Washington State hopes ratings help in higher rate environment

Washington is banking on its high credit ratings and strong demand on previous sales as it heads to market Tuesday with a $483 million competitive refunding. 

The bonds will be auctioned in two series: $296.550 million various purpose general obligation refunding bonds, Series R-2024A and $186.225 million motor vehicle fuel tax and vehicle-related fees GO refunding bonds, Series R-2024B.

The state holds a Aaa rating from Moody’s Investors Service and AA-plus ratings from S&P Global Ratings and Fitch Ratings. All have stable outlooks.

“Interest rates are certainly higher than last year, or even three months ago, the BBI [The Bond Buyer Index] was about 50 basis points lower in July,” said Aaron Sherman, spokesman for the Washington Treasurer’s office. “While the state isn’t immune to higher rates, we are confident that Washington’s high credit ratings and excellent reputation will encourage strong investor interest.”

On the competitive certificates of participation sale, which sold Oct. 26, the state received bids from 11 different underwriters with less than one basis point difference between the winner and cover bid, Sherman said. “We are looking forward to strong investor demand for our Nov. 7 bond sale.”

The treasurer’s office provided financing for more than $40 million of projects with the COPs sale. The proceeds will go to six municipal districts, a state agency, and three colleges across Washington. Funded projects include construction of a facility, the purchase of fire protection support, fleet vehicles, and other critical acquisitions.
 
“With interest rates on the rise, leveraging our state’s outstanding credit ratings to the benefit of local partners for local projects is more important than ever,” Washington State Treasurer Mike Pellicciotti said in a statement about the COPs sale.

COPs, which the state sells three times a year, pool financing requests from state agencies and local governments into a publicly sold security. This allows state agencies, as well as local partners in the Local Option Capital Asset Lending Program to acquire equipment and real estate under the umbrella of the state’s credit. The process leverages the state’s strong ratings to help local governments secure financing at the lowest possible interest rates — ultimately reducing costs and saving taxpayer dollars, according to the treasurer’s release.

The state will continue to look at and evaluate opportunities for refinancings on an ongoing basis, Sherman said, even though interest rates have ticked up causing refundings to decline market-wide from lower interest rate years.

The Series R-2024A bonds are being issued to current refund various purpose GOs, Series 2014D, which were originally issued in February 2014. The Series R-2024B bonds will current refund MVFT GOs, Series 2014E, originally issued at the same time.

Piper Sandler & Co. of Seattle and Montague DeRose and Associates, LLC of Westlake Village, California, are the municipal advisors. Foster Garvey PC is bond counsel and Stradling Yocca Carlson & Rauth is disclosure counsel.

“After this refinancing, the state will begin work on our January/February new money sale,” Sherman said. “After that, we will likely continue our tradition of issuing new money bonds in July/August. We will also continue to evaluate refinancing opportunities on an ongoing basis.”

Of the triple-A issuer rating Moody’s assigns, analysts said, it reflects the state’s “strong economic fundamentals driven largely by the technology sector in the Seattle metro area, above-average resident income levels, positive demographic trends and strong fiscal governance.”

The state’s reserve position also has strengthened in recent years as a result of better-than-expected revenue performance and the availability of federal pandemic relief funds, Moody’s analysts wrote.

“Its financial reserves will retreat from record positions to still-sound levels in coming years, given sizable spending increases approved under the 2023-2025 biennium budget and as revenue growth is slowing under softening economic conditions,” Moody’s said. “While the state’s total leverage (debt, pension, OPEB, and other long-term liabilities) is moderately higher than the 50-state median, it has declined in recent years and the state’s fixed costs are in-line with the sector median.”

Following the sale, the state will have approximately $21.2 billion of GO bonds outstanding, including GO bonds additionally secured by fuel taxes, other vehicle related fees, and tolls, all rated Aaa, Moody’s analysts said in a report.