When Pennsylvania floated a Build America Bonds deal this week, which was the largest in the nation to be competitively bid to date, the commonwealth obtained the lowest interest rate of any of its non-refinancing deals since 1968.
According to Governor Edward G. Rendell, Wall Street’s reaction to the $900 million bond sale affirms that the financial and investment communities continue to regard Pennsylvania’s fiscal management practices highly.
“The market’s strong response when the national economic outlook is still uncertain confirms Pennsylvania’s record of sound fiscal management and the financial community’s faith in the value of our bonds,” said Governor Rendell of the sale that was completed on Wednesday.
In contast, Moody's downgraded municipal debt at the fastest rate in at least 20 years in 2009 as the worst recession since the 1930s slashed tax collections and strained budgets.
Ratings for 279 state and local-government tax-backed bonds were reduced last year, up from 81 in 2008, according to a quarterly report released today. Including bonds backed by revenue, such as those of hospitals and housing authorities, seven ratings were raised for every 10 reduced, the lowest ratio in at least two decades.
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Build America Bonds, which were enacted as part of the American Reinvestment and Recovery Act, are federally taxable bonds—as opposed to the commonwealth’s traditional tax-exempt bonds. Sales of these bonds nationally began in April.
The winning bidder in the sale was Barclays Capital Inc. The six other bidders were: Citigroup Global Markets; J.P. Morgan Securities; Wachovia Bank, N.A.; Merrill Lynch & Co.; Goldman, Sachs & Co.; and Morgan Stanley & Co.
“As part of the bond sale process, the key Wall Street rating agencies reaffirmed our double-A credit rating,” the Governor said. “The broad interest in this sale is more evidence of the strong position that Pennsylvania is in to weather the economic storm and break out of this recession.”
Build America Bonds are attractive to investors because they produce higher yields and, since they are backed by the commonwealth’s double-A credit rating, they are secure.