WI Money Managers Restructure POB Issue

April 14, 2008 (PLANSPONSOR.com) - State of Wisconsin money managers have restructured nearly $1billion in pension obligation bonds (POB) into a lower interest rate arrangement.

A news report on Madison.com said the move was driven by an interest-rate spike due to the recent market turmoil over the subprime mortgage crisis.

Frank Hoadley, capital finance director for the state, told the newspaper that state money managers broke their $948 million in pension bonds into nine pieces and converted seven of the pieces into a lower rate posture as of April 1. “Two are still outstanding and in auction-rate mode. We are continuing to watch the market and look for opportunity to convert on the most advantageous terms we can find,” Hoadley contended.

The news report said the $948 worth of bonds were originally sold in December 2003 to fund 50% of the state’s $1.8-billion pension shortfall.

Hoadley told the newspaper that, prior to the restructuring and as a result of the market turmoil, one piece of the bond issue had been reset to a 15% rate for 28 days while the piece originally priced at a variable rate averaged 9%. Before the rate spike, rates were originally in the 4% area. After the restructuring, Hoadley told the newspaper, the bond issue is now at 5% and 6%.

Meanwhile, in Alaska, Governor Sarah Palin is expected to sign a measure granting authority for the state to issue up to $5 billion in pension obligation bonds (POB) (See Alaska to Issue up to $5B in POBs under New Pension Funding Plan ).