Pennsylvania, Georgia among big competitive issuers in week ahead; yields close up 2 to 3 bps

By Sheri Kasprzak

New York, Sept. 30 - The week ahead will feature a large number of competitive offerings led by two big deals from the Commonwealth of Pennsylvania and the State of Georgia. The timing of the deals seems to be coincidental, but market conditions have the issuers hopeful for solid pricing results.

Meanwhile, yields continued to rise on Thursday, one trader said.

"I think it's a correction," he said. "Yields are probably up anywhere from 2 to 3 bps. I suspect they'll continue to rise for a while at least. I think we've hit the bottom for now, and now we'll just continue to adjust."

Heading up the competitive action in the week ahead is a $1 billion sale of series 2010-2011 tax anticipation notes from Pennsylvania, which it plans to bring on Tuesday.

"Timing of the issue is related to the cash flow needs of the commonwealth," Rick Dreher, director of revenue, capital and debt for the Pennsylvania governor's budget office, said in an interview.

The notes are being sold competitively because state law requires it, Dreher pointed out.

"[As for] pricing expectations, we would hope to achieve favorable market rates, but I wouldn't want to place a range on it before the sale," he said.

The notes are due June 30, 2011, and proceeds will provide cash for the commonwealth's general fund for payroll and other operating costs.

Georgia set to sell

Georgia is also set to come to market competitively Tuesday with a $974.98 million sale of series 2010 general obligation bonds.

Lee McElhannon, director of bond finance for the state, said in an interview Tuesday that competitive sales are the state's preference.

"Competitive has been the way we've usually done it," he said.

"We've only done a couple of negotiated sales in the state's history, and those were during the peak of the credit market situation. Last November, we did a refunding competitively because we believed all indications were that the market was back and functioning in a normal manner that we could get competitive bids. The market has continued to improve since last November's refunding bonds, so we're sticking with our preferred method."

The timing of Georgia's sale is twofold, McElhannon said. For the new-money portion of the deal, the state has several projects that require funding, and for the refunding portion, market conditions will allow the state to refund at a savings, McElhannon said.

Aggressive bids expected

"We believe we'll get aggressive bids and potentially even historical low rates for our sales," he said.

As for the competition for bidders in Tuesday's competitive-heavy calendar, McElhannon said the deals will likely attract different kinds of buyers.

"We think that the other bonds in the market that are scheduled for next Tuesday are all hitting different segments of the market," he noted.

"We're the only [triple-A] rated G.O. issuer that day, so we think there's room for everyone."

Tuesday's offering includes $68.93 million in series 2010A-1 refunding bonds, $252.125 million in series 2010A-2 refunding bonds, $170.165 million in series 2010 bonds, $360.4 million in series 2010C-1 and series 2010C-2 Build America Bonds, $94.605 million in series 2010C-3 recovery zone economic development bonds and $28.755 million in series 2010C-4 qualified school construction bonds.

Proceeds will refund outstanding G.O. debt and finance new projects for schools, agencies and departments within the state.

Louisiana to price

The State of Louisiana also intends to price bonds competitively on Tuesday. The state plans to bring $375.22 million in series 2010 G.O. refunding bonds, said a preliminary official statement.

The sale includes $213.66 million in series 2010A bonds and $161.56 million in series 2010B bonds.

The bonds (Aa2/AA-/AA) will be sold on a competitive basis with Government Finance Associates Inc. as the financial adviser.

The 2010A bonds are due 2013 to 2022, and the 2010B bonds are due 2011 to 2021.

Proceeds will be used to refund the state's outstanding series 2000A, 2002A, 2003A and 2004A bonds.

N.J. prices $604.3 million

Looking to Thursday's primary action, the State of New Jersey priced $604.3 million of its planned $697.01 million sale of G.O. bonds, said a pricing sheet and a sellsider familiar with the offering.

The deal included $521.7 million in series Q bonds and $82.6 million in series S bonds. The state had also been expected to price $92.71 million in series R federally taxable bonds, but those bonds were not priced Thursday.

The bonds (Aa2//AA) were sold through senior manager Morgan Stanley & Co. Inc.

The Q bonds are due 2013 to 2021 with 2% to 5% coupons. Yields ranged from 1.02% to 3.04%, said the sellsider. The full pricing details of the Q bonds were not immediately available.

The S bonds are due 2013 and 2016 with 5% coupons and 0.97% and 1.9% yields, respectively.

The state intends to use the proceeds to refund some existing G.O. bonds.

Pennsylvania school bonds price

Elsewhere, the Pennsylvania Public School Building Authority priced Thursday $325.526 million in series 2010A federally taxable qualified school construction revenue bonds, said a term sheet.

The bonds (Aa2//AA) were sold through senior managers Citigroup Global Markets Inc. and Morgan Stanley.

The bonds are due Sept. 15, 2027 and have a 5% coupon priced at par.

Proceeds will be used to fund new school construction within the state.

Ohio sells $226.13 million

Also during the session, the State of Ohio came to market with $226.13 million in series 2010 G.O. refunding bonds (Aa1/AA+/AA+). The issue was significantly knocked down from its planned size of $581.69 million.

The offering included $22.595 million in series 2010A conservation projects G.O. refunding bonds, $98.56 million in series 2010C higher education G.O. refunding bonds, $94.835 million in series 2010C common schools G.O. refunding bonds and $10.14 million in series 2010D infrastructure improvement G.O. refunding bonds.

The 2010A bonds are due 2014 to 2019 with coupons from 2% to 4%. The 2010C higher education bonds are due 2015 to 2022 with 2.75% to 5% coupons. The 2010C common schools bonds are due 2015 to 2022 with coupons from 4.25% to 5%. The 2010D infrastructure bonds are due 2013 to 2020 with 2% to 2.5% coupons.

J.P. Morgan Securities LLC and KeyBanc Capital Markets Inc. were the senior managers.

The state will utilize the proceeds to refund existing debt originally issued to finance various capital improvement projects.

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