Budget director Kalbert Young with Gov. Neil Abercrombie
Gov. Neil Abercrombie with State Budget & Finance Director Kalbert Young (photo by Mel Ah Ching Productions)

REPORT FROM THE GOVERNOR’S OFFICE – Gov. Neil Abercrombie and Budget and Finance Director Kalbert Young today announced that the State of Hawaii successfully sold $866,990,000 of General Obligation Bonds on Nov.15, 2012. This transaction reflects a continuation of work by the Abercrombie Administration to enhance the state’s solid financial foundation, and to invest in Hawaii’s future by improving schools, transportation and other infrastructure needs. The state is also capitalizing on the very favorable interest rate environment that is a result of the Federal Reserve’s monetary policies. The state locked in an historically low tax-exempt interest rate of 2.6 percent.

“My administration remains focused on investing in the future of Hawaii and improving our financial footing,” said Governor Abercrombie. “Just two years ago, our state faced a tremendous budget deficit and a daunting economic outlook. Today, the strength of our credit ratings and the strong demand from both local and national investors reaffirm our strategy to make prudent fiscal decisions and invest in infrastructure and state facilities that stimulate the economy and create opportunities for employment.”

In preparation for the transaction, Moody’s Investors Service, Standard and Poor’s Ratings Service and Fitch Ratings affirmed the state’s strong credit ratings of Aa2/AA/AA. Standard and Poor’s gave the State a “Strong” assessment in the area of financial management and noted that “the state has demonstrated willingness to provide timely – and structural – budget solutions.” Moody’s cited the state’s “historical fiscal conservatism; prompt action to address shortfalls” and Hawaii’s improving financial operations following the recession-driven revenue fall-off. Fitch also affirmed Hawaii’s GO Bond ratings and noted that “the state has shown a commitment to restoring budget balance when revenues underperform.” All three agencies noted the vibrant and diversifying economy in the state and pointed out Hawaii’s strong tourism market, the military commitment to the state, and strong income and employment statistics that support the strong ratings.

Market conditions reflected a strong demand for strong credit-quality bonds and a number of initiatives the Federal Reserve have implemented to stimulate the economy by keeping borrowing rates low. The bonds will fund both capital investments in state facilities and infrastructure and to refinance older bonds in order to generate interest rate savings. The transaction generated more than $54.8 million of debt service savings, or $49.7 million on a present value basis.

The transaction was led by Budget and Finance Director Kalbert Young, who said: “We are very pleased with the results of this transaction. The strong results reflect a great deal of focus by the administration during the past two years to enhance our connectivity with the investor community, to improve our credit outlook through prudent fiscal actions and by raising awareness about the strength, diversity and growth of the economy in Hawaii. It’s very satisfying to me to lock in interest rates at 2.6 percent, the lowest ever for the state.”

The Abercrombie Administration also sought to improve the state’s credit ratings by further stressing Hawaii’s commitment to long-term fiscal stability and addressing key fiscal issues such as rebuilding reserves, reducing unfunded liabilities ratios, improving the timely development of financial statements and by supporting future revenue drivers such as military and other federal spending. In addition, the state stressed the strength of Hawaii’s diversified economy and the diversification of its energy portfolio. “Credit agency reports evaluating the state’s financial management positively highlighted our efforts in each of these areas,” said Director Young.

  • Historic low all-in interest cost of 2.6 percent
  • Selling tax-exempt bonds with maturities ranging from 5 to 20 years
  • Reduced debt service by saving more than $54.8 million on previously outstanding debt
  • $470 million in new debt to fund capital projects while keeping debt service at legislatively-appropriated levels
  • Improved the state’s financial position
  • Garnered positive credit rating review
  • Received wide acceptance from a range of individual retail and institutional investors

The $470 million of new money proceeds from the bond sale will be used for various public improvement projects, including public buildings and facilities, elementary and secondary schools, community college and university facilities, libraries and parks.

Goldman, Sachs and Co. and Bank of America Merrill Lynch served as the joint lead managers for the bond sale, with Morgan Stanley, J.P. Morgan, Wells Fargo, Piper Jaffray, RBC and Stifel Nicolaus serving as co-managers. Firms with offices in Hawaii also participated in a retail selling group for the bonds.

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