The state managed to reduce its debt this week despite recent ratings reductions by Standard & Poor’s and Fitch Ratings, State Treasurer Denise L. Nappier said.
The completion of a $501.4 million general obligation refunding bond sale should result in $75.5 million worth of debt service cost savings.
“While recent ratings actions certainly impacted the bond sale, Connecticut still sold its bonds at relatively low interest rates, and by that measure, the transaction can fairly be described as a success,” Nappier said in a statement. “That said, the spreads on these bonds are somewhat higher than what we saw in March, which is attributable to a number of factors beyond the ratings action, including the Federal Reserve’s comments last week that interest rates are on track to increase this year.”
Last week, Standard & Poor’s and Fitch Ratings, reduced the state’s rating by one notch to AA- with stable outlooks. Moody’s Investors Service and Kroll Bond Ratings affirmed their prior rating of Aa3 and AA, respectively, both with negative outlooks.
The interest rates on this week’s sale were lower than in March due to lower overall interest rates. The interest rate on the five-year maturity 0was 6 basis points lower than in March, and the rate for the 10-year maturity was 19 basis points lower. The total interest cost on the eleven-year bond issue was 2.11 percent.
Connecticut typically issues bonds with 20-year maturities, with provisions that allow the state to pay them off after ten years at no extra cost. Savings are achieved by refinancing bonds at lower interest rates – taking full advantage of the extended period of low interest rates experienced in recent years — as well as refinancing longer maturity bonds with shorter maturity, lower cost bonds.
Individual investors ordered more than $57.4 million of the bonds, primarily during a special one-day retail only order period on May 23. Bonds were offered to institutional investors on May 24, following an internet roadshow that was distributed electronically with the Preliminary Official Statement. The investors who participated in these presentations placed orders for $184.6 million of the bonds. The state received a total of $518.8 million in orders from institutional investors.
