Dasny sells $1.26 billion PITs at 'expected' levels; market remains mostly flat, traders say

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, Aug. 18 - The Dormitory Authority of the State of New York dominated municipals headlines Tuesday with its upsized $1.262 billion sale of state public income tax revenue bonds, including Build America Bonds.

A market insider familiar with the Dasny sale said pricing levels were "no real surprise," especially given a drop in income tax revenues and current New York spreads.

Meanwhile, in the secondary market, traders reported that the market retained a fairly firm tone, but it wasn't enough to push the market in any particular direction.

"We're really basically flat," said one trader reached in the afternoon.

"It's kind of a frustrating situation to be in, because there is some strength out there, but it's just not enough to shove the market up at all. I'm not really sure what's pushing us back. I suspect it's just that everyone is focused on the primary. Hopefully we can gain some ground as the week goes on."

Another trader asserted that municipals investors were, indeed, focused on the day's major issues but away from the high-value bonds.

"It's not a real heavy calendar," one trader said. "The small ones are going to the retail dealers who earn a living buying that stuff."

Trading volumes were still light as the market continued on its way into the second half of August.

"It's quiet; it's August," the trader said, adding that it feels like many around the market have cut the work week down to three days.

In the mild trading, investors largely chased higher yields, but not exclusively.

Trading remains balanced

Trading was "kind of balanced," he said.

"Even the high yields have come in on the curve, but they still have some good interest ... not like January though," he said.

"It's better than we thought it would be," he said.

Still, just like in years past, "I expect it to get really busy after Labor Day," he added.

Among the light trading action were the Houston Airport System's series 2009A revenue bonds. The 5% 2018 bonds were seen moving at 3.8%. The 5.25% 2029s were trading at 5.055%.

In other trading action, the Pennsylvania Higher Educational Financing Authority's revenue bonds for Carnegie Mellon University were also trading. The 4% 2021 bonds were seen at 3.852%.

Still the municipals market held fast against drops in the Treasury market.

Dasny pricing 'no surprise'

Moving back to the Dasny sale, the pricing levels of the bonds came in right where market insiders expected, said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC.

"New York spreads over the past couple of weeks show that they priced where we thought they would," said Kozlik.

"Yesterday to today, they didn't make many large changes. The underwriters had a good gauge of where the market was. They went higher in five years and a little lower after that. Data that I have says that credit spreads for high-grade bonds are in the 50 basis points range. That tells us that this is right where we expected it to be."

Market insiders, including Kozlik, said last week that they expected the offering to be negatively impacted by a decrease in income tax revenues. Kozlik maintained that assertion Tuesday.

"It's one thing when there's an economic downturn on a regional basis, but the economic downturn is pretty much in every state," he said.

Sale included $755.8 million BABs

Dansy's sale included $404.8 million in series 2009D tax-exempt bonds, $101.2 million in series 2009E taxable bonds and $755.8 million in series 2009F Build America Bonds.

The 2009D bonds are due 2010 to 2020 with coupons from 2% to 5% and yields from 0.43% to 3.62%.

The 2009E bonds are due 2010 to 2019 with coupons from 1.25% to 4.642% and yields from 0.95% to 4.642%.

The 2009F bonds are due 2022, 2023, 2024, 2025 and 2039. The 2022 bonds have a 4.992% coupon, priced at Treasuries plus 150 bps, and the 2023 bonds have a 5.092% coupon, priced at Treasuries plus 160 bps. The 2024 bonds have a 5.192% coupon, priced at Treasuries plus 170 bps. The 2025 bonds have a 5.292% coupon, priced at Treasuries plus 180 bps. The 2039 bonds have a 5.628% coupon, priced at 130 bps over Treasuries.

M.R. Beal & Co. Inc. and Morgan Stanley & Co. Inc. were the lead managers for the 2009D and 2009E bonds. Merrill Lynch & Co. Inc. was the senior manager for the series 2009F bonds.

Proceeds will be used to fund capital projects at the State University of New York and the City University of New York.

Dallas Convention Center brings bonds

In other pricing news Tuesday, the Dallas Convention Center Hotel Development Corp. priced $405.4 million in series 2009 revenue bonds, said a sellside source connected to the deal.

The bonds (A2/A+/) were sold through senior manager Citigroup Global Markets Inc.

The sale included $388.2 million in series 2009A Build America Bonds and $17.2 million in series 2009B traditional taxable bonds.

The 2009A bonds are due 2042 and have a 7.09% coupon, priced at par. The 2009B bonds are due 2015 to 2018 with coupons from 4.99% to 5.58%, all priced at par.

Proceeds will be used to fund the construction of a 1,016-room hotel.

Orange County bonds ripen

Also Tuesday, Orange County in Florida priced $83.405 million in series 2009 tourist development tax refunding revenue bonds (A2/A+/A+) at a true interest cost of 3.406709%, according to Fred Winterkamp, manager of fiscal and business services.

The deal was the first revenue refunding bond in Winterkamp's two-year memory priced by the county without bond insurance, he said.

The TIC was better than expected, he said. "We were pleased."

Citigroup Global Markets won the competitive auction with the low bid of 3.40%, while Wachovia Securities LLC and Merrill Lynch filed just behind with bids of 3.41% and 3.42%, respectively.

"They were lined up like little piggies," Winterkamp said.

The issue was approved on June 23, Winterkamp said, and "we monitored the markets and the opportunities."

The bonds will carry serial maturities from 2011 to 2018.

Proceeds will be used to refund outstanding debt.

The county seat is Orlando, Fla.

Idaho Power to remarket bonds

In other municipals news Tuesday, Idaho Power Co. mandated J.P. Morgan Securities Inc. to act as remarketing agent for its Humboldt County, Nevada, pollution control revenue refunding bonds and Sweetwater County, Wyoming, pollution control revenue refunding bonds, according to a filing with the Securities and Exchange Commission.

The $49.8 million Humboldt County bonds will bear an interest rate of 5.15% from Aug. 20, 2009 to Nov. 30, 2024, while the $116.3 million Sweetwater County bonds will bear interest of 5.25% from Aug. 20, 2009 to July 14, 2026.

Both bonds will price at par on Friday.

The bonds will carry insurance from Ambac Assurance Corp.

Idaho Power is based in Boise, Idaho. The seat of Humboldt County is Winnemucca, Nev., and the seat of Sweetwater County is Green River, Wyo.

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