Sour market conditions cause offering postponements, more reoffers; retail municipals sales grow

By Cristal Cody and Sheri Kasprzak

New York, March 4 - Continued strife in the municipal market caused at least two issuers to pull their offerings for now and many others to reoffer their existing auction-rate securities in hopes of securing a fixed rate.

Hennepin County in Minnesota took its $60 million competitive offering of series 2008A general obligation bonds off the market because of strained market conditions.

"We had the sense that the municipal tax-exempt market is overpriced," Dave Lawless, director of finance for the county, told Prospect News Tuesday afternoon.

"The 20-year tax-exempt index went up about 60 basis points in the past few days. A lot of it does have to do with the fallout from the auction-rate problem."

Lawless said the triple A rated bonds will likely be priced in the next month or so.

The bonds are expected to have serial maturities from 2008 to 2027 and proceeds will be used for capital improvements and library improvement projects.

Also putting off its sale of bonds was the Board of Trustees of Northern Michigan University, which delayed the sale of $109.225 million general revenue bonds because of high market rates.

The series 2008A bonds (Aaa/AAA) are insured by Financial Security Assurance. The bonds have serial maturities from June 1, 2008 through July 1, 2024 and term bonds due 2028, 2035 and 2038.

Pricing will be delayed until late March or early April because of increased borrowing costs, said Gavin Leach, vice president of finance and administration for the university.

"We're waiting to see how the rates are," he said. "Since late last week, they've gone up quite a bit."

PiperJaffray is the underwriter of the negotiated sale.

Retail sales grow

Despite the troubles new-issue munis are facing, retail municipal bond sales are rising fast as individuals look for more conservative investments, a trader said Tuesday.

"We're seeing great demand from retail," said Bill Mason, managing director of fixed-income trading for David Lerner Associates.

Retail sales for the firm were up 54% in January, compared to the same month a year ago, he said. Retail transactions also were up 45% in the fourth quarter of 2007, compared to the fourth quarter of 2006, he said.

Investors are maturing and looking for conservative options, Mason said.

"We're expecting an even greater increase from a year ago for February," he said. "A lot more money is coming into municipal products like municipal bonds."

Reoffers continue to abound

Issuers with auction-rate securities continued Tuesday to convert their securities to fixed rate, led by the Washington Health Care Facilities Authority, which plans to reoffer $165.05 million in series 2006 variable-rate bonds, a preliminary official statement said.

The exact tender dates have not been set, but the authority is seeking a fixed rate on all of the bonds.

The offering includes $69.425 million series 2006C revenue bonds for Providence Health & Services due 2033, $69.275 million series 2006D revenue bonds for Providence Health & Services due 2033 and $26.35 million series 2006E revenue bonds for Providence Health & Services due 2033.

Nashville's G.O.s price

Even though some issuers are not satisfied with the market conditions, the Metropolitan Government of Nashville and Davidson County priced $308 million in general obligation bonds and was quite pleased with the sale.

The true interest cost for the offering came in at 4.76%, said Lannie Holland, treasurer of the city and county, in an interview Tuesday afternoon. The average coupon was 4.99%, he said. The full details were not immediately ready Tuesday, Holland added.

"We were really very excited about it," he said.

"As you know, the market has been really bad. Whether through luck or good planning, we were really happy with the way it went."

Elsewhere, the New York State Thruway Authority was expected to price $724.01 million in series 2008A second general highway and trust fund bonds (AA/AA-). The terms could not be determined by press time Tuesday.

The bonds were sold on a negotiated basis through lead manager Goldman, Sachs & Co. and have serial maturities from 2009 to 2028.

Proceeds will refund general trust fund bonds and reimburse the state for Department of Transportation expenses.

Salt River prices $800 million

Looking to Tuesday's pricings, Salt River Project Agricultural Improvement and Power District in Phoenix, Ariz., priced $800 million fixed-rate electric system revenue bonds with 3.8% to 5.03% yields.

The series 2008 A bonds (Aa1/AA) have maturities 2016 through 2028 with term bonds due 2033 and 2038, a source told Prospect News.

The bonds priced with 5% coupons to yield 3.8% to 4.97% for the serials. The term bonds yield 5.01% in 2033 and 5.03% in 2038.

Bear, Stearns & Co. is the senior manager.

Elsewhere, the state of Delaware priced its $215.705 million offering of series 2008A general obligation bonds, according to state debt manager Zafar Chaudhry.

The bonds (AAA) have a serial structure from 2009 to 2025 with coupons and yields from 4.75% to 5%, Chaudhry said.

JPMorgan came in with the winning bid. The true interest cost was 4.016423%.

Proceeds will be used for capital projects, a deposit to an escrow fund and for the refunding of 1998A general obligation bonds.

New York plans G.O. sales

Moving to upcoming offerings, New York expects to price $448.025 million of general obligation bonds, according to a preliminary official statement released Monday.

The bonds will come as $354.155 million tax-exempt subseries J-1 bonds; $81.87 million taxable subseries J-2 bonds; and $12 million tax-exempt series K bonds.

The series J bonds have maturities from 2009 through 2018. Series K bonds have serial maturities from Aug. 1, 2008, through Aug. 1, 2029.

Merrill Lynch & Co. is the senior manager of the negotiated sale.

The city also expects to price $1.315 billion multi-modal general obligation bonds as adjustable rate bonds, according to the statement.

University of California to price $310.12 million

In other upcoming deals, the State Public Works Board of the State of California is gearing up to price $310.12 million in lease revenue bonds for the Regents of the University of California on March 12.

The deal includes $269.305 million in series 2008A bonds, $26.275 million in series 2008B bonds and $14.54 million in series 2008C bonds (Aa2/AA-/AA-).

Bear, Stearns & Co. and Cabrera Capital Markets are the lead managers for the negotiated sale.

The 2008A bonds are due from 2009 to 2028 with a term bond, the maturity date of which has not been set. The 2008B bonds have a serial structure from 2009 to 2028 with a term bond and the 2008C bonds are due from 2009 to 2023.

Proceeds will be used for the construction of a replacement for the University of California Irvine Medical Center, for seismic improvements to the University of California San Francisco Moffitt and Long Hospital and for the expansion of the Natural Sciences Unit 2 at McGaugh Hall.

Roanoke County may price early

The Economic Development Authority of Roanoke County, Va., may price $58.6 million in lease revenue bonds earlier this month than planned, the issuer said Tuesday.

The bonds (A1), insured by Assured Guaranty, could sell March 13 if the city closes on a certain property in time, said Diane Hyatt, chief financial officer for Roanoke County. If the land sale does not close, then the bonds most likely will price March 20, she said.

Davenport & Co. is the underwriter of the negotiated sale.

Proceeds will be pooled with $11.2 million of county funds to construct a recreation facility, library, public works garage and fire station and purchase police radio equipment.

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