N.J. Turnpike brings $1.75 billion in Build America Bonds; market firms despite Treasury hit

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, April 21 - The fervor behind the new Build America Bonds pushed municipals to firmer ground Tuesday as the New Jersey Turnpike Authority released details on its $1.75 billion sale of BABs and the market awaited the terms of the State of California's multibillion-dollar offering of Build America Bonds.

"It's amazing," said one trader reached in the afternoon.

"Treasuries are off today, but we're feeling firmer. We're being pushed, I believe, by the Build America Bonds and by the expected Build America Bonds."

Even so, market insiders expect even more movement later in the week, thanks to help from an equity turnaround and comments from Treasury secretary Tim Geithner on Capitol Hill.

"The bond market has been very aggressive," a senior trader said.

"They're the second best thing in town, next to Treasuries."

From "10 years and in," people are looking for high-quality municipal bonds, particularly essential service revenue bonds, he said.

Still, there are many who are worried "we might see certain communities and towns go into default," he said.

In California, "there is trepidation," he said, as well as in "certain New York names."

"The next shoe to drop will be some of these," he said without singling out any issuers.

It is difficult to pick out individual names that are in serious trouble, he said, but "it's all through the U.S. on a case-by-case basis."

Turnpike Authority sale

Moving back to those New Jersey Turnpike bonds, the authority sold $1.375 billion in 7.414% taxable Build America Bonds (//A) Monday at 370 basis points over Treasuries, due 2040, said a sellside source connected to the deal.

The offering also included $300 million in 5.25% series 2009 tax-exempt bonds to yield 5.35% and $75 million in 5% series 2009 tax-exempt bonds sold to retail investors to yield 5.03%.

Morgan Stanley & Co. Inc. was the lead manager.

The authority will receive a 35% subsidy from the U.S. government for the offering, said the sellsider, for a net cost of 4.819%.

At reoffering Tuesday, the 2040s were seen at 7.17% late Tuesday afternoon after moving around par right after pricing on Monday. The 2028s were reoffered near pricing after dropping by more than 60 bps during the day.

Proceeds will be used for capital improvements, including the widening of the New Jersey Turnpike and Garden State Parkway.

On Tuesday, the State of California was also prepared to price between $3 billion and $4 billion of general obligation bonds with a substantial amount of those as Build America Bonds, but the full pricing terms were still being hammered out late Tuesday, said Tom Dresslar, spokesman for the state treasurer's office.

Also in Tuesday's pricing news, the Southern California Public Power Authority was in the process of pricing $251.855 million in refunding revenue bonds, said Craig Koehler, the authority's director of finance. The final details of the offering were not confirmed by the end of Tuesday.

MTA of NY bonds

In other Build America Bonds news, Thursday will bring yet another large offering of the bonds from the Metropolitan Transportation Authority of New York.

Of the $650 million sale of series 2009 dedicated tax fund bonds, $200 million will be BABs.

J.P. Morgan Securities Inc. is the senior manager.

Proceeds will be used to finance commuter and transit projects as well as refinance debt.

Harris County's $220 million

In other pricing news, Harris County in Texas priced $220 million series 2009A toll road senior lien revenue bonds at a true interest cost of 4.80% (Aa3/AA-/AA-), according to Edwin Harrison, county director of financial services.

"It went really well," Harrison said, "we thought it would be closer to 5%."

"We got to bump this thing 15 bps," he said as "there was just so much demand."

The demand all came from the institutional side, he said.

Institutional buyers took all of the bonds, "which is another good thing. ... They are not in the market like they had been in the past," he said.

Harris County has been heavily favored by investors because "we're strong," he said. "We have good management."

Siebert Brandford Shank & Co. LLC acted as underwriter for the negotiated deal.

The bonds carry maturities from 2016 to 2038.

Proceeds will be used to repair and maintain county roads.

The Harris County seat is located in Houston.

Okla. County school district

Moving to upcoming offerings, the Oklahoma County Independent School District No. 89 plans to issue $54 million in G.O. bonds, according to district treasurer Sandy Henry.

The competitive auction will be held on April 29. Oppenheimer & Co. will act as financial adviser.

The bonds will carry serial maturities from 2009 to 2024 at a principal amount of $3.855 million per bond.

The bonds due 2020 to 2024 will be callable after July 1, 2019.

Proceeds from the sale will be used for general budgetary purposes.

The school district is based in Oklahoma City.

Secondary firms

Moving to the secondary market, traders said the tone of the market improved by at least 5 bps on the intermediate end of the yield curve, thanks in no small part to the well-received Build America Bonds.

In specific trading action, the Municipal Improvement Corp. of Los Angeles' recently priced series 2009A lease revenue bonds were moving.

The 5% 2013s were seen Tuesday at 2.509%. The bonds priced Wednesday at 2.95%.

The series 2009B 4.5% 2020s were moving at 4.224% after pricing at 4.6%.

In other trading news, the Turnpike Authority of Kentucky's series 2009 economic road revenue bonds were seen in motion.

The 4.5% 2024s were seen at 4.25%. The bonds priced Thursday at 4.54%. The 4.75% 2026s were seen at 4.502% after pricing at 4.78%.

Also on Tuesday, the Florida Municipal Power Agency's series 2009B all-requirements power supply project revenue bonds were seeing some action.

The 6.4% 2019s were moving at 5.95% after pricing Thursday at par.

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