Bonds

The Virginia Public School Authority plans to issue $63.2 million of School Technology and Security Notes to support the state’s capital program for school rehabilitation.

The five-year, tax-exempt Series XI notes are expected to be issued by competitive sale in denominations of $5,000 on or around May 9, according to the authority.

The school authority anticipates that the size of the sale “will be attractive to a large number of underwriters and create strong competition,” said Jay Mahone, its public finance manager.

They’ve already received “record levels of interest and participation” from underwriters, he added, saying the VSPA expects success similar to that seen in its most recent competitive issuances, including of special obligation bonds in March and school financing bonds last week.

“With the par being of a similar size to the recent VPSA transactions, we expect to have equal levels of interest,” he said.

McGuireWoods will be bond counsel for the transaction and PFM Financial Advisors the municipal advisor, according to draft minutes of the Authority’s March 15 meeting.

Proceeds fund grants ranging from $26,000 to $50,000 to school districts which local authorities must match up to 20% as part of the wider program the issuance is linked to.

Proceeds of the upcoming sale will help cover the costs of installing and maintaining computer-based teaching systems and upgrading IT networks in high schools and elementary schools across Virginia.

Lawmakers cleared $1.2 billion for educational improvement loans and grants in Virginia’s most recent biannual budget for fiscal years 2023-2024 passed in June that included a $400 million allocation for formula-based education grants.

Like past notes, biannual debt service obligations on the new bonds will be covered by appropriations made to the state’s literary fund, a permanent fund supporting a wide array of public education needs to which local lawmakers allocate revenue drawn from criminal fines and other fees, forfeits, escheated property, and debt service payments from outstanding grants every two years.

Moody’s Investors Service assigned the upcoming notes sale its Aa1 rating with stable outlook, maintaining the same rating on $128.1 million of outstanding School Technology and Security Notes.

Moody’s analyst Pisei Chea said in an email that “the Aa1 on the appropriation-backed notes and the Commonwealth’s Aaa issuer rating reflects our view of the commonwealth’s strengths despite economic headwinds.”

The bond’s rating is notched one below Virginia’s issuer default rating due to “the essential nature of the projects financed by the notes and the moderately strong legal structure, including the risk of non-appropriation,” the rating agency said in its report; however, it added the rating also takes into account “the continued willingness of the commonwealth to make payments in amounts sufficient to meet debt service requirements as they come due.”

In its latest analysis of Virginia Moody’s said it expected solid revenue growth for the state over the short-term when “compared to the commonwealth’s conservative forecast” that can “continue to support Virginia’s strong financial position.”

S&P Global Ratings rates the notes AA-plus, also one notch below the state’s issuer rating of AAA, citing “the appropriation risk associated with the annual payment for the debt.”

S&P also said the literary fund currently held enough money to cover debt service on existing obligations 4.4 times over.

Fitch Ratings assigned an AA-plus rating with stable outlook to the notes.

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