State sells bonds
despite downgrade
Moody's action last week means
By Russ Lynch
the cash came at a higher price
Star-BulletinHawaii sold $636 million in general obligation bonds today, at an interest cost pushed up slightly by a downgrade last week by Moody's Investors Services.
Still, the rate was fair and there was a lot of market interest, said state Budget Director Earl Anzai, who is in New York for the sale.
The interest cost averages 4.9 percent and the two issues -- $300 million in new general obligation bonds and $336 million to refinance older bonds -- were sold in just three hours by the underwriter, Salomon Smith Barney, Anzai said.
The refinancing part of today's sale will save the state more than $139 million in debt service costs over the next four years, he said.
Gov. Ben Cayetano said the bonds attracted a wide range of institutional investors.
"We believe this reflects continued confidence in the State of Hawaii and the ability of the Legislature and this administration to deal with the difficult economic conditions we are facing," he said in a statement.
The $300 million 20-year bonds were initially offered at a yield, or interest cost to the state, of 5.22 percent. But buyers wanted more yield and the rate was pushed up one basis point to 5.23 percent, said Lorene Okimoto of Pacific Century Trust Co., who tracked the sale today.
A similar long-term issue that the state sold in March of last year, for $590 million, carried a yield of 5.77 percent.
Five-year bonds for the refinancing issue today started at 4.35 percent and went to 4.40 percent, Okimoto said. Bloomberg News reported that 10-year bonds in that second issue started at 4.65 percent and ended up at 4.68. The result is interest costs to the state of around $32 million a year.
When Moody's downgraded Hawaii last week one notch, to A1 from Aa3, Anzai said it was disappointing but not unexpected.
Anticipating it might increase the cost of raising the money, Anzai said that a small increase would be worth it to raise capital to get construction going and hire people. "What is five or 10 basis points compared to the fact that we're putting people to work," Anzai said. (A basis point is one-hundredth of a percentage point.)
The bonds got "sort of a cool reception," said Okimoto. But she said that had more to do with the condition of the bond market than with the condition of Hawaii.
