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Tuesday, October 13, 2015
Moody's -- Hawaii outlook positive
By News Release @ 3:47 AM :: 4730 Views :: Economy, Hawaii Statistics

Rating Action: Moody's changes Hawaii GO outlook to positive from stable; assigns Aa2 to $747M bonds

Approximately $6B of GO bonds outstanding

News Release from Moody's

New York, October 12, 2015 --

Moody's Rating

  • Issue: General Obligation Refunding Bonds of 2015, Series EW; Rating: Aa2; Sale Amount: $34,750,000; Expected Sale Date: 10-15-2015; Rating Description: General Obligation
  • Issue: Taxable General Obligation Bonds of 2015, Series FA; Rating: Aa2; Sale Amount: $25,000,000; Expected Sale Date: 10-15-2015; Rating Description: General Obligation
  • Issue: General Obligation Refunding Bonds of 2015, Series EX; Rating: Aa2; Sale Amount: $23,640,000; Expected Sale Date: 10-15-2015; Rating Description: General Obligation
  • Issue: General Obligation Bonds of 2015, Series EU (Green Bonds); Rating: Aa2; Sale Amount: $35,000,000; Expected Sale Date: 10-15-2015; Rating Description: General Obligation
  • Issue: General Obligation Bonds of 2015, Series ET; Rating: Aa2; Sale Amount: $190,000,000; Expected Sale Date: 10-15-2015; Rating Description: General Obligation
  • Issue: General Obligation Refunding Bonds of 2015, Series EY; Rating: Aa2; Sale Amount: $213,420,000; Expected Sale Date: 10-15-2015; Rating Description: General Obligation
  • Issue: General Obligation Refunding Bonds of 2015, Series EV; Rating: Aa2; Sale Amount: $8,700,000; Expected Sale Date: 10-15-2015; Rating Description: General Obligation
  • Issue: General Obligation Refunding Bonds of 2015, Series EZ; Rating: Aa2; Sale Amount: $216,915,000; Expected Sale Date: 10-15-2015; Rating Description: General Obligation

Opinion

Moody's Investors Service has assigned Aa2 ratings to the State of Hawaii's 2015 General Obligation Bonds to be issued in an estimated total amount of $747 million in eight series: Series ET, Series EU (Green Bonds), Refunding Series EV, Refunding Series EW, Refunding Series EX, Refunding Series EY, Refunding Series EZ, and Taxable Series FA. We have also revised the state's general obligation outlook to positive from stable and affirmed the Aa2 rating on the state's outstanding general obligation bonds. Following this sale, the state will have approximately $6.0 billion general obligation bonds outstanding.

SUMMARY RATINGS RATIONALE

The Aa2 rating incorporates Hawaii's improved financial operations with increasing reserves and healthy revenue growth; high fixed costs for debt, pensions, and other post-employment benefits (OPEB); and a tourism-based economy that is vulnerable to national and international economic fluctuations. Pension reforms for new employees are expected to reduce the state's retirement costs over time, and financial plans incorporate a funding of 100% of the OPEB annual required contribution (ARC) by 2019 per statute or earlier per the current administration's proposal. However, the state's fixed costs will remain among the highest in the country at least over the medium term due to the increase in OPEB spending and the state's responsibility for financing K-12 capital needs. Hawaii has strong governance practices such as multi-year financial planning, quarterly binding consensus revenue forecasting, and timely financial reporting.

OUTLOOK

The revision of the rating outlook to positive from stable reflects Hawaii's restoration of reserves, and its pro-active measures to improve the funding of its pension and OPEB liabilities, including the state's plans to fund fully its OPEB ARC, combined with strong revenue trends.

WHAT COULD MAKE THE RATING GO UP

- Absorbing the full OPEB ARC into the budget without a significant erosion of reserve levels.

- Increased economic diversification and reduced economic volatility.

- Sustained reduction in debt ratios and significant improvement in pension funded ratios, sooner than currently projected.

WHAT COULD MAKE THE RATING GO DOWN

- Economic weakening leading to deteriorating revenue trends, budget imbalance, liquidity pressures, and narrowing of financial position.

- Return to reliance on non-recurring solutions to balance the budget.

- Increased debt or debt service ratios relative to other states or deterioration of pension funded ratios.

OBLIGOR PROFILE

Hawaii is the 40th largest state by population, at 1.4 million. Its state gross domestic product is 38th largest. The population's income levels are above average, with per capita personal income equal to 101% of the US level and a median household income equal to 146%. Its poverty rate is in the bottom third among states.

LEGAL SECURITY

The eight series of bonds that comprise the current offering are general obligations of the state, to which the state has pledged its full faith, credit and resources. The bonds have a first charge on all general fund resources.

USE OF PROCEEDS

Proceeds of the Series ET and FA bonds will fund various state public improvement projects. Proceeds of the Series EU bonds will be used to acquire land for open space and a conservation easement. Proceeds of the Series EV, EW, EX, EY and EZ bonds will be used to refund outstanding bonds for debt service savings.

  *   *   *   *   *

STATE’S BOND OUTLOOK IMPROVES RATING, PAVING WAY FOR IGE ADMINISTRATION’S FIRST GENERAL OBLIGATION BOND SALE

News Release from Office of the Governor, October 13, 2015

(HONOLULU) – Governor Ige’s office today announced that Moody’s Investors Service (Moody’s) improved the outlook on its rating of State of Hawaii general obligation (G.O.) bonds from stable to positive. The positive change and rating assignment of Aa2 to an upcoming estimated $750 million bond sale recognizes the restoration of state reserves and proactive measures taken to reduce unfunded liabilities pertaining to pension and health benefits. The state’s strong bond ratings and improved outlook from Moody’s should allow the state to reduce costs to taxpayers.

Moody’s report cited Hawaii’s restoration of reserves, and its pro-active measures to improve the funding of its pensions and other post-employment benefits liabilities (OPEB), including the Administration’s plan to fully fund its OPEB employer’s annual required contribution, combined with strong revenue trends as some of the reasons for the positive outlook.

S&P and Fitch also affirmed the State’s G.O. bond rating at “AA” with stable outlooks citing the state’s adherence to sound fiscal policies, financial management and demonstrated commitment to building and maintaining strong reserve levels.

The ratings were announced in advance of the Ige administration’s first G.O. bond sale, which will provide funding for infrastructure improvements and other needed capital projects that will support the state’s economic growth and provide facilities that serve the people of Hawaii. The sale, which begins on Wednesday, October 14, will also refinance bonds previously issued at higher interest rates. The refunding is estimated to provide the State with savings in excess of $50 million.

“We have undertaken several initiatives to improve the financial outlook of the state. This bond sale will benefit from the state’s strong financial foundation established through the joint efforts of the Ige administration, the legislature, and other stakeholders,” stated Wesley Machida, State Director of Finance, who is overseeing the sale of the G.O. bonds.

The 2015 G.O. Bonds are expected to be sold with a retail only order period on Wednesday, October 14, 2015, with an institutional order period to follow on Thursday, October 15, 2015.

The sale will include approximately $750 million of bonds in total, including a mixed use of proceeds:

·       Tax-exempt Series ET will include $190 million of bonds for general State projects.

·       Tax-exempt Series EU will include $35 million which will be designated as Green Bonds for the Turtle Bay preservation easement pursuant to Act 121, SLH 2015.

·       Tax-exempt Series EV, EW, EX EY & EZ will include approximately $500 million for an economic refinancing of outstanding bonds.

·       Taxable Series FA will include $25 million for general State projects subject to private activity.

The 2015 G.O. Bonds will pay semi-annual interest and will be sold in denominations of $5,000, or multiples thereof.

Further, the 2015 G.O. bonds will be exempt from Hawaii and federal income taxes, with the exception of the series FA bonds, which will be subject to federal taxes.

Bank of America Merrill Lynch will serve as the lead underwriter for the offering, with Citigroup and Morgan Stanley serving as co-senior managers and Goldman Sachs and RBC serving as co-managers.

A Hawaii-based selling group will also be utilized to market the bonds to local retail investors.

Anyone interested in purchasing the bonds should contact their broker at any member of the underwriting team or selling group.

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