Posted on: Saturday, October 16, 2004

State's timing right for bonds

By Deborah Adamson
Advertiser Staff Writer

The state of Hawai'i's strong credit rating, combined with a recent dip in interest rates means the government should be able to lock in a favorable borrowing rate when it issues $225 million in general obligation bonds next week.

"The rates have come down quite a bit in the last few weeks," said Scott Kami, administrator of the Financial Administration Division at the state Department of Budget and Finance. "It is a good time for us to get into the market."

Lower rates mean borrowing costs will be lower for the state.

"The state's financial condition has improved over the past two years as revenue growth has been very strong, reflecting a robust economic expansion under way," Standard & Poor's said in assigning the bond an AA-rating.

Fitch Ratings also gave the bond issue an AA-rating, citing an improved state economy and containment of debt. The rating is one level below the top AAA rank used by the ratings agencies.

For the fiscal year ending next June 30, the state Legislature has approved issuing $450 million in general obligation bonds. At present, Hawai'i has $3.96 billion in outstanding general obligation bonds.

The yield will be determined on the date of issue, Kami said. The yield-to-maturity measures the total return of investors if they hold the bond to maturity.

One advantage of municipal bonds from an investor's perspective is that they are free from state and federal taxes.

"It's probably still a good time for them to come," said Robert Crowell, portfolio manager of the $750 million Hawaiian Tax-Free Trust municipal bond fund.

Underwritten by a Citigroup-led syndicate, the callable bonds will be issued Thursday. They are due Oct. 1, 2009 to 2024 and will be callable starting Oct. 1, 2014. The bonds are sold in $5,000 increments.

Proceeds from the bond issue will be used to finance capital improvement projects, such as schools, libraries and parks.

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.