Deal: Georgia earns top marks, nets savings by refunding bonds

October 20, 2016

Gov. Nathan Deal today announced that Georgia will save more than $152 million by refunding outstanding bonds after again earning a rating of AAA, with a stable outlook, from each of the three main credit-rating agencies — Moody’s, Fitch and Standard & Poor’s. Only 11 states currently meet this standard.

“Georgia’s diligence in maintaining the AAA rating and monitoring market conditions have allowed us to lower the state’s debt service payments and save taxpayers millions of dollars,” said Deal. “We will be able to use these savings to help fund other priority services for our citizens. I am proud that our fiscal responsibility can translate into a better use of taxpayer resources” 

Georgia is capitalizing on its top credit rating and the current low interest rate environment by selling $889.6 million in bonds to refund outstanding debt and lower debt service payments. The state will issue two series of refunding bonds with an interest cost of 1.65 percent for the 2016E bonds and 1.74 percent for the 2016F bonds, and a blended rate of 1.70 percent. The bonds are being issued as tax-exempt bonds, meaning that the interest on the bonds will be exempt from both federal and Georgia income taxation for in-state residents. The bonds are being sold to refund more than $1.02 billion of bonds that originally were issued in 2007, 2008, 2009 and 2011, which will save the state slightly more than $152 million in total debt service payments when compared to the original bonds.

In making their decisions, the rating agencies cited a strong and growing economy, with a positive employment trend, consistent funding of retirement plans for state employees and teachers and a significant and prudent increase in the state’s Rainy Day Fund, among the characteristics demonstrating fiscal responsibility.

The Georgia State Financing and Investment Commission, which is responsible for issuing the bonds, approved the sale of the bonds at its meeting today.

Excerpts from the Bond Rating Agency Reports

Moody’s, Fitch and Standard & Poor’s individual ratings are Aaa, AAA and AAA, respectively, which are the highest ratings available and indicative of sound fiscal management.

Moody’s Investors Service: Moody’s highlighted Georgia’s “conservative fiscal management, rapid replenishment of budgetary reserves, moderate debt levels and diversified economy that continues to grow.” The agency remarked that “Georgia’s strong governance framework and financial management practices have helped to support the state’s Aaa rating over many years.”

Fitch Ratings: “Georgia’s AAA rating reflects the state’s conservative debt management, proven willingness and ability to support fiscal balance and a broad-based and growing economy. Georgia has maintained a conservative approach to fiscal management, limiting spending growth and making progress in rebuilding the RSR balance. The state’s long-term liability burden is low.”

Standard & Poor’s: The AAA rating reflects S&P’s view of the state’s “well-diversified and broad-based economic growth that is outpacing the nation […]; strong financial monitoring and oversight with a history of budget adjustments, mainly through expenditure reductions, to restore fiscal balance; additional flexibility provided by the substantial recent growth in the revenue shortfall reserve (RSR); moderate debt position bolstered by rapid amortization; and proactive management of long-term liabilities through full funding of the state’s portion of pension contributions and the creation of other postemployment benefit (OPEB) fund reserves.”