Ohio Air Quality, Monroe Hospital to convert auction-rate bonds; deals refund auction-rate securities

By Cristal Cody and Sheri Kasprzak

New York, March 5 - The auction-rate crisis continued to dominate municipals news Wednesday with still more issuers opting to convert their auction-rate securities and others using the proceeds from new bond sales to refund their outstanding auction-rate bonds.

The Ohio Air Quality Development Authority plans to convert $90 million collateralized air quality development revenue bonds on April 4, according to a notice from trustee The Bank of New York.

The rate period will be changed from the auction rate to a weekly rate on the series 2007A bonds, sold for Dayton Power and Light Co.

A banking source commented that issuers are "looking to hedge themselves and not have that exposure of double digits."

Children's Hospital in the District of Columbia also plans to convert $150 million auction rate bonds due 2035 to a fixed rate, according to a notice released Wednesday.

The conversion includes $50 million each in subseries 2005-1, 2005-2 and 2005-3 hospital revenue bonds.

Monroe County Hospital's conversion

In other conversion news, Pennsylvania's Monroe County Hospital Authority intends to convert series 2002B auction-rate bonds sold for the Pocono Medical Center later this month.

The authority is seeking a fixed rate for the securities and the initial conversion date is set for March 20, according to a notice of conversion released Wednesday.

The bonds were sold in April 2002.

Hospitals and universities seem to be one of the main issuers reoffering auction-rate securities these days, but the University of Michigan priced $224 million in series 2008A and 2008B general revenue bonds (Aaa/VMIG1) on a variable-rate basis.

The 2008A bonds reset at the weekly rate and 2008B bonds at the daily rate, a source at the university said.

"The A bonds will be sold in the weekly mode and will reset weekly. We haven't set a coupon yet," said the source at the university's Treasurer's Office Wednesday.

"We don't have any auction-rate bonds. We only have daily and weekly bonds."

The bonds were sold on a negotiated basis through lead manager UBS Securities.

Proceeds will be used for renovations to Michigan Stadium and the Stephen M. Ross School of Business.

PECO Energy to refund auction-rate bonds

The current crisis drove the Delaware County Industrial Development Authority in Pennsylvania to sell $150 million in series 2008A pollution control revenue refunding bonds on behalf of PECO Energy Co. on Wednesday.

The 4% bonds are due 2012, according to a filing made Wednesday with the Securities and Exchange Commission.

The current auction-rate bonds will be refunding using the proceeds from this sale at the next auction.

Pennsylvania's bond sales

The Commonwealth Financing Authority of Pennsylvania priced $187.5 million fixed-rate revenue bonds with a 5.65% true interest cost.

Merrill Lynch & Co. was the successful bidder in the competitive sale, according to the final pricing sheet released Wednesday.

The series 2008A federally taxable revenue bonds (A1/AA-) have serial maturities from 2009 through 2017 and a term bond due 2027.

An insurance policy on serials 2015 through 2017 and the term affected the rates.

The uninsured serials priced with coupons from 3.14% in 2009 to 4.97% in 2014 to yield 3.24% to 4.97%.

The insured serials priced at par with coupons from 4.87% to 5.17%. The term bond also priced at par with a 5.74% coupon.

The Pennsylvania State Public School building Authority also priced $60 million revenue bonds on Tuesday, a sell-side source reported.

The series 2008 college revenue bonds (A2) were sold for Delaware Community College.

Pricing details were not available, but the college wanted 3% to 5% yields and an average coupon of 4.3%, John Glavin, vice president for administration and treasurer of the college, previously told Prospect News.

Wachovia Securities was the underwriter of the negotiated sale.

Proceeds will construct and equip a science, technology, math and engineering complex on the college campus in Marple, Pa.

Two other bond series were expected to price Wednesday in Pennsylvania.

The Pennsylvania Higher Educational Facilities Authority was expected to price $99.365 million refunding revenue bonds for the State System of Higher Education.

The series AG bonds are due from 2008 through 2024.

The authority also was expected to price $71.55 million revenue bonds for Thomas Jefferson University.

The series 2008A and 2008B revenue bonds were expected to price in a negotiated sale managed by UBS Securities LLC.

New York Thruway cuts size

Elsewhere, the New York State Thruway Authority confirmed it priced series 2008A second general highway and trust fund bonds (AA/AA-) Tuesday.

The authority would not release terms Wednesday, but said the amount of the refunding bonds was reduced because of smaller expected savings. The authority had intended to price $724.01 million in bonds.

"The authority is issuing bonds on behalf of the state to finance state highway and bridge projects," said Kimberly Chupa, spokeswoman for the authority.

"The bonds are secured by state taxes and other fees that are deposited into the dedicated highway and bridge trust fund ... The size of the bond transaction was reduced to a lower than expected level of refunding. The authority will still issue $395 million in new-money bonds, but has reduced the size of the refunding component from $470 million to $93 million. Interest rates are climbing and Treasury rates are declining, which is eliminating potential refunding savings on many outstanding bonds."

California Water Resources plans deal

Heading up upcoming deals is $1.025 billion in fixed-rate power supply revenue bonds from the California Department of Water Resources.

The department will price the series 2008H bonds (Aa3/A+/A) on March 11. The bonds will be sold on a negotiated basis through lead managers Bear, Stearns & Co. and Merrill Lynch.

The bonds will be sold in a serial structure from 2017 to 2022, the official statement said.

Proceeds from the sale will be deposited in an escrow fund for refunded bonds.

In other California news, the state priced $1.75 billion in general obligation bonds (A1/A+/A+).

The bonds were sold on a negotiated basis through managers Citigroup Global Markets and Edward Jones.

The full terms were not immediately available.

New York sets sale date

In other upcoming deals, New York expects to price $448 million fixed-rate refunding general obligation bonds on March 11, according to a statement from the mayor's management and budget office.

The city plans to price $366 million series bonds for a three-day retail sale that begins Thursday.

Merrill Lynch & Co. is the senior manager of the fixed-rate sale, with Bear, Stearns & Co. and Morgan Stanley serving as co-managers.

The city also expects to sell $87 million taxable fixed-rate bonds via competitive sale on March 11.

The bonds will price as tax-exempt subseries J-1 bonds; taxable subseries J-2 bonds; and tax-exempt series K bonds. Series J bonds have maturities from 2009 through 2018. Series K bonds have serial maturities from Aug. 1, 2008, through Aug. 1, 2029.

The city also will refinance $1.3 billion auction-rate bonds and $140 million of FGIC-insured variable-rate demand bonds later this month, according to the statement.

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