Small Town News

$500 million Build America Bonds achieves record low interest rates

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Washington state issued its first Build America Bonds Oct. 15, taking advantage of low interest rates made possible by the two-year federal stimulus program.

The proceeds from the $500 million sale provide essential financing for state transportation projects that voters support.

Domestic and international investors lined up to bid on taxable bonds that provide a 35 percent federal tax credit in interest for the state. The state had preliminary orders far in excess of available bonds, a strong indication of the state's strong credit and broad investor demand.

As a result, Washington taxpayers received an effective interest rate significantly lower than what they would have to pay for a tax-exempt municipal bond. The $500 million sale provided the state with an effective true interest cost of 3-52 percent.

To achieve these savings, Washington sold taxable bonds through a negotiated sale underwritten by senior managers Goldman Sachs & Co. and J. P. Morgan, with Bank of America Merrill Lynch serving as co-senior manager. The underwriters were chosen through a competitive RFP process.

In addition to this successful sale, the state reached another 30-year low interest rate for tax exempt bonds when it sold on a competitive basis $230 million of new bonds and refunded $334 million of existing bonds.

Merrill Lynch had the lowest of six bids for the $230 million General Obligation Bonds at a true interest cost (TIC) of 4.23 percent. Merrill Lynch also bought the $213-9 million General Obligation Refunding at a TIC of 3.67 percent.

Barclays Capital Inc. had the lowest bid on a $120 million Motor Vehicle Fuel Tax refunding with a 371 percent TIC.



Copyright 2009 The Othello Outlook, Othello, Washington. All Rights Reserved. This content, including derivations, may not be stored or distributed in any manner, disseminated, published, broadcast, rewritten or reproduced without express, written consent from SmallTownPapers, Inc.

© 2010 The Othello Outlook Othello, Washington. All Rights Reserved. This content, including derivations, may not be stored or distributed in any manner, disseminated, published, broadcast, rewritten or reproduced without express, written consent from DAS.

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