The Pennsylvania State Public School Building Authority is selling $325.5 million of taxable qualified school construction bonds in the largest deal since the program began in February 2009.
The securities, set for issue Sept. 30, will fund the renovation and building of schools in 46 Pennsylvania districts, improving energy consumption and laboratories. The bonds are ranked AA by Fitch Ratings and Aa2 by Moody’s Investors Service, both third-highest, according to preliminary offering documents.
Pennsylvania’s federally subsidized school debt matures in 17 years and doesn’t have to compete with 30-year Build America Bonds in terms of yield, said Alan Schankel, director of fixed- income research for Philadelphia-based Janney Montgomery Scott LLC, an underwriter on the offering.
“The deal is marketable because of its size and domestic buyers’ comfort with U.S. municipal credit,” Schankel said. “Given these don’t go head-to-head with BABs, I expect the deal will be well-received.”
The state was alloted a total $600 million of so-called QSCBs by the U.S. government, the sixth-biggest amount in the nation, according to a June news release. The issue exhausts Pennsylvania’s own sales quota for 2009 and a portion of its 2010 allocation.
Planned projects include renovations to increase energy efficiency, expand pre-kindergarten programs and update science and technology laboratories, said Barbara Nelson, director of budget and fiscal management with the Department of Education.
School-Bonds Program
Issuers have sold more than $7 billion qualified school construction bonds since the program began as part of the American Recovery and Reinvestment Act in February 2009.
The school-bond subsidy is paid directly to the issuer, as is the case with Build America Bonds. The U.S. government subsidizes as much as 100 percent of the interest costs on the school debt and a fixed 35 percent on Build Americas.
The Pennsylvania notes will offer a yield 125 basis points above 30-year Treasuries, according to a person with knowledge of the deal. A basis point is 0.01 of a percentage point.
Tennessee schools, also rated third-highest by Moody’s and Fitch, sold $212 million of such debt Sept. 22 priced to yield 4.85 percent, or 110 basis points above the benchmark. Yesterday the so-called spread had narrowed to 104 basis points.
Massachusetts’ schools on June 15 sold $151 million in 17- year bonds, which were rated third-highest investment grade by the three major rating companies. They priced to yield 5.47 percent, 125 basis points above 30-year Treasuries. Those notes traded July 20 at 5.2 percent, 122 basis points above Treasuries.
Pennsylvania’s sale of obligations from many districts in one issue make the debt more marketable, lowers borrowing costs and increases liquidity, Schankel said.
This “is a great way for school districts to access the market and having a big deal saves everyone involved some borrowing costs,” Schankel said.
To contact the reporters on this story: Ashley Lutz in New York at alutz8@bloomberg.net; Alexandra Harris in New York at aharris48@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.
http://jodnet.blogspot.com
The securities, set for issue Sept. 30, will fund the renovation and building of schools in 46 Pennsylvania districts, improving energy consumption and laboratories. The bonds are ranked AA by Fitch Ratings and Aa2 by Moody’s Investors Service, both third-highest, according to preliminary offering documents.
Pennsylvania’s federally subsidized school debt matures in 17 years and doesn’t have to compete with 30-year Build America Bonds in terms of yield, said Alan Schankel, director of fixed- income research for Philadelphia-based Janney Montgomery Scott LLC, an underwriter on the offering.
“The deal is marketable because of its size and domestic buyers’ comfort with U.S. municipal credit,” Schankel said. “Given these don’t go head-to-head with BABs, I expect the deal will be well-received.”
The state was alloted a total $600 million of so-called QSCBs by the U.S. government, the sixth-biggest amount in the nation, according to a June news release. The issue exhausts Pennsylvania’s own sales quota for 2009 and a portion of its 2010 allocation.
Planned projects include renovations to increase energy efficiency, expand pre-kindergarten programs and update science and technology laboratories, said Barbara Nelson, director of budget and fiscal management with the Department of Education.
School-Bonds Program
Issuers have sold more than $7 billion qualified school construction bonds since the program began as part of the American Recovery and Reinvestment Act in February 2009.
The school-bond subsidy is paid directly to the issuer, as is the case with Build America Bonds. The U.S. government subsidizes as much as 100 percent of the interest costs on the school debt and a fixed 35 percent on Build Americas.
The Pennsylvania notes will offer a yield 125 basis points above 30-year Treasuries, according to a person with knowledge of the deal. A basis point is 0.01 of a percentage point.
Tennessee schools, also rated third-highest by Moody’s and Fitch, sold $212 million of such debt Sept. 22 priced to yield 4.85 percent, or 110 basis points above the benchmark. Yesterday the so-called spread had narrowed to 104 basis points.
Massachusetts’ schools on June 15 sold $151 million in 17- year bonds, which were rated third-highest investment grade by the three major rating companies. They priced to yield 5.47 percent, 125 basis points above 30-year Treasuries. Those notes traded July 20 at 5.2 percent, 122 basis points above Treasuries.
Pennsylvania’s sale of obligations from many districts in one issue make the debt more marketable, lowers borrowing costs and increases liquidity, Schankel said.
This “is a great way for school districts to access the market and having a big deal saves everyone involved some borrowing costs,” Schankel said.
To contact the reporters on this story: Ashley Lutz in New York at alutz8@bloomberg.net; Alexandra Harris in New York at aharris48@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.
http://jodnet.blogspot.com
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