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Arizona Sells Supreme Court Building to Raise $300 Million for Schoolkids
Arizona, which sold state prisons and offices to raise cash six months ago, plans to borrow $300 million by marketing its Supreme Court building and about a dozen more properties through leaseback bonds starting today.
Investors will hold ownership of the court building in Phoenix, the fifth-largest U.S. city, and the Arizona Schools for the Deaf and the Blind in Tucson for as much as 20 years, with the securities maturing serially from 2012 through 2029, according to offering documents. Lease payments will back the debt, known as certificates of participation.
Arizona, whose foreclosure rate last year was ranked second-highest after Nevada by RealtyTrac Inc., will use the sale to pay for three months of school aid. The state raised $709 million for education payments when it sold and then leased back nine properties to investors in January.
“From an investor point of view, this is great,” state Treasurer Dean Martin, 35, said in an interview. “The state has to have buildings to operate and we’re the largest employer in Arizona.”
Arizona’s last such sale was Jan. 14. Five-year securities were priced to yield 3.07 percent, 32 basis points above a Bloomberg Fair Market Value index of comparable certificates at the time. The debt traded June 4 at an average yield of 2.79 percent, according to Municipal Securities Rulemaking Board data, 3 basis points above the index.
Credit Downgrade
Standard & Poor’s and Moody’s Investors Service both lowered the state’s debt rating by one level in December. Moody’s cited “ongoing economic and financial weakening.” S&P cut the ranking to AA-, the fourth highest, while Moody’s, after a recalibration, was a step higher, at Aa2. The certificates are rated AAA by S&P and Aa3 by Moody’s, and are insured by Bermuda- based Assured Guaranty Municipal Corp.
“They’re for treading water,” said Martin.
Sales to individual investors begin today with pricing for institutional buyers tomorrow, said Alan Ecker, a spokesman for the Arizona Department of Administration, which is issuing the bonds. In the last sale, 13 percent of the debt was sold to individuals, he said.
Ten-year, AAA rated general obligation yields were unchanged yesterday at 3.12 percent, according to Concord, Massachusetts-based Municipal Market Advisors. Top-rated, 20- year tax-exempts were also unchanged after slipping 1 basis point last week. Five-year securities are 9 basis points lower since May 7, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
Low Volatility
“There hasn’t really been much change at the extreme ends of the curve,” said Chris Ihlefeld, who helps manage $5 billion of municipal bonds at Santa Fe, New Mexico-based Thornburg Investment Management Inc. “Low volatility is likely a benefit to municipal issuers because they’re not incurring as many surprises as others in the fixed income market.”
Treasury yields fell to 3.14 percent yesterday after reaching 3.36 percent on June 3. The 22-basis-point drop was the biggest two-day decline in more than a year. Average yields on top-rated 10-year taxable municipal debt fell 2 basis points to 4.53 percent, according to Bloomberg Fair Market Value Data.
Arizona voters last month approved the state’s first tax increase in a decade. A temporary one-cent boost raised the state’s portion of sales taxes to 6.6 percent for three years. The last increase was 0.6 percentage point in the sales tax in 2000.
Following are descriptions of pending sales of municipal debt in the U.S.:
SAN FRANCISCO PUBLIC UTILITIES COMMISSION, the third- largest municipal utility in California, plans to sell about $484 million in bonds through competitive bidding tomorrow for improvements to a water system that serves about 2.4 million people in the San Francisco Bay Area and refinance debt. The deal includes $380.3 million in taxable Build America Bonds, $89.2 million in tax-exempts for capital projects and $14.4 million in tax-exempts to refund previous debt. The securities, backed by water-system revenue, are rated Aa2 by Moody’s and AA- by S&P, the third- and fourth-highest, respectively. (Updated June 8)
DENVER, the capital and most-populous city of Colorado, plans to offer $350 million in general obligations through a competitive sale tomorrow. The deal is made up of $312.1 million in taxable Build America Bonds maturing serially from 2017 through 2030, and $37.9 million in tax-exempts maturing from 2011 through 2016. The city, rated AAA by all three rating companies, will use the proceeds to maintain public assets under the Better Denver Program. (Updated June 8)
AUSTIN, Texas, the fourth-fastest growing metropolitan area according to the U.S. Census Bureau, plans to sell about $220 million in tax-exempt and taxable bonds tomorrow to refinance debt and pay for city improvements. About $101 million being sold as Build America debt will reimburse the city for capital expenditures financed with temporary, short-term paper, preliminary offering documents show. The bonds, backed by a subordinate lien on revenue from the city’s water and wastewater system and electric system, are rated A1 by Moody’s and A+ by S&P -- both fifth-highest -- and AA- by Fitch, one grade higher. Citigroup will lead underwriters marketing the issue. (Added June 8)
ILLINOIS STATE TOLL HIGHWAY AUTHORITY, responsible for a 286-mile system around the Chicago metropolitan area, plans to sell $400 million in tax-exempt bonds June 10 to refinance existing debt. The senior bonds are being issued on parity with remaining senior bonds and will be backed by net revenues of the toll roads. Bank of America Merrill Lynch will lead underwriters in marketing the bonds to investors. The agency is rated Aa3 by Moody’s and AA- by Fitch and S&P, all the fourth-highest. (Added June 8)
To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Brendan A. McGrail in New York at bmcgrail@bloomberg.net;
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