State closes on $950 million bond issue

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HARRISBURG -- State officials announced the close of a $950 million general obligation bond sale Friday.

Most of the funds will be used for capital projects; about $110 million is marked for stormwater control, sewage treatment system projects and other water-supply projects and about $40 million will aid in environmental protection, open space and farmland preservation, watershed protection, abandoned mine reclamation and other environmental initiatives, according to bond documents.

Bank of America Merrill Lynch was the successful bidder, offering a 2.904 percent interest rate. Six companies offered bids, according to a statement from the Pennsylvania office of the budget.

"Even in these times, that is a good interest rate," said James Spiotto, a Chicago-based attorney specializing in municipal debt restructuring and bankruptcy.

Mr. Spiotto said such state bonds are viewed as a stable investment

"No state has ever defaulted on their general obligation debt," since the 1800s, with the exception of Arkansas during the Depression era, he said.

A letter from credit rating agency Standard & Poor's assigned the bonds the agency's second-highest rating, as did other ratings agencies.

Standard & Poor's noted positives about the state's economy -- a diverse economic base, good wealth levels and a moderate debt profile -- mostly outweighed negatives such as an expected rise in debt levels, aging infrastructure, weakened financial reserves, budgetary pressures tied to growing service demands and "the growing state unfunded pension liability and increased funding costs, which are likely to stress Pennsylvania's budget.

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Kate Giammarise: kgiammarise@post-gazette.com, 1-717-787-4254 or Twitter @KateGiammarise.


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