Hawaii plans to price $750 million in GOs in early December

Hawaii will head to market in early December with double-A category ratings affirmed as it prices $750 million of taxable general obligation bonds in a negotiated deal.

Recovery of tourism, pivotal to the state's economy, has been slow and buffeted by last year's Maui wildfires, according to a report published Wednesday by Fitch Ratings, which affirmed the state at AA.

"The scope of damage from the August 2023 wildfires in Maui County remains in flux, but will likely be substantial with federal and private sector resources supporting state and Maui county efforts," said Eric Kim, a senior director in Fitch's U.S. Public Finance group.

The state has estimated total recovery costs will exceed $12 billion, Kim said.

"As of now, the state anticipates its own direct fiscal contributions will primarily be $633 million in recovery costs and another nearly $900 million towards litigation settlement expenses," he said. "All of these costs have either been spent or are built into the state's multi-year general fund financial plan."

Moody's Ratings affirmed Hawaii's Aa2 rating Thursday.

"Affirmation of the issuer rating reflects Hawaii's solid finances, strong governance and strategic location, balanced against its very high leverage and dependence on the tourism industry that can be vulnerable to external events," the rating agency said.

Moody's upgraded to Aa3 from A1 the rating on $19.3 million of outstanding Department of Hawaiian Home Lands revenue bonds.

S&P Global Ratings affirmed its AA-plus rating Friday.

"The long-term rating incorporates our view of Hawaii's proactive financial management and oversight," said S&P analyst Thomas Zemetis.

All the agencies assign stable outlooks.

The par amount is subject to change dependent on market conditions.

Indications of interest on the bonds are expected to be taken on or about Dec. 3, and an institutional order period will occur on or about Dec. 4, according to an investor relations notice posted on the state's debt management website.

BofA Securities is bookrunning senior manager and will be leading the syndicate pricing the bonds via negotiated sale, according to the notice. Barclays (JJCTF), J.P. Morgan and Raymond James are co-managers.

Proceeds will finance capital projects and reimburse the state for prior capital expenses.

The state had $8.7 billion in GO debt as of July 1, 2023, according to its most recent report on state indebtedness.

The GO bonds are general obligations of the state and carry the state's full faith and credit pledge.

The state is receiving significant federal funding for disaster response and recovery, Kim said.

Currently, Hawaii anticipates approximately $3 billion in federal funding with $1.3 billion already spent, he said.

Visitor spending surged past 2019 levels by spring 2022 and remains comfortably ahead of pre-pandemic levels despite a slight dip in 2024, according to Fitch, but total visitor arrivals by air remain below pre-pandemic levels with international visitor volume well short of pre-pandemic levels. Domestic volume, however, exceeded 2019 levels by spring 2021, dipped below that level after the Maui wildfires, and has modestly recovered since then, Fitch said.

The state's "focus on prudent near-term and long-term fiscal planning will help maintain robust fiscal resilience and budgetary flexibility despite substantial long-term liabilities and related carrying costs," Fitch analysts wrote.

Hawaii's long-term liabilities for debt and pension benefits are well above the median for U.S. states, but changes to retiree benefits and higher contributions have helped to slow the growth and fund related liabilities, Fitch analysts said.

The state's debt medians are high compared to peers, but Fitch said, the state's direct debt includes bonds issued for the state's public schools, which are paid for by local governments in most other U.S. states.