Update: Alaska Officials Consider $3 Billion Pension Obligation Bond Issuance

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Pension360 wrote last month that a few top Alaska officials were studying the possibility of issuing $3 billion in pension obligation bonds.

In Alaska’s case, issuing this round of bonds will come easy because the issuance gained legislative approval way back in 2008. The bonds were never issued however, as the stock market crash sunk the plan.

Here’s an update on the proceedings from Bloomberg:

Prompted by Governor Bill Walker, Alaska is looking into the possibility of a $1.6 billion general obligation pension bond, [debt manager at the Alaska Department of Revenue Deven] Mitchell said. “It appears that this interest rate environment provides an opportunity for us to get in on the leveraging side at a low rate,” Mitchell said. “We’re thinking it’s not a bad time to consider this alternative.”

This time around, Governor Walker has asked Mitchell to pick up from where they left off in 2008 and see if the economics still make sense. Mitchell said the deal will be ready to come to market if Governor Walker gives the green light. Because of the work done in 2008, the governor won’t need legislative approval to issue the potential bonds.

[…]

If Alaska goes through with its deal, this year’s total pension obligation bonds issues will be more than $3 billion, almost ten times last year’s supply, according to data compiled by Bloomberg.

Mitchell said he’s framing Alaska’s potential deal to mimic Kansas’s. So far Mitchell has arranged an underwriting syndicate and put together a “shell” of a preliminary offering statement.

The risks of POB’s are well known by now: for the state to “win” the deal, investment returns need to beat the interest rate on the bonds over the duration of the bond’s life. If that doesn’t happen, the state is compounding its financial issues.

 

Photo credit: “Flag map of Alaska” by 2002_Winter_Olympics_torch_relay_route.svg: User:Mangoman88, using Blank_US_Map.svg by User:Theshibboleth – 2002_Winter_Olympics_torch_relay_route.svgFlag_of_Alaska.svg. Licensed under Public Domain via Wikimedia Commons

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