Florida Issuers Borrow $442 Million as State's Debt Costs Rise to Record

Municipal-debt issuers in Florida, with the third-highest rate of home foreclosures in the U.S., offered $442 million in Build America and tax-exempt bonds as borrowing costs for issuers in the state rose to a record.

The extra yield investors demand to hold general-obligation bonds from Florida issuers instead of top-rated tax-exempts reached 87 basis points yesterday, the highest since recordkeeping began in 1994, according to Bloomberg Fair Market Value data. A basis point is 0.01 percentage point.

“Florida is experiencing more financial stress in terms of the national economic crisis due to real-estate prices being depressed,” said Chip Peebles, senior vice president of Memphis, Tennessee-based Morgan Keegan Inc. “It’s a big tourism state, and it wasn’t helped at all by the BP oil spill.”

Florida tourism fell 11 percent to 20.8 million in the quarter that ended in June, from the same period three years ago, according to the Florida Tourism Industry Marketing Corp.’s website. The quarter included an April 20 oil rig explosion and spill in the Gulf of Mexico that threatened beaches. In July, one in every 171 Florida housing units received a foreclosure filing, ranking behind only Nevada and Arizona, according to RealtyTrac Inc., an Irvine, California-based company that sells data on repossessed homes.

Name Recognition

The state Board of Education’s $223 million sale of tax- exempt bonds yesterday, and the city of Tallahassee’s $117 million in taxable Build Americas a day earlier, benefited from name recognition and reduced supply in the market, according to Terry O’Grady, senior vice president of municipal trading at FMS Bonds Inc. in North Miami Beach, Florida.

“They’re both easily placed deals,” he said. “You don’t need a lot of people around paying attention to get them done.”

Tallahassee, the state capital, got $292 million in bids for its Build Americas, almost two and a half times the amount of debt offered Sept. 8, according to James Cooke, deputy treasurer-clerk. The city also issued $25.8 million in tax- exempt notes with maturities from 2015 to 2026.

The Tallahassee offering, which is backed by utility system revenue, came as the spread between the federally subsidized bonds and U.S. Treasuries touched an 11-week low of about 189 basis points this week, according to the Wells Fargo Build America Bond average yield index.

The city’s 30-year bonds were priced to yield 5.22 percent, about 138 basis points above benchmark Treasuries, according to data compiled by Bloomberg. That compares with a Build America sale in January by the Orlando Utilities Commission, in the state’s center, with 30-year bonds priced to yield 5.66 percent, or 117 basis points above Treasuries. Both issues carried Aa1 ratings from Moody’s Investors Service.

Orlando Sale

The Orlando commission this week delayed the sale of $108 million in tax-exempts to refund bonds sold from 2000 through 2003 as it awaited a rating company’s ranking. The offering had been planned for Sept. 8.

Yields on top-rated tax-exempt general obligations due in 10 years rose 3 basis points yesterday to 2.67 percent, according to data from Municipal Market Advisors, an independent research firm in Concord, Massachusetts. The yields, which move inversely to prices, reached 2.58 percent on Aug. 25, the lowest since MMA began compiling the data in January 2001.

With rates near historic lows, “we and the rest of the world really are jumping into the market at the same time,” said John Hearn, the Orlando commission’s chief financial officer.

The sale, which he expects to take place in the next two weeks, will likely save $8 million, Hearn said.

The board of education’s competitive issue, backed by lottery revenue, was won by Bank of America Merrill Lynch with a bid of 2.34 percent, Bloomberg data show.

The so-called true interest cost will provide the state “a little better than $30 million in interest-cost savings,” said Ben Watkins, director of the Florida Division of Bond Finance.

Following are descriptions of pending sales of municipal debt in the U.S.:

NEW YORK CITY MUNICIPAL WATER FINANCE AUTHORITY, which funds the capital needs of the water and sewer system in the most populous U.S. city, plans to sell $600 million of Build Americas on Sept. 16. The securities are rated second-highest by Standard & Poor’s and Fitch Ratings, at AA+, and third-highest by Moody’s, at Aa2, and will be marketed by a group led by Barclays Plc. (Added Sept. 8)

UNIVERSITY OF TEXAS, which has the fifth-highest endowment among U.S. colleges, plans to borrow $631 million as early as next week. Proceeds will help refinance existing debt and pay for capital improvements including $434 million for a new university hospital in Dallas, according to Moody’s. The offering, which carries top ratings from Moody’s, S&P and Fitch, will be marketed by underwriters led by JPMorgan Chase & Co. (Added Sept. 9)

To contact the reporters on this story: Simone Baribeau in Miami at sbaribeau@bloomberg.net; Brendan A. McGrail in New York at bmcgrail@bloomberg.net.

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