NYC brings $883 million upsized G.O.s in 'somewhat cheap' offering; secondary firms slightly on long end

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, April 7 - As municipals firmed up on the long end, the primary market stole the spotlight with the City of New York's substantially upsized $883 million general obligation bond sale.

The bonds may have gone a little cheap, said one sellside market insider.

"Judging by the deal upsizing and popularity, it probably did come somewhat cheap, especially in the 20-year portion of the curve, even after two to three basis points bump in that area," the market source said.

"I think the biggest story of the deal, however, were the 2028 and 2029 maturities that carried Assured Guaranty insurance. As it turns out, the 2029s came out two basis points wider than the 2031s, despite the fact that the 2031s weren't insured.

"We haven't seen substantial secondary market activity in NYC yet, but it may just be moving a bit behind the scenes. For such a large deal, Morgan Stanley was rather quiet about reoffering bonds."

More broadly, the market source said retail continues to be a substantial force in driving demand, "but unlike in the opening two months of 2009, that demand is coming through mutual funds, as you can see by AMG's fund flows data."

"At the end of the day, retail investors are hesitant about equities and, in general, don't see Treasury yields as compelling. That leaves corporate and munis as the primary beneficiaries of the equity market withdraws," the source said.

1.9%-5.58% yields

The city sold $883 million in series 2009I G.O. bonds (Aa3/AA/AA-), including $800 million in series 2009I-1 bonds, $33 million in series 2009I-2 bonds and $50 million in a series 2005C-3 bond remarketing.

The 2009I-1 bonds are due 2011 to 2029 with term bonds due 2031, 2031, 2035 and 2036. The serials have coupons from 2.25% to 5.625% and yields from 1.9% to 5.45%. The 2031 bonds have a 5.45% coupon to yield 5.48%, the other 2031 bonds have a 5.25% coupon to yield 5.48%, the 2035 bonds have a 5.55% coupon to yield 5.58% and the 2036 bonds have a 5.5% coupon to yield 5.58%.

The 2009I-2 bonds are due 2016 and 2017 with 2.75% coupons. The 2016 bonds are priced at a spread of Treasuries plus 310 bps and the 2017 bonds at Treasuries plus 320 bps.

The series 2005C-3 bonds are due 2028, 2028, 2029 and 2029. The first 2028 bonds have a 5.125% coupon to yield 5.17%, and the second 2028 bonds have a 5.5% coupon to yield 5.17%. The 2029 bonds have a 5.125% coupon to yield 5.23%, and the 2029 bonds have a 5.5% coupon to yield 5.23%.

Morgan Stanley & Co. was the lead manager.

Proceeds will be used for capital expenditures.

Washington sells $441 million

Elsewhere, the State of Washington sold $441.385 million in series 2009E G.O. bonds Tuesday, said Chris McGann, spokesman for the state.

J.P. Morgan Securities Inc. won the competitive bid with a 4.535% true interest cost.

The bonds (Aa1/AA+/AA) are due 2010 to 2029 with term bonds due 2031 and 2034. The yields range from 2.28% to 5.05%. Coupons were 5%.

Seattle-Northwest Securities Corp. and Montague De Rose and Associates LLC were the financial advisers.

Proceeds will be used to reimburse the state for general capital expenses as well as construction and improvement of state and local roads. Proceeds will also be used for renovations and upgrades at Eastern Washington University, South Puget Sound Community College and the University of Washington as well as for construction-assistance grants to local school districts.

"We had a successful sale today," James McIntire, the state's treasurer, said in a statement.

"These are very competitive rates. We had a very tight spread on the offers. It shows that Washington holds a strong position even in a very competitive market. We did very well."

Along with J.P. Morgan, the bidders were Barclays Capital Inc., Merrill Lynch & Co., Citigroup Global Markets Inc. and Goldman, Sachs & Co.

Anchorage surprise

In other primary action, the City of Anchorage in Alaska priced $126 million series 2009 G.O. tax anticipation notes (/SP-1+/) at an all-in TIC of 0.534%, according to chief financial officer Sharon Weddleton.

"We were surprised by the rate; it was a good rate," Weddleton said.

The city expected to pay as high as 0.62% as recently as March, she said about the short-term bonds due Sept. 1, 2009.

Anchorage relies heavily on property taxes to cover its budget, she said, and these bonds are essential to cover short-falls before the annual collection in June.

Citigroup won the auction over three other bidders for the full offering. Morgan Stanley bid the closest at 0.363%.

Other banks bid for pieces of the $126 million.

First Southwest Co. acted as financial adviser for the deal.

Jefferson County bonds

Also on Tuesday, Jefferson County in Colorado priced Tuesday $70.045 million in series 2009 open space sales tax revenue refunding bonds, said a sellside source familiar with the deal.

The bonds (Aa3/AA-/AA-) were sold competitively with Fidelity Capital Markets Services Corp. as the winning bidder. The TIC came at 3.053644%.

The bonds are due 2010 to 2019 with coupons from 2% to 4%. Yields ranged from 0.75% to 3.69%.

James Capital Advisors was the financial adviser.

Proceeds will be used to refund the county's series 1999 open space sales tax revenue bonds.

The county seat is Denver.

Albuquerque deal ahead

Looking to upcoming sales, the Albuquerque Municipal School District No. 12 of New Mexico is scheduled to price $124.7 million in series 2009A G.O. school building bonds April 15, said a notice of sale released Tuesday.

The bonds will be sold on a competitive basis with RBC Capital Markets Corp. as the financial adviser.

The bonds are due 2010 to 2022.

Proceeds will be used to construct new school buildings and related facilities.

Miami-Dade aviation bonds

Also coming up, Miami-Dade County in Florida plans to sell $600 million in aviation revenue bonds for the Miami International Airport, according to a preliminary official statement.

The bonds, which will be issued in two tranches, will be sold on a negotiated basis with Barclays Capital as the senior manager.

The maturities for the bonds have not yet been set.

Proceeds will be used to refinance all of the county's outstanding commercial paper notes as well as reimburse the county for capital improvements made by the county's port authority.

Long end firms

Moving to the secondary market, a trader said the long end of the curve firmed by as much as 2 bps on the day.

"The long end is really where you want to be," he said. "We're better by maybe a basis point or two. We're seeing quite a bit of action. Mostly stuff on the mid- to long-end is what is trading."

On Tuesday, the Hospital Authority of Richmond County's recently priced revenue bonds for Reid Hospital were trading. The 6.625% 2039s were seen at 6.532%. The bonds priced March 31 to yield 6.581%.

In other recently issued bonds, Alabama's Shelby County Board of Education's capital outlay warrants were seen in action. The 4% 2016s were trading at 3.5% Tuesday.

In other trades, the Port Authority of New York and New Jersey's recently priced 155th series consolidated bonds were seen moving. The 1.75% 2012s were seen at 1.787% Tuesday, and the 2% 2013s were trading at 2.148%. The 2.5% 2014s were seen at par, and the 2.75% 2015s were trading at 2.783%. Those bonds priced April 1.

Elsewhere, the University of Connecticut's series 2009A G.O. bonds were moving. The 3% 2014s were trading at 2.559%, a trader said. The bonds priced April 1 to yield 2.37%.

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