Oregon Refunds Lottery Debt as Bonds Trail Market

The Oregon Department of Administrative Services is selling as much as $143 million of securities backed by lottery revenue to refinance debt as the state’s bonds lag behind the $3.7 trillion municipal market.

The offering is down from an earlier $216 million estimate after interest rates rose, said Jean Gabriel, Oregon’s capital finance manager.

The sale, set for this week, is rated AAA by Standard & Poor’s. The state expects savings of $7.9 million to $8.9 million, depending on what’s included in the refunding, which is still being decided, according to Gabriel.

“We’re refunding the bonds because of the interest rate environment,” said Gabriel, who is based in Salem. “When the rates drop and you can get a better rate and you can refund debt that’s a higher cost to you, then that makes sense.”

Borrowing costs are hovering near generational lows at the same time the municipal market is off to its strongest start since 2009. Debt from Oregon issuers has climbed 4.9 percent this year through July 10, behind the 5.5 percent gain of the overall muni market, S&P Dow Jones Indices show.

Lottery Revenue

Yields on 20-year general obligations rose to the highest since April last week, after averaging about 4.24 percent in the past five years, the lowest since 1969, according to Bond Buyer data.

Oregon expects lottery revenue from 2013 through 2015 to total about $1.05 billion, about $1.9 million higher than the so-called March forecast released Feb. 12, because of higher sales, bond documents show.

“The nationwide jackpots got up above $400 million early this year, that drives a lot of sales,” said Josh Lehner, an economist at the state’s office of economic analysis. “People are spending more on it as the economy improves, however, as a share of their budget, it’s lower than it used to be” before the recession, he said.

Lottery players in Oregon get the most bang for their buck compared to every other state except Massachusetts, according to 2010 data compiled by Bloomberg. Oregon players get back 67 percent of what they pay for tickets in winnings, while those in Massachusetts receive 72 percent, Bloomberg data show.

Lottery bonds maturing in 2026 traded July 11 at an average yield of 1.45 percent, according to data compiled by Bloomberg.

Oregon joins issuers from New York to Kansas offering $4.7 billion in debt this week, up from $4 billion last week, according to data compiled by Bloomberg.

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Jeffrey Taylor, Pete Young

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