New Hampshire heads to market next week with a $134.7 million general obligation bond deal as the state confronts fiscal challenges posed by coronavirus.
The competitive deal scheduled for Dec. 15 features $47.1 million of Series C capital improvement bonds, $50 million of Series D refunding bonds and $37.7 million of Series E federally taxable refunding bonds. The Series D bonds will use proceeds to current refund outstanding GO bonds and the series advance refund outstanding debt.
PRAG is financial advisor on the sale and Locke Lord will be bond counsel.
The transaction is rated AA-plus by Fitch Ratings, Aa1 by Moody’s Investors Service and AA by S&P Global Ratings. New Hampshire has $754.4 million of outstanding GO bonds, according to Fitch.
New Hampshire, which last issued refunding bonds in December 2016, will use debt service savings for near-term budget relief. It will mark the state’s first taxable refinancing since tax-exempt advanced refundings were axed under the Tax Cuts and Jobs Act, signed by President Trump in December 2017.
State Treasurer Monica Mezzapelle declined to comment about the bond deal and decision to opt for taxable refunding bonds for part of the transaction. The press office for Gov. Chris Sununu did not immediately respond for comment.
Fitch analyst Karen Kropp said that while New Hampshire did not provide a specific savings target from the refunding bonds, the deal should position the state with added flexibility as it prepares its next two-year budget in early 2021 to take effect July 1.
“It’s structuring the refunding to get the appropriate debt service savings but taking the savings a little bit upfront to provide some budget relief,” Kropp said. “It provides a little bit of budget relief in 2021, but more in 2022.”
New Hampshire disclosed in preliminary bond documents that state’s revenues for the 2020 fiscal year ending June 30 were roughly $115.6 million under budget due to disruptions caused by the COVID-19 pandemic when non-essential businesses were forced to close. Revenues for current 2021 fiscal year are estimated to fall $52 million under budget.
The Granite State’s revenue decline in fiscal 2020 compared with 2019 was driven largely by the business profit tax and business enterprise tax dipping 10.0% and 11.9% below what was budgeted, respectively, according to Moody’s. The state’s meals & rentals tax also fell 14.4% below budget.
New Hampshire does not levy sales or income taxes.
Kropp noted that New Hampshire has thus far avoided deep spending reductions in its current biennium budget expiring June 30, 2021 opting instead to achieve savings through a hiring freeze and slowing down capital investments. The state has not drawn on its $115 million rainy day fund since the pandemic began, but did reduce separate reserves set aside for the state’s general fund and education spending, according to Kropp.
Moody’s analyst Joshua Grundleger noted that New Hampshire has made strides building up rainy day reserves since 2015 after the fund only had only a $9.3 million balance from 2009 through 2014 after the Great Recession. He said the rainy day fund gives the state another potential financial took should it be forced to implement more COVID-19 related shutdowns this winter that would negatively impact revenues.
“It gives them that added cushion if they want to avoid expenditure cuts,” Grundleger said. “They are well positioned should they experience some additional stress.”
S&P credit analyst Thomas Zemetis noted that New Hampshire’s unassigned and rainy-day fund balances account for 13.1% of combined general and Education Trust Fund expenditures. Its rainy day fund comprises 4.7% of expenditures, which is considered “somewhat thin” compared to similar-rated states, according to Zemetis.