When All Else Fails

Arizona Sells Supreme Court Building in $300 Million Bond Deal

by Allison Bennett and Brendan A. McGrail, Bloomberg

Arizona, which sold state prisons and offices to raise cash six months ago, plans to borrow $300 million by marketing its Supreme Court building and about a dozen more properties through leaseback bonds starting today.

Investors will hold ownership of the court building in Phoenix, the fifth-largest U.S. city, and the Arizona Schools for the Deaf and the Blind in Tucson for as much as 20 years, with the securities maturing serially from 2012 through 2029, according to offering documents. Lease payments will back the debt, known as certificates of participation.

Arizona, whose foreclosure rate last year was ranked second-highest after Nevada by RealtyTrac Inc., will use the sale to pay for three months of school aid. The state raised $709 million for education payments when it sold and then leased back nine properties to investors in January.

“From an investor point of view, this is great,” state Treasurer Dean Martin, 35, said in an interview. “The state has to have buildings to operate and we’re the largest employer in Arizona.”

Arizona’s last such sale was Jan. 14. Five-year securities were priced to yield 3.07 percent, 32 basis points above a Bloomberg Fair Market Value index of comparable certificates at the time. The debt traded June 4 at an average yield of 2.79 percent, according to Municipal Securities Rulemaking Board data, 3 basis points above the index.

Credit Downgrade

Standard & Poor’s and Moody’s Investors Service both lowered the state’s debt rating by one level in December. Moody’s cited “ongoing economic and financial weakening.” S&P cut the ranking to AA-, the fourth highest, while Moody’s, after a recalibration, was a step higher, at Aa2. The certificates are rated AAA by S&P and Aa3 by Moody’s, and are insured by Bermuda- basedAssured Guaranty Municipal Corp.

“They’re for treading water,” said Martin.

Sales to individual investors begin today with pricing for institutional buyers tomorrow, said Alan Ecker, a spokesman for the Arizona Department of Administration, which is issuing the bonds. In the last sale, 13 percent of the debt was sold to individuals, he said.

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