Kansas Pension Bonds Rated By Moody’s

Kansas will likely issue $1 billion in pension bonds in the coming months, and Moody’s this weekend assigned those bonds an Aa3 rating, with a stable outlook.

In a bid to improve funding levels of the state’s major pension system, the proceeds from the bonds will go straight into the portfolio of the Kansas Public Employees’ Retirement System.

Pension360 recently covered how at least some officials were wary of the bond plan.

More on the Moody’s rating from KSHB:

Moody’s Investors Service this week assigned a rating of Aa3 to the bonds, which the state hopes to sell next month. That’s one notch below the Aa2 rating for Kansas and a standard decrease when a state’s legislature must appropriate money for annual bond payments.

The ratings agency also said its outlook for the bonds is stable.

The state pension system expects to earn significantly more from investing the funds raised by the bonds than the state will pay to retire the debt over 30 years.

The state is limited to paying 5 percent interest to bond investors.

Issuing pension bonds is a calculated gamble: if the resulting investments return more than the bond’s interest rate (in this case, 5 percent), then the state comes out on top.

If markets don’t cooperate, the state could be on hook for the difference.