Highways

HONOLULU — On July 29, 2014, the State of Hawaii successfully sold nearly $164 million in Highway Revenue Bonds while securing the lowest interest rate for refinancing in the history of the state’s Highway Revenue Bond Program.

Approximately $120 million of the sale proceeds will be used to fund various highway projects, and more than $65 million will be used to refinance Hawaii’s existing bonds for interest savings.

The refinancing will provide more than $5.1 million in net present-value savings and reduce annual debt service payments. The overall interest rate on the financing, less than 3 percent, is the lowest the state has ever received since starting the Highway Revenue Bond Program in 1993.

“This financing is a tremendous success for our state, enabling continued investment in our infrastructure at a very affordable borrowing cost,” said Gov. Neil Abercrombie. “The low interest rates achieved demonstrate bond investors’ confidence in the economic strength of Hawaii and our significantly improved fiscal management. Results of the financing demonstrate years of discipline and responsible choices to ensure this positive result.”

Moody’s Investors Service, Standard & Poor’s Ratings Service, and Fitch Ratings affirmed the state’s strong bond ratings of “Aa2”, “AA+” and “AA,” respectively. Each rating agency also attached “stable” outlooks on their ratings, indicating positive expectations on future economic and financial trends for Hawaii. Rating agencies cited the stability and diversity of revenue streams that are pledged as security for the bonds as one of the key strengths of the credit.

Standard & Poor’s said: “We view the rating as resilient to lower debt service coverage ratios, whether stemming from a combination of a decline in revenues or additional debt. We believe the absence of variable-rate debt and a relatively diverse base of revenues within the motor vehicle sector provide additional stability in the event that one or more of the state’s component revenues suffers a decline.”

Other strengths cited include strong legal provisions, high debt service coverage, and the demonstrated action by the Abercrombie Administration, supported and approved by the state Legislature, to stabilize the pledged revenue stream. In 2011, the state adopted legislation that relied less on economic fluctuations in sources of pledged revenues. This action, combined with increasing sources of revenues that are less reliant on economic activity, contributed to the strengths of the credit.

The bonds were very well received by both Hawaii and national investors. Demand for the bonds was approximately four times higher than the total amount available for sale and the state took advantage of this demand to lower interest rates further.

“We could not be happier with the successful bond sale and the high credit rating,” said Ford Fuchigami, interim director of the state Department of Transportation. “The Highways Division has consistently maintained fiscal conservatism in its debt management and the high credit ratings and the demand for the offered bonds demonstrate the wisdom of the division’s past and current fiscal and debt management policies.

Supporting the state financing team in the successful bond sale were Robert W. Baird & Co. Inc., serving as senior manager, and Wells Fargo Securities, serving as co-senior manager.

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