Ohio Capital Premium Higher Than Montgomery on Parceling of Debt
(Bloomberg) – Columbus, Ohio, the capital whose borrowings are rated one level above the state’s, sold about $430 million in AAA debt that included more than $266 million in Build America Bonds, the week’s second largest such offer.
Ten-year general obligations were priced to yield 3.4 percent, according to a person familiar with the deal, which is 25 basis points higher than $325 million in bonds issued earlier this month by comparably rated Montgomery County, Maryland. A basis point is 0.01 percentage point.
Columbus may have paid a premium because the largest sections of the five-portion deal may not qualify for inclusion in indexes, said Anthony Shields, a principal in the public- finance department at Williams Capital Group in New York.
“Because there are so many parts, there’s no benchmark, and that actually hurts the deal rather than helps them,” Shields said. “A lot of people who buy the BABs want to buy the bonds that are in an index,” he said, referring to the Build America segment.
The Build America Bond program, under which the federal government pays 35 percent of the interest costs of taxable bonds sold to pay for public works projects, was created last year as part of President Barack Obama’s economic-stimulus package to help ease borrowing by state and local governments. The program was set to expire at the end of 2010, but a bill was introduced yesterday in the U.S. House to extend it two years.
“We’ll probably end up close to a 50/50 split between tax- exempts and taxables,” said Steve Wentzel, Columbus’s debt management specialist. Final pricing information won’t be available until today.
Municipal Boon
Build Americas have been a boon for state and local governments, which have sold about $124 billion of the securities. They also have been a plus for investors, according to Justin Hoogendoorn, a bond strategist at BMO Capital Markets in Chicago.
“What we’re telling clients is that BABs and the broader municipal market in general are very favorable compared with corporates right now,” Hoogendoorn said. “Ohio paper is definitely pricing wider than the overall market, but with Columbus, I wouldn’t expect them to have too many problems with pricing on the deal.”
This month, top-rated taxable municipal securities have returned more than triple the rate of comparable corporate bonds, according to indexes compiled by Bank of America Corp.’s Merrill Lynch & Co.