Interest rate woes won't stop some variable-rate issuers; Erie County prices $173.225 million bonds

By Cristal Cody and Sheri Kasprzak

New York, Feb. 15 - High interest rates on auction-rate securities may have the municipal market in a frenzy, but some issuers reached Friday said they have no plans to back out of planned deals just yet.

One issuer, reached late Friday afternoon, said interest rates may keep some issuers from conducting their variable-rate offerings, but it won't be keeping his organization from going ahead with its own deal.

"We're moving right along with ours," said the issuer, who asked not to be identified.

"I could see why maybe some might be hesitant. It is a tough situation to be in for investors, but there are no plans to pull our offering yet."

Some offerings backed by letters of credit may be safe, for now.

Mecklenburg County in North Carolina is planning to price its $124.96 million in series 2008A variable-rate certificates of participation, said Kim Smith with BB&T Capital Markets, the county's remarketing agent.

"I don't think they're going to put off the pricing," she said in an interview Friday.

"It's more of a letter of credit type of pricing and those are still trading very reasonably."

The county's COPs (Aa1/AA+/AA+) are set to price on Feb. 21.

The proceeds will be used for several school, court, detention center, community college and park projects, according to Dena Diorio, the county's finance director.

Another issuer moving forward with its variable-rate offering is the Maryland Economic Development Corp. The corporation plans to price $83.5 million multi-modal revenue bonds on Feb. 21 for the Howard Hughes Medical Institute.

The series 2008A bonds (Aaa/AAA/-) will be reset on a weekly basis, Ed Palmerino, vice president of finance and treasurer for Howard Hughes Medical Institute, said Thursday.

Some issuers opt for fixed rates

Even so, some municipalities are opting to price fixed-rate bonds instead of taking a chance on variable-rate bonds.

Public Hospital District 1 in King County, Wash., plans to price $115 million limited tax and general obligation bonds on Feb. 20 as fixed-rate bonds (Aaa/AAA/AAA) with a 30-year term, said Jeannine Grinnell, vice president of finance and treasurer for Public Hospital District 1, also known as Valley Medical Center.

"Variable rate would be kind of scary in the market right now," she said in an interview earlier this week.

"It's a pretty volatile market, but we were always intending for this to be fixed rate."

Yet another issuer is taking a safer route with its 2007B certificates of participation.

The Palm Beach County School Board in Florida plans to convert $112.7 million its 2007B COPs from auction rate to certificates bearing interest at a long-term rate, according to a preliminary official statement released Friday.

The certificates originally were issued on March 22, 2007, as auction rate certificates. Principal and interest is guaranteed under an insurance policy from FGIC.

Bear, Stearns & Co. is the initial remarketing agent.

Erie County bonds price

In pricing news Friday, the Erie County Industrial Development Agency priced $173.225 million school facility revenue bonds for the Buffalo city school district in New York, the issuer said Friday.

The bonds priced Thursday with coupons from 5% to 5.75% with yields from 1.6% to 4.28%, said David Kerchoff, assistant treasurer for the agency.

The bonds have serial maturities from 2009 through 2029. The true interest cost was not available.

Principal and interest on the series 2008A bonds (Aaa/AAA/-) is guaranteed under an insurance policy by Financial Security Assurance Inc.

Citi is the lead underwriter of the negotiated pricing, with Depfa First Albany Securities LLC, Siebert Brandford Shank & Co., Sterne, Agee & Leach Inc. and UBS Investment Bank as co-managers.

Proceeds will be used to help finance the third phase of a 10-year comprehensive redevelopment program of Buffalo's public schools

There are several variable-rate offerings in the pipeline in the coming weeks, including Mecklenburg's deal.

The Board of Regents of the University of Texas System plans to price $680 million in series 2008B public higher education revenue bonds (Aaa) on a negotiated basis on March 17 and New York has an offering of multi-modal bonds set to price Feb. 28.

Massachusetts HEFA to price bonds

Looking ahead, the Massachusetts Health and Education Facilities Authority will price $141.235 million in series M Boston College revenue bonds, a preliminary official statement said Friday.

The exact pricing date could not be determined, but the bonds (Aa3/AA-) are due from 2023 to 2028 with term bonds due 2030 and 2035.

Lehman Brothers is the lead manager for the negotiated deal.

The proceeds will be used for renovations on campus and for the construction of an administrative building, as well as for the construction of stairs to a campus building.

Rochester to bring bonds

Also coming up, Rochester, N.Y., is breaking from tradition with plans to price $58.23 million of general obligation bonds and $87.12 million of bond anticipation notes at the same time in a Feb. 20 competitive sale.

The pricing includes $19.01 million series 2008 A general obligation bonds, $39.22 million series 2008 B bonds and $87.12 million bond anticipation notes series 2008 I.

The city typically prices notes before it sells bonds, said Angela Zink, assistant to the director of finance for Rochester.

"We don't usually jump into bonds," she said. "We usually go for notes a year or two, then do bonds for the next year. Traditionally, when we go out for debt, the only bonds are for half of the useful life. If the useful life is five years, and we only go out two and a half, we don't bother and just issue notes and then pay them off."

Series A bonds mature 2009 to 2022. Series B bonds mature Oct. 1, 2008, to 2026.

Moody's assigned an A2 rating Friday to the general obligation serial bonds and a MIG 1 rating to the bond anticipation notes.

Bond proceeds will refinance bond anticipation notes issued for various city purposes including school and street construction projects. The notes will redeem outstanding notes issued for a variety of purposes, including school projects.

Greater Cleveland RTA plans deal

Elsewhere, the Greater Cleveland Regional Transit Authority plans to price a $64.12 million offering of general obligation bonds.

A source told Prospect News that those bonds will price Feb. 19.

The bonds (Aa3/A) will be sold on a negotiated basis through a syndicate that includes National City Investments, KeyBanc Capital Markets and SBK-Brooks Investment Corp., according to a preliminary official statement released Friday.

The offering includes $35 million in series 2008A capital improvement and refunding bonds and $29.12 million in series 2008B refunding bonds.

The 2008A bonds have maturities from 2008 to 2027 and the 2008B bonds have maturities from 2009 to 2016.

The 2008A bonds will be used for capital improvement projects and proceeds from the 2008B bonds will be used to refund the authority's 1998R bonds.

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