DALLAS - Colorado issuers returned to the bond market this week with the first deal since voters on Nov. 3 approved tough tax and spending limits, as government officials continue to sort through the impact of the new restrictions.
The Platte River Power Authority on Monday sold a $115 million revenue refunding deal that bond counsel Sherman & Howard in Denver said was exempt from provisions of the Taxpayer's Bill of Rights passed two weeks earlier.
Bond counsel determined that the authority was an enterprise fund, saying that such self-supporting operations are exempt from the amendment.
The agency, whose bonds were recently upgraded to Aa by Moody's investors Service and A-plus by Fitch Investors Service and Standard & Poor's Corp., saw its bonds priced aggressively at 6.33% in 2018 through a syndicate led by Smith Barney, Harris Upham & Co.
The Bond Buyer's 30-year revenue bond index was 6.57% on Nov. 12, down 13 basis points from 6.70% the week before.
The power authority bond sale ended an eight-day period in the market in which no state agency was reported to have sold bonds.
The election-induced bond drought comes after Colorado issuers pushed some $2 billion of paper into the market in the two months before the election.
However, few expect a push to market possibly for months until there is a legal clarification of how state and local issuers are affected by the measure also referred to as Amendment 1.
The amendment requires voter approval of all types of multiyear debt and for increased taxes and spending beyond a level determined by several economic factors.
"I'm not an investor, but it's my guess that it was made crystal clear to them that this was exempt from Amendment 1," Chris Blackwood, vice president and director of economic and financial research at George K. Baum & Co. in Denver, said about the power agency issue. "It's probably going to be another month or two before we see prices move up any."
He said that bond deals exempt from the effects:of the amendment - like Monday's deal - are likely to trade at a premium. "If another Platte River comes along, it's going to trade rich to the market just from a supply perspective," he said.
At the same time, he said it is unclear whether bonds affected by the amendment, such as city general obligation debt, will be penalized because of market concerns over long-term credit erosion by rating analysts.
Underwriters said yesterday it could be early next year before a deal that is affected by the amendment is ready to come to market. Some issuers are said to be preparing transactions with plans to ask the courts to rule on how Amendment 1 affects their deals.
But bond lawyers say that such a disparate process could mean months of delays as lower court rulings are appealed. Instead, they have advocated directly filing questions with the Colorado Supreme Court to seek clarification on broad legal questions they believe have been raised by the amendment.
To do that, they must persuade Gov. Roy Romer to submit the questions. Under the state constitution, only the governor can make such a direct appeal by filing interrogatories with the high court for clarification on such matters.
Dee Wisor, a partner at Sherman & Howard, said yesterday that bond lawyers continue to work with the governor's aides to define legal questions for the court, but are worried Romer may only want clarification on issues that affect state-level deals.
Even if the governor does agree to ask the state Supreme Court for clarification, justices are not legally required to respond.
"There are some politics that have come into this." Wisor said. "The governor and legislature don't want to be perceived as trying to subvert the will of the people."
Others say the governor has not yet made up his mind about what to do.
"The governor hasn't said yes and the governor hasn't said no," said Sam Mamet, associate director of the Colorado Municipal League. "Most of the focus to this point has been on the interrogatories. If that fails, Plan B is to look toward a legislative response."
Several special interest groups met with legislative leaders yesterday afternoon to discuss the amendment and its interpretation. While the possibility of a special session has been mentioned, most expect any legislative proposals to wait until the regular session opens Jan. 13.
In the meantime, local government and bond industry officials continue to work with Romer's lawyers to define legal questions raised by Amendment 1. So far, that list has been refined to six broad issues.
Lawyers' concerns include learning whether annual appropriation debt is subject to voter approval, clarifying what a government enterprise fund is, and determining whether refundings of general obligation bonds approved before Amendment 1 will be sold as limited or unlimited tax bonds.
The eventual answers to such questions could have ramifications for enterprises such as Platte River Power Authority, which is not directly affected by the amendment.
Rating analysts, however, said the four Colorado cities that are supplied power by the authority could suffer credit erosion, which could potentially hurt Platte River.
"It's a little early yet to tell for certain," said Craig Atwater, vice president in the public power specialty group at Moody's. "The clarification of this amendment in Colorado still has to take place."
