Build America Bonds popular even in corporate sector; Citizens Property to sell $2 billion

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, April 24 - Last week's wildly popular Build America Bonds have become more popular as issuers and investors become better acquainted with the paper, but the interest has not come exclusively from municipal accounts.

"It's obviously not a straight muni," said a market source who deals with investment-grade bonds. "I personally think it's a little of both."

Even so, the Municipal Securities Rulemaking Board said Friday that Build America Bonds should be treated by investors as straight municipal securities.

There is interest "more on the corporate side," she said, particularly in the $6.85 billion deal from California on Tuesday.

"For lack of a better term, it's seen a lot of airplay," she said about the investment-grade world.

Rhonda Everton, senior budget analyst of recent issuer Newport News, Va., said the city will look at the bonds when they are ready to issue again around this time in 2010.

"They're new and they're being tested right now," she said.

Newport News printed $77.05 million on Tuesday and Wednesday.

A $30 million general obligation tranche priced with a true interest cost of 3.44%, and a $47.05 million G.O. tranche priced at 2.22%.

"We got a great interest rate," she said. "Timing is everything."

Meanwhile, the secondary market faltered Friday as the Build America Bonds tapered off for the week.

"Really, the rally we saw this week was from the BABs," said one trader reached during the afternoon.

"There's still interest in secondary, but because the primary offerings are already out there, we're a little weaker."

Citizens Property sale

Looking to offerings in the upcoming week, the primary activity is going to be led by Citizens Property Insurance Corp. of Jacksonville, Fla.'s $2 billion in series 2009A-2 senior secured bonds.

The sale is scheduled for Thursday, said a calendar.

The sale includes 2009A-1 (A2/A+/) and 2009A-2 (MIG 1/SP-1+/) bonds that will be sold on a negotiated basis with Goldman, Sachs & Co. as the lead manager.

The 2009A-1 bonds are due 2016, and the 2009A-2 bonds are due 2010.

Proceeds will be used to make deposits to reserve accounts.

Elsewhere, the Industrial Development Authority of the County of Maricopa of Arizona is expected to sell its previously announced $590.6 million in series 2009 variable-rate bonds Thursday, said a calendar of upcoming deals.

The bonds will be sold for Catholic Health Facilities Financing Authority for Catholic Healthcare West.

J.P. Morgan Securities Inc. and Citigroup Global Markets Inc. are the lead managers.

Proceeds will be used to fund capital expenses at Catholic Healthcare West and refund current interest bonds.

The Maricopa County seat is Phoenix, and Catholic Healthcare West has its headquarters in San Francisco.

East Baton Rouge

In other sales set for Thursday, East Baton Rouge, La., is set to sell $350 million in series 2009 sewer system revenue bonds, said a calendar of upcoming deals.

The bonds (A1/AA-/) will be sold on a negotiated basis with Merrill Lynch & Co. Inc. as the senior manager.

Proceeds from the sale will be used to fund capital improvements to the city's sewer system.

U of Arizona bonds

Also coming up, the Board of Regents of the University of Arizona plans to price $215.455 million in series 2009A revenue bonds on Tuesday, said a preliminary official statement.

The bonds (Aa3/AA/) will be sold on a negotiated basis with Citigroup as the senior manager.

The bonds are due 2012 to 2029 with term bonds due 2034 and 2039.

Proceeds will be used to construct new residence halls at the Tucson-based university.

Ohio's May sale

Moving to bonds coming in May, the State of Ohio is set to sell its previously announced $186.580 million in series 2009 G.O. refunding bonds May 4, said a calendar of sales.

The bonds (Aa1/AA+/AA+) will be sold on a negotiated basis with Merrill Lynch and Fifth Third Securities Inc. as the lead managers.

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 G.O. refunding bonds.

Proceeds will be used to refund bonds used for higher education, common schools or infrastructure projects.

Another offering scheduled for early May comes from the State of Utah, which is expected to price $111.1 million in series 2009B G.O. bonds on May 5, said a preliminary official statement.

The bonds (Aaa/AAA/AAA) will be sold on a competitive basis with Zions Bank Public Finance as the financial adviser.

The bonds are due 2010 to 2015.

Proceeds will be used for various capital projects.

Washington Health Care

The Washington Health Care Facilities Authority plans to issue $100 million in series 2009A and 2009B revenue bonds in two equal tranches, according to executive director Donna Fincke.

The bonds are expected on Thursday and will be subject to weekly rates as well as mandatory sinking fund redemptions in 2040 to 2044.

The market has been supporting less than 1% weekly rates, Fincke said, and "that's what we'll be hoping for."

Merrill Lynch, Pierce, Fenner & Smith Inc. will act as underwriter for the series 2009A bonds, while JPMorgan and Wells Fargo Brokerage Services LLC will act as underwriters for the series 2009B bonds. Kaufman, Hall & Associates will act as financial adviser for the negotiated deal.

Proceeds will be used to acquire and maintain hospital facilities.

The authority is located in Olympia, Wash.

Secondary weakens

As the Build America Bond phenomenon tapered off for the week, municipals suffered a slight hit Friday, with yields up by a few basis points, especially out on the long end, a trader said.

"We're feeling a bit weaker," he noted, pointing to the lack of primary Build America Bond action.

Even though the primary Build America Bond deals have already priced, they proved still popular in the secondary market.

The New Jersey Turnpike Authority's bonds were seen moving on Friday. The 7.414% 2040s were seen at 6.76% after pricing at Treasuries plus 370 bps. The 5% 2028s were trading at 4.638%.

In non-Build America Bond action, City of New York's recently priced series 2009I-1 bonds were seen trading Friday as well. The 5% 2024s were seen at 4.486%.

Elsewhere, Arlington, Texas's special tax revenue bonds were moving as well. The 4% 2019s were seen trading at par, and the 4.25% 2020s were seen at 4.22%. The 5% 2028s were seen at 5.15%.

Finally, the Illinois Finance Authority's revenue bonds for DuPage Health Systems were trading. The 5% 2027s were seen at par, while the 5.25% 2039s were seen at 5.3%.

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