Colorado issued $500 million in tax and revenue anticipation notes to make interest-free loans to some school districts in the state.
The notes mature on June 28, 2024. They yield between 3.3% and 3.33% and pay interest at 5%. The securities received a rating of MIG1 from Moody’s Investors Service and SP-1+ from S&P Global Ratings.
The rating reflects “the strengths of the Education Loan Program’s mechanics which include oversight of participating school districts by the state, and the state Treasurer’s covenant to utilize the state’s substantial available liquidity to support full and timely repayment of the notes, if necessary,” according to Moody’s.
The issuance comes amid a projected contraction in the Colorado General Fund, which finances state expenditures including education. The state estimates that the General Fund could shrink by 7% this fiscal year, according to the official statement accompanying the sale of the bonds.
The Education Loan Program intends to alleviate temporary cash flow deficits in participating school districts. School districts are generally funded by tax revenues, potentially resulting in temporary deficits in the fall and winter before those revenues are collected in the spring. The loan program allows schools to continue covering their expenses before they collect tax revenue.
The bonds issued this week are secured by a lien on those tax receipts. Historically schools have generally repaid loans under the program in mid-May, well before the bonds are due at the end of June. In the case of nonpayment, Colorado’s treasurer is required to cover the deficit with other state funds.
BofA Securities Inc and Barclays Capital Inc served as underwriters on the issuance, purchasing the bonds for more than $507 million. The price reflected a premium of $7.7 million.