State pays reduced interest on bonds
By Dennis Walters
Bloomberg News Service
A tourism rebound in Hawai'i that helped avoid downgrades in credit rating since the Sept. 11 attacks reduced the state's borrowing costs in its latest bond sale of $300 million.
Yesterday Hawai'i sold general-obligation bonds with 4.81 percent yield on a 20-year maturity, or 9 basis points more than top-rated debt.
The state sold debt at a premium of 17 basis points more than top-rated municipal debt in February. A basis point is 0.01 percentage point.
The difference of 8 basis points amounts to a $240,000 annual saving for the state in lower interest expense. The bonds are not bad for investors either.
The 4.81 percent yield to investors translates into a taxable equivalent of 8.54 percent for a Hawai'i resident in the top income bracket.
Enough buyers pursued the bonds to let investment banks led by Salomon Smith Barney cut yields on some maturities.
"The numbers on tourist counts were coming back" more than the state had counted on, which is a plus for the state's economy, said Gabriel Petek, an S&P analyst in San Francisco.
Tourism spending accounts for about one-quarter of Hawai'i's annual economic activity.
Hawai'i's recovery from a slump in tourism after the terrorist attacks led Standard & Poor's and Moody's Investors Service earlier this year to remove downgrade warnings issued in October 2001 for the state's ratings.
The attacks caused Hawai'i's visitor traffic to plunge 34 percent in September 2001 and decline 16 percent last December compared with the same months in 2000. Through September of this year, total visits were 4.8 percent below the same period in 2001, credit analysts said.
Hawai'i's unemployment rate was 4.2 percent in September after rising to 5.7 percent a year ago.
"It seems like the credit's stable," said Philip Fang, who helps manage about $75 million in the Lord Abbett Hawaii Tax-Free Income Fund.
Fang said he didn't buy the bonds for the Hawai'i fund because he's near portfolio limits for holding the state's debt.
Hawai'i doesn't offer as many chances for diversification because its state and local governments have brought 16 tax-exempt issues to market this year, compared with 876 in California, according to Bloomberg data.
The state sells bonds for local school improvements, and more than half of yesterday's sale was for education purposes.
Absent bond insurance, Hawai'i's general obligations are rated Aa3 by Moody's Investors Service and AA- by Standard & Poor's and Fitch Ratings.
