
Summary Rating Rationale
Moody’s Investors Service has assigned a Aa3 rating to the Alaska Pension Obligation Bond Corp.‘s $3.33 billion Series 2016 Pension Obligation Bonds (Taxable). The par amount of the bonds, which are expected to price on Oct. 26, are expected to be between $2.35 billion and $3.33 billion, depending on market conditions.
The Aa3 rating is one notch lower than the State of Alaska’s Aa2 general obligation rating. The one-notch distinction from the GO rating incorporates the risk of non-appropriation, as payment of debt service on the bonds is subject to appropriation annually by the state legislature.
Factors that Could Lead to a Downgrade
Prolonged delays in achieving a budget solution, leading to significant further draws on available reserves
Continued growth in long-term liabilities
From earlier this year:
Moody’s Investors Service has downgraded the State of Alaska’s general obligation rating to Aa2 from Aa1. The outlook remains negative.
The downgrade recognizes the state’s political inability – at least for now – to address its severe fiscal challenges.
Moody’s has also downgraded the state’s lease-appropriation bonds to Aa3 from Aa2 and its moral obligation bonds to A1 from Aa3. These bonds continue to be rated one and two notches lower than the state’s general obligation rating, respectively.
S&P puts Alaska back on CreditWatch negative
The State of Alaska is continuing the process to sell up to $3.3 billion in pension obligation bonds after receiving mixed reviews from the major credit rating agencies.
On Friday, S&P Global Ratings placed the state on CreditWatch with negative implications and rated the state’s appropriation-backed bonds, such as the pension bonds, as AA-.
The agency indicated in a brief that it would likely lower the state’s general obligation credit rating from AA+ to AA if the bonds were sold.
Appropriation-contingent bonds are often rated at least one notch lower than general obligation debt.
“The CreditWatch action reflects our view that Alaska’s credit profile would incrementally weaken following the issuance of the proposed $3.3 billion (in) pension obligation bonds,” S&P analyst Gabriel Petek said in a release.
That piece was from October 10. I wouldn’t be surprised if the governor had gotten the info that not only would the POBs not be priced at 4%, but that they may find their general obligation bonds getting more expensive.
Anyway, legislators, DON’T DO IT!
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