Pennsylvania is asking bond investors to support projects such as a hospital expansion in Philadelphia and renovating film studios in Pittsburgh.
The Keystone State is selling $834.5 million in general-obligation bonds via auction tomorrow, most of which will help fund capital projects, said Steven Heuer, director of the bureau of revenue, capital and debt. A decline in issuance by localities this year will buoy demand, he said.
“The supply is really light out there for municipal debt,” he said.
Local governments sold about $72 billion of bonds this year through April 18, compared with $105 billion in the same period of 2013, data compiled by Bloomberg show. The drop-off has helped push benchmark yields to the lowest since June.
A $289.5 million segment of Pennsylvania’s offer will retire some securities issued from 2003 through 2007, deal documents show. The refinancing should save about $30 million, Heuer said.
State officials in December approved $133 million in grants under a program that reimburses municipalities for “economic, cultural, civic, recreational, and historic improvement projects,” said Jay Pagni, a spokesman for Governor Tom Corbett.
The ventures include a renovation of Pittsburgh’s 31st Street Studios, used during film production of “Jack Reacher,” starring Tom Cruise, and construction of an ambulatory care center for the Children’s Hospital of Philadelphia, according to a program list.
The extra yield that buyers demand on Pennsylvania 10-year debt has dropped to 0.28 percentage point from a peak this year of 0.37 percentage point on Jan. 21, Bloomberg data show. Pennsylvania has about $12 billion in general-obligation debt, according to deal documents.
Moody’s Investors Service ranks the new securities Aa2, the third-highest investment grade, saying the state’s economy, which will grow more slowly than the U.S., and pension liabilities “will challenge its return to structural budget balance.”
Costs for Pennsylvania’s two pension systems will almost triple to $4.3 billion in 2017 from $1.5 billion this year, according to deal documents. Without changes, making the contributions will probably require budget cuts for the state and school districts, according to the documents.
Pennsylvania joins issuers selling $4.8 billion this week, down from $8.1 billion last week, the most in a month.
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