California brings $6.85 billion G.O.s, including largest issue of Build America Bonds yet

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, April 22 - Thanks in no small part to the State of California's upsized $6.85 billion sale of general obligation bonds and the recent success of the New Jersey Turnpike Authority's $1.75 billion sale of revenue bonds, the municipals market was firmer once again Wednesday.

"I've never seen anything like it," said one trader reached in the afternoon.

"People are just going nuts for these things. The good side is that the market is improved because of them. We're down about 10 bps on the intermediate end of the curve."

The Build America Bonds are so popular that many have either been upsized or will be upsized. The Metropolitan Transportation Authority of New York City said Wednesday that it would increase to $500 million the portion of Build America Bonds in its sale of dedicated tax bonds. The authority plans to sell on Thursday a total of $950 million bonds. The remaining $450 million will not be Build America Bonds.

The past two weeks have been especially productive for municipal sales, said Kieu-oanh Nguyen of Western Financial Group LLC.

"We've had other good sales," Nguyen said, including Wednesday's deal from the Oregon Board of Education.

"Rates have gone down a lot," she said, and many different varieties of municipal bonds have been "very well-sought."

No particular events seem poised to shake the strong market from its stride, she said, but she was equally unsure it would be able to continue.

"All I can count on is volatility," she said. "Who knows?"

California's BABs

Moving back to those California bonds, the Golden State sold $6.85 billion in G.O.s, pushed up from the anticipated $4 billion. The sale included $5.23 billion in Build America Bonds, which are eligible for a 35% federal government subsidy. The offering is the third-largest bond sale in municipals history.

The state sold $1.62 billion in non-Build America Bonds, due from 2013 to 2016 with yields from 5.25% to 5.95%, said Tom Dresslar, spokesman for the state treasurer's office.

The state also sold $5.23 billion in Build America Bonds, which are due 2034 and 2039, both have 4.83% yields.

The yields on the Build America Bonds contrast, Dresslar said, with the 5.9% and 6.1% yields on the state's 24- and 29-year tax-exempt G.O.s sold in March as part of an upsized $6.5 billion sale.

The bonds were sold Tuesday through lead manager Goldman, Sachs & Co.

Proceeds will be used to pay for roads, schools, flood control, water, environmental and other projects eligible for finance with voter-approved, tax-exempt bonds. The non-Build America Bonds will be used to support stem-cell research, high-speed rail and affordable-housing projects.

In reoffering action, the Build America Bonds were the big movers. The most reoffering activity was seen from the 2039 bonds. The 7.55% bonds were reoffered during the late afternoon at 7.09%. The 7.5% 2034s were seen reoffered Wednesday at around 7.1%.

The non-Build America Bonds were also reoffered Wednesday. The 5.95% 2016s were seen at 5.35%.

The sale of the Build America Bonds sparked interest Wednesday for the state's 30-year tax-exempt G.O.s as well, said Dresslar. He noted that those bonds were trading at 5.65% early Wednesday.

New Mexico's bonds

In other primary market action Wednesday, the State of New Mexico sold $196.33 million in series 2009 capital projects G.O. bonds, said Olivia Padilla-Jackson, director of the state's board of finance. The offering was downsized from its planned $222.80 million size.

The bonds were sold to Barclays Capital Inc. with a 2.31% true interest cost.

The bonds are due 2010 to 2019 with coupons from 3% to 5% and yields from 0.45% to 2.9%.

Fiscal Strategies Group Inc. and Public Resources Advisory Group were the financial advisers.

Proceeds will be used to construct, acquire and improve senior facilities, libraries, health, higher education and state special school projects.

At reoffering, the 5% 2012s were reoffered at 1.23% after pricing at 1.14%. Elsewhere, the 5% 2014s were seen reoffered at 1.79% after pricing at 1.75%, and the 5% 2015s were seen at 2.04% on Wednesday after pricing at 2%. The 5% 2019s were reoffered at 2.9%. Those bonds also priced at 2.9%.

Money for college

Elsewhere, the Community College District No. 502 in Illinois priced $75 million in taxable and non-taxable tranches through competitive auctions, according to controller Chris Wodka.

Three bids were received for the $62.39 million series 2009 taxable G.O. bonds, and BMO Capital Markets Corp. won with a TIC of 5.208162%.

Five bids came in for the $12.61 million non-taxable bonds. Robert W. Baird & Co. Inc. won the auction with a 1.595584% TIC.

"The numbers are better than what we expected," Wodka said.

The taxable bonds carry maturities from 2015 to 2029, and the non-taxable tranche carries maturities from 2011 to 2014.

Proceeds from the sale will be used to improve and renovate facilities within the district.

Community College District No. 502 is located in Glen Ellyn, Ill.

Farther west, the Oregon Board of Education priced $55.666 million series 2009C G.O. bonds at a TIC of 3.94%, according to director of operations Pam Teschner.

The results were a pleasant surprise, Teschner said.

"I thought we would be lucky to get in the 4% range," she said.

Citigroup Global Markets Inc. won the competitive auction amid 10 other bids. Western Financial Group LLC acted as financial adviser.

The bonds carry serial maturities from 2009 to 2031 with a term bond due 2033. The bonds due 2020 to 2025 are callable at par on Aug 1, 2019.

Proceeds will be used to make grants to community college districts in the state.

Stanford's taxable bonds

Moving to upcoming sales, Stanford University in Palo Alto, Calif., plans to offer a series 2009A benchmark taxable bond (//AAA), according to chief financial officer Randy Livingston.

"In light of the estimated declines in the overall value of the university's investments, we think it is a prudent step to ensure we have adequate liquidity and working capital, should we need it," Livingston said in a statement.

"And while we do not require the proceeds today, we believe that having them available provides us with the capacity to address potential changes in economic conditions," he added.

The value of the university's endowment was $17.2 billion as of Aug. 31, 2008, but the school hopes to reduce distribution of its endowment by 25% over the coming two fiscal years.

Stanford would not release details regarding the amount of the negotiated deal, but Fitch Ratings issued a press release assigning an AAA rating to up to $1.2 billion series 2009A taxable revenue bonds.

The bonds would refinance up to $200 million in outstanding commercial paper, Fitch said.

Ohio deal ahead

Also coming up, the State of Ohio is set to price $186.58 million in series 2009 G.O. refunding bonds, said a preliminary official statement released Wednesday. The sale is expected for the week of April 27, said a sales calendar.

The sale includes $73.255 million in series 2009B higher education G.O. refunding bonds, $63.390 million in series 2009B common schools G.O. refunding bonds and $49.935 million in series 2009B infrastructure improvement G.O. refunding bonds.

All of the bonds (Aa1/AA+/AA+) will be sold on a negotiated basis with Merrill Lynch & Co. Inc. and Fifth Third Securities Inc. as the senior managers.

The higher education bonds, common schools bonds and infrastructure bonds are due 2012 to 2020.

The higher education bonds will be used to refund outstanding bonds used for state-supported and state-assisted higher educational facilities. The common schools bonds will be used to refund bonds used for common schools projects. The infrastructure bonds will be used to refund bonds originally used for local subdivision capital improvement projects.

Secondary firms again

Buoyed by market fervor over the new Build America Bonds, including California's $6.85 billion sale from Tuesday, the secondary market continued to firm, with yields down as much as 10 basis points on the day, traders said.

Moving to specific trades, the New Jersey Turnpike Authority's recently priced Build America Bonds were seen in action. The 7.414% 2040s were trading at 6.863% Wednesday. The bonds priced Monday at 370 bps over Treasuries.

The non-Build America Bonds series 2009E bonds were also very popular with traders. The 5% 2028s were seen at 4.31%. The bonds priced at 5.03%.

In other trades, the Nassau County Health Care Corp. of New York saw its series 2009B bonds moving. The 5% 2009s were seen at 1.002%.

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