S&P puts Alaska back on CreditWatch negative

The State of Alaska is continuing the process to sell up to $3.3 billion in pension obligation bonds after receiving mixed reviews from the major credit rating agencies.

On Friday, S&P Global Ratings placed the state on CreditWatch with negative implications and rated the state’s appropriation-backed bonds, such as the pension bonds, as AA-.

The agency indicated in a brief that it would likely lower the state’s general obligation credit rating from AA+ to AA if the bonds were sold.

Appropriation-contingent bonds are often rated at least one notch lower than general obligation debt.

“The CreditWatch action reflects our view that Alaska’s credit profile would incrementally weaken following the issuance of the proposed $3.3 billion (in) pension obligation bonds,” S&P analyst Gabriel Petek said in a release.

Also on Friday, Moody’s Investors Service rated the bonds at Aa3, a rating equivalent to AA-. Fitch ratings gave the potential bond sale an AA rating. Fitch and Moody’s did not indicate they would lower the state’s general obligation rating if the bonds are sold.

Revenue Commissioner Randy Hoffbeck described the prospective bond sale as a “trigger” that would just move up the timing of a potential downgrade.

S&P removed Alaska from its CreditWatch list in August after Gov. Bill Walker vetoed nearly $1.3 billion from the state’s operating budget in an effort to reconcile a $3.2 billion budget deficit.

State Revenue officials are looking to sell between $2.3 billion and $3.3 billion in bonds to help fund the state’s $24.5 billion Public Employee and Teachers’ Retirement systems.

The deal could potentially help the state take advantage of low interest rates if investment returns on the bond revenue exceed the interest rate they are sold.

According to Hoffbeck, the state likely won’t sell the bonds if the interest rate on them exceeds 4 percent, while the state’s retirement fund investors aim for 8 percent long-term returns.

Hoffbeck said the agency opinions are slightly better than the state was expecting, so the Revenue Department will go ahead with a three-week worldwide marketing effort to sell the bonds, which are expected to be priced on Oct. 26.

“We actually thought we were going to be AA- across the board, so we actually ended up on the bonds with a little better rating than we thought we were going to end up with,” Hoffbeck said.

“If we can bring in the sale under 4 percent, then we’ll take it all back to the governor and say, ‘Here’s the risk, we’ve got S&P saying they’re going to downgrade us. Here’s the benefits,’ and let the governor give it a thumbs up or a thumbs down.”

More in News

The badge for the Kenai Police Department (Clarion file)
Walmart briefly evacuated after bomb threat

The investigation is ongoing.

Peninsula Clarion file
Merry voices to fill Kenai chamber

Historical society carolling event returns after hiatus

COVID-19. (Image courtesy CDC)
State officials urge vaccination as omicron spreads in US

Omicron was first identified as a “variant of concern” by the World Health Organization on Nov. 26.

Alaska State Troopers logo.
1 hunter dead, another missing after boat hits rough seas off Whittier

The pair were reportedly hunting on Wednesday on Esther Island in Prince William Sound.

Kenai City Council members James Baisden (left) and Deborah Sounart (right) listen as member Teea Winger (center) speaks in support of legislation opposing government COVID-19 mandates, during a meeting of the Kenai City Council on Wednesday, in Kenai.
Kenai council declares opposition to mask mandates

The statement does not change city code or supersede federal law.

Signage indicates that face masks are required for entry to the Soldotna Public Library on March 25, 2021 in Soldotna, Alaska. The Soldotna City Council voted Wednesday to make mask-wearing optional in city facilities. (Ashlyn O’Hara/Peninsula Clarion)
Masks recommended, not required in Soldotna city buildings

Council amends measure to make mask-wearing optional

Nick Begich III, seen here in this undated photo, is challenging Rep. Don Young, R-Alaska, for his seat in the U.S. House of Representatives saying Alaska needs new energy in Washington D.C. (Courtesy photo / Alaskans for Nick Begich)
Nick Begich III touts fiscal conservatism in US House race

GOP candidate challenges Young’s record

Sockeye salmon. (Photo via Alaska Department of Fish and Game)
Fish and Game seeks comment on 2022 sport fish stocking plan

The Sport Fish Division plans to release approximately 7 million fish into the Alaska water systems over the next five years.

A map shows which parts of the Chugach National Forest are open to motorized winter recreation use for the 2021-2022 season. (Map courtesy of the U.S. Forest Service)
Parts of Chugach National Forest open to snowmachine use

The 2021-2022 winter motorized season will run through April 30.

Most Read