Connecticut plans to sell more than $357 million of special tax obligation bonds this week to finance improvements to the state's infrastructure.
The deal, scheduled to be priced tomorrow by a syndicate led by Bear, Stearns & Co., is structured to include $275 million of special tax obligation bonds and $82 million of special tax obligation refunding bonds.
But a state treasury spokeswoman and bankers involved in the deal said Friday that an increase in interest rates could radically change the size of the refunding portion of the loan.
"It could be an $80 million refunding, it could be $190 million," said Thomas Boast, a senior Bear Stearns investment banker. "There is also a chance it could be zero."
Originally, the state was considering a $100 million straight new-money issue. But with an unpredictable market, financial adviser Robert Lamb of Lamont Financial Services Corp. said the decision to "take the rates and run" was a simple one.
"The size of the officer is extremely interest-rate sensitive," Mr. lamb said. "The market has been so up and down it is difficult to predict the size of the deal that will finally be priced."
The repair and improvement of Connecticut's infrastructure has been a 10-year journey over occasionally treacherous roads.
In 1982, Gov. William A. O'Neill organized a committee to investigate the state's need to repair its infrastructure.
However, it was not until the 1983 Mianus River Bridge collapse that the state begun repairs in earnest.
"The collapse of the bridge and the lives lost through it was the straw that broke the camel's back," Mr. Lamb said.
Following the disaster, the state in 1983 committed to a 10-year, $7.5 billion capital program for infrastructure and began issuing bonds in 1984.
"From 1986 through 1991, there were a ton of bridges that were repaired," Mr. Lamb said. "We played catch-up on the state for those years because the infrastructure in Connecticut had become deplorable."
Mr. Lamb said Gov. Lowell P. Weicker and his administration have also been supportive of the infrastructure repairs.
"All of the funds raised through this financing are placed into an aggregate cash pool," Mr. Boast said. "There are hundreds of projects ongoing."
The resources Connecticut taps to pay for these bonds include: state motor fuel taxes, state motor vehicle fees from license and permit revenues, and motor vehicle-related fines and penalties.
Mr. Lamb and state treasury spokeswoman Jill Ferraiolo said no other state draws on as wide a spectrum of resources to support this kind of special tax obligation bond deal.
The bond covenant also includes a provision requiring that the taxes raised must cover two times the amount needed for debt support.
According to Mr. Lamb, this allows the pool to provide debt support for other general obligations of the state.
"In general, the excess funds provide support to GOs that, in some way, impact transportation or infrastructure," he said.
In fiscal year 1993, which began July 1, $214 million will be required to provide debt support, according to the preliminary official statement. The amount expected to be brought in through the taxes is just under $702 million, or 2.9 times the amount needed.
With this deal, Bear Stearns will have senior managed 10 of the 12 special tax revenue bond deals sold by Connecticut -- nine through negotiated offerings and one through competitive sale.
"The revenues that Connecticut uses for debt support was revolutionary in 1984," Mr. Lamb said. "But now, Louisiana and the Michigan State Trunk Line are implementing similar means of finance."
The special tax obligation bond program expires in 1994. However, the current administration has indicated continued support for the way Connecticut infrastructure improvements have been financed.
"The state has already committed to an additional $150 million completely dedicated to infrastructure in 1994, 1995, 1996," Mr. Lamb said. "We're not sure of the future size of deals for infrastructure or how long another plan may be used, but it seems clear there will be some kind of future financings."
Fitch Investors Service announced late Friday it has affirmed the bonds' AA-minus rating.
Representatives of Standard & Poor's Corp. and Moody's Investors Service said the offering was under review and expect a rating sometime today.