Bonds

Florida seeks continued debt reduction with tender offer

Florida continues to work to reduce its debt load, offering a tender to holders of $1.4 billion of bonds, nearly 10% of its par outstanding, using its own cash without the sale of refunding bonds.

Issuers have turned to tenders since the Tax Cuts and Jobs Act of 2017 eliminated the tax-exempt advanced refunding option.

Using its own cash instead of cash from the sale of refunding bonds is not typical, but offers benefits, said Public Resources Advisory Group Senior Managing Director Wendell Gaertner, Florida’s advisor on the deal. “Without the need for a replacement bond issue there is less execution risk for bondholders and the tender can target and offer a premium for lower-coupon bonds that generally have less liquidity in the market.”

Director of Florida Division of Bond Finance Ben Watkins said the state is offering a premium for bonds for which the secondary market had a limited appetite.

Donna Alberico

The tender in this case is solely to reduce the state’s debt and annual fixed costs, said Ben Watkins, Florida Division of Bond Finance director.

The tender offer is the third phase of the state’s efforts to reduce fixed costs and debt outstanding. Starting around 2010, the state began current refundings but ran out of candidates. The state implemented a debt reduction program in 2023.

Watkins said his division picked 118 CUSIPs for the tender that have limited demand in the secondary market, offering a premium above current trading levels.

Florida has about $500 million to purchase outstanding bonds. Normally 25% to 33% of those offered tenders accept them, Watkins said. If the acceptances exceed $500 million, the state will execute the tenders that save it the most money.

The state is offering to purchase the bonds at 61.3% to 99.8% of par, with most of the offers in the 80% to 90% range. Bondholders who accept the offer will also get accrued and unpaid interest.

J.P. Morgan Securities, BofA Securities and Loop Capital Markets are managing the tender.

Florida posted a notice to the Municipal Securities Rulemaking Board’s EMMA website last week announcing the tender, which has an acceptance deadline of 5 p.m. Eastern Time Oct. 23.

The bonds offered for tender are State Board of Education Public Education Capital Outlay bonds, Series 2016B, 2016C, 2016D, 2016E, 2016F, 2016G, 2017A, 2017B, 2017C, 2018B, 2019C, 2019D, 2020A, and 2021B; Department of Transportation, right-of-way acquisition and bridge construction bonds Series 2016B, 2017A, 2019B, Series 2020A, and Series 2021A; and Department of Transportation turnpike revenue bonds, Series 2019B, 2020B, 2021A, 2021B, and 2021C.

Tenders have become increasingly popular in the past two years. Wisconsin, for example, has executed six tenders since October 2022 mainly to lower debt service, said Aaron Heintz, capital finance director with the Wisconsin Division of Executive Budget and Finance. The transactions have saved the state about $141 million in present value savings, he said.

Articles You May Like

Mortgage demand stalls as financial markets digest Trump presidency
Tesla, bitcoin and dollar jump as investors pile into ‘Trump trades’
Trump secures control of Congress as Republicans win House majority
Bitcoin could end year at $58K as futures market ‘overheated’ — CryptoQuant
Trump and his mandate for retribution