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State of Connecticut



GO (2018 Series E) GO Refunding (2018 Series F) Taxable GO (2018 Series A)

August 16, 2018


Image by Sam Mgrdichian

The state of Connecticut achieves the largest amount of retail sales on a GO sale on record

On August 15, 2018, Siebert Cisneros Shank & Co., L.L.C. priced the State of Connecticut’s General Obligation transaction, the firm’s 12th senior managed transaction for the State, with issuances totaling $6.0 billion.

This deal marked two important “firsts” – the highest amount of retail sales the State has received on a GO sale since 1999 (when the records began) and the lowest tax-exempt spreads on the long end of the curve since the State’s 2017A issuance.

The Series 2018 E Bonds were issued to retire the State’s outstanding BANs. The Series 2018 F Bonds refunded $256 million of prior bonds, realizing $25 million in NPV savings. The Series 2018 A Bonds funded new money projects including the construction of the Innovation Partnership Building at the UConn Technology Park in Mansfield, renovation and construction of housing units in various towns across the State, economic development assistance under the First Five program, and the funding of the Small Business Express Program and the Bioscience Innovation Fund.

The combined tax-exempt structure, totaling $639.2 million was heavily front loaded–nearly 72% of the tax exempt bonds are amortized within the first 10 years and the remaining $180 million of par amortized evenly between 2029 and 2037. Consistent with the State’s past practice, the $250 million Taxable Series A new money bonds were structured with level principal over a 10-year period.

Select maturities of the 2018 Series E and F Bonds were offered to Connecticut and national retail accounts on a priority basis during the retail order period.

Effective Investor Outreach

  • SCS assisted the State with the execution of an aggressive retail pre-marketing campaign that included print, online, radio and e-mail advertisements.

  • SCS also assisted the State in creating a detailed investor presentation that was viewed by 38 investors, 12 of whom placed orders for the State’s transaction.

Market Tone Leading up to Pricing

  • The week leading up to pricing, the market moved positively, despite geopolitical tensions in Turkey dominating the news.

  • The 5- and 10-year MMD were 2 and 6 bps lower respectively, in the week leading up to pricing, while the 10-year Treasury was 11 bps lower during the same period, helping decrease the State’s borrowing costs.

  • The week of pricing was the largest supply week of the year— about $12 billion of new issuances—leading to some concerns of higher spreads.

  • The State’s new bond covenants, which began with the GO issuance in June 2018, were well received by investors. This was reflected in the pricing spreads of this bond issue.

Pricing Process

  • In order to facilitate the best execution of the transaction (with both a retail and institutional tax-exempt pricing and an institutional taxable pricing with a price guidance marketing period), SCS engaged our two underwriters to oversee the pricing of the individual series, allowing for a seamless process over 2 days.

  • For the Tax-Exempt Series, SCS evaluated the use of sub-5% coupons and short calls to assist the State in the analysis of the costs/benefits of higher Original Issue Premium bonds.

  • For the Taxable Series, SCS structured taxable premium bonds to generate sufficient premium to pay for the allocated issuance costs.

Tax-Exempt Pricing Results

  • Retail pricing commenced on Tuesday August 14th followed by the institutional pricing on Wednesday, August 15th.

  • SCS proposed an aggressive pre-marketing scale that was 1 – 3bps below the consensus scale, and elected to leave spreads unchanged for the retail order period despite some market weakness on Tuesday morning

  • At the end of the retail order period, the SCS-led syndicate generated retail orders amounting to 98% ($365.8 million) of the total tax-exempt bonds offered to retail ($375 million), 53% of which were placed on of behalf of Connecticut retail investors – this represents the most retail orders the State has received on a GO sale since 1999 and beat the previous record which was held by Siebert from the 2008C offering.

  • Going into the institutional order period (day 2), SCS left spreads in 2019-2027 unchanged, made slight adjustments to spreads in years 2028-2032 based on investor feedback, and tightened the 2036 maturity (4% coupon) by 2 bps.

  • At the end of the order period, the State had received over $1.7 billion of total orders (2.8x oversubscription), including over $874 million of priority orders in addition to the $366 million of retail orders.

  • SCS was able to tighten spreads between 1-3 bps in years 1-10 and 3-6 bps in years 15 and longer, achieving the lowest tax-exempt spreads on the long end of the curve for any deal since the State’s 2017A issuance.

  • SCS garnered significant interest on the shorter end of the curve (through 2028) from retail investors, totaling $296 million and placed the winning bids for the Series E and F sealed bid offerings. in 2019.

  • 57 different investors placed orders for the Series E & F Bonds.

Taxable Pricing Results

  • Indications of interest for the taxable bonds were taken at the same time as the tax-exempt retail order period.

  • After consultation with the State and their advisors, SCS tightened spreads from the consensus by up to 6 basis points prior to releasing the premarketing wire.

  • After a full day of taking indications, the Taxable Series A Bonds were 3.3x oversubscribed.

  • For the taxable price guidance period, SCS repriced with aggressive spreads that were 5 – 10 bps tighter than the levels marketed during the indications of interest period, with the goal to tighten an additional 5 bps in select maturities.

  • Given significant investor demand overall, SCS was able to tighten spreads by 10 – 15 bps compared to levels during the indications of interest period.

  • With this adjustment, SCS was able to achieve spreads on the 10-year maturity that were 15 bps tighter than the State’s taxable competitive transaction in December 2017.

  • The aggregate transaction achieved an attractive all-in TIC of 3.54% (for all three series) and the 2018 Series F refunding Bonds generated $25 million in PV savings (9.7% of refunded par).

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