The Year in Review
During Fiscal Year 2020, the Debt Management Division actively managed the State’s $26.3 billion debt portfolio, and significant accomplishments included:
- New Money Bonds - A total of $2.7 billion of new money bonds were issued to continue funding of the State’s capital programs including local school construction grants, economic development initiatives, transportation infrastructure, improvements at the state universities and colleges, and Clean Water and Drinking Water grants and loans. These projects help bolster the local economy and improve the lives of Connecticut citizens.
- Refunding Bonds - As interest rates continue to remain low, bonds were refunded through the issuance of $464.3 million of General Obligation and State Revolving Fund refunding bonds to capture the lower interest rates in the current marketplace which will provide aggregate debt service savings of $58.6 million over the life of the bonds. In addition, the State redeemed $38.0 million of Special Tax Obligation, Transportation Infrastructure bonds with available funds, thereby retiring the remaining second lien bonds which will provide future flexibility.
- Maintained Credit Ratings and Stable Outlooks, Despite COVID - Following the outbreak of COVID, the municipal markets were significantly disrupted and marked by reduced liquidity and weak investor demand. In addition, the fiscal impact of COVID on the State’s revenues and economy became a major area of focus for rating agencies and investors. In May 2020, Treasurer Wooden and the Office of Policy and Management’s Secretary McCaw and staff met with the major bond rating agencies through video conferences. They detailed the expected impact and planned response to the COVID crisis, including highlighting the State’s large Budget Reserve Fund as a key tool to manage through the economic recession. All of the credit rating agencies affirmed the State’s credit ratings and Stable outlooks on the General Obligation and the Special Tax Obligation bond programs.
- General Obligation Bond Sales – The Division’s first General Obligation bond sale of the fiscal year occurred in December 2019 with a $700 million new money offering coupled with a $194 million refunding. This sale was significant as it marked a continual trend of narrower bond pricing spreads, which indicates investor confidence in the State’s bonds. General Obligation bond spreads had widened in recent years due to investor concerns over the State’s long-term pensions and low budget reserves but have been moving back to more historic levels as pension reform measures were adopted and reserve levels reached an all-time high. The December sale achieved the lowest bond pricing spreads since 2016, resulting in an overall interest cost of 2.57% on the 20-year new money bonds and was the second highest level of retail orders in Connecticut history, totaling $512 million.
- Carefully monitoring market conditions in the wake of market disruption due to COVID and tracking the resultant low-interest rates, the Division successfully brought the sale of two General Obligation bond sales at the end of the fiscal year. The $500 million taxable sale in May attracted $4.4 billion in orders, and an overall interest cost on the ten-year taxable bond issue was 2.43%. The $400 million tax-exempt General Obligation bond sale in June attracted orders in excess of $4 billion and achieved the lowest interest cost, 2.31%, on any Connecticut 20-year, tax-exempt General Obligation bond sale on record.
- Transportation Bonding Program – In May 2020, the Division managed the issuance of $850 million of new Special Tax Obligation bonds to fund new and ongoing transportation infrastructure improvements. Given the difficult market due to the COVID-19 pandemic, especially in the transportation sector, extensive pre-sale marketing was undertaken to provide investors with key financial updates on the Special Transportation Fund just ahead of the bond sale. The sale attracted record participation by both institutional and retail investors. Institutional orders of $7.2 billion were placed by more than 100 institutional investors. Total retail orders were $507 million, including a record $480 million during the first-day retail order period, breaking the previous one-day retail record for the STO program established back in 2018. The bond sale provided total funding of $941 million for statewide transportation infrastructure investments at a low overall interest cost of 2.97%. Throughout the year, the Division continued to consult with the State’s Department of Transportation and the Office of Policy and Management on bonding matters including various funding sources and alternative financing strategies related to the transportation bonding program.
- State Revolving Fund (SRF) (Clean Water and Drinking Water Fund) Green Bonds - The Division worked closely with the State’s Department of Energy and Environmental Protection and the Department of Public Health to successfully commit low-cost funding for program participants throughout the State. The SRF program closed on $280 million of bonds. The sale generated $240 million of orders from retail investors, the highest number on any bond sale in the 28-year history of the program. The bonds, issued to fund new loans were sold at a 2.69% yield, the lowest of any such bond sale for the program. Continuing its market leadership, Connecticut sold these as Green Bonds. The sale generated $57 million in bond orders from Green investors.
- Quasi-Public Agencies – Interfaces with the State’s quasi-public agencies continued as the Division worked with the Connecticut Green Bank on their first public bond issue and with the Connecticut Airport Authority on their bond financing matters.
- The Division also took steps to complete vendor searches and enhance staffing. A financial advisor Request for Proposal was completed that resulted in the hiring of three new firms. A bond underwriter Request for Proposal was developed and issued, and bond counsel contracts were extended for 18 months. In addition, two new Debt Managers and an Accounting Specialist were hired, in part, to refill positions vacated due to retirement.