Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM) are the recipients of Build America Bonds offered by the state of Pennsylvania, generating $1 billion for the commonwealth.
The Bank of America part of the bonds are what is called ‘true interest cost,’ which was valued at $548.9 million. JPMorgan Chase received the tax-exempt part of the offering, valued at $451.1 million. The interest cost for Bank of America was 3.33 percent, while the true interest cost of JPMorgan was 2.51 percent.
True interest cost means the banks will receive a 35 percent interest rebate from the federal government for participating in the bonds.
Moody’s (NYSE:MCO) and Fitch Ratings weren’t particularly impressed with the bonds, both having a negative outlook on them. The negative outlook is from the drop in fund balances because of tax collections declining for the state. In April alone, taxes were 12 percent below estimates.
Notes from Pennsylvania are rated at Aa1 by Moody’s,AA+ by Fitch, and AA by Standard & Poor’s.
Pennsylvania will use the money generated from the bonds for the improvement of sewage systems, construction, environmental preservation and renovation projects.
The state now has about 2,000 construction projects active at this time, and the money raised will give them about six more months of cash flow to work with.
Too bad they don’t take cutting their state budget, something responsible people would have done. It’s an election year though, so they don’t have the courage to do the right thing.