Auction-rate crisis pushes issuers to convert bonds; Maryland sells $400 million G.O.s at 2.78% to 4.625%

By Cristal Cody and Sheri Kasprzak

New York, Feb. 27 - Auction rates were again at the forefront of muni news Wednesday with even more issuers opting to convert their auction-rate bonds.

This week alone, several issuers have announced their plans to convert or refund their existing auction-rate securities. Among the biggest converters are hospitals and universities.

Elsewhere in muni news, market conditions were so abysmal that one issuer decided to postpone its offering and head back into the market on Thursday.

Orlando had planned on pricing $297.99 million in tourism development tax revenue bonds Wednesday, but decided to hold off.

"We're going back into the market tomorrow and hope to get some better bids," said Chris McCullion, assistant treasurer for Orlando.

"The market was just deteriorated today. The bonds priced lower, so the yield was up almost 15 basis points across the curve. It has continued to erode about 10 or 15 basis points for the last four or five days. It's been a really tough time to go into the municipal market."

The city plans to bring $181.76 million series 2008A bonds, $42.36 million series 2008B bonds and $73.87 million series 2008C bonds.

The series 2008A senior tourist development tax revenue bonds, series 2008B second lien subordinate tourist development tax revenue bonds, and series 2008C third lien subordinate tourist development tax revenue bonds are insured by Assured Guaranty Corp.

Citigroup Global Markets is the senior bookrunner for the series 2008A bonds, and Goldman, Sachs & Co. is the bookrunner for the series 2008B and 2008C bonds.

Southern Baptist makes bids for bonds

Moving back to auction-rate bonds, Southern Baptist Hospital of Florida said it will be making bids for up to 5% of its $160.65 million in auction rate bonds issued through the Jacksonville Health Facilities Authority in 2007.

"Due to current instabilities in the auction-rate bond market, notice is hereby given that Southern Baptist Hospital of Florida, Inc., or its agents or affiliates, intend to make bids of up to 5% for the entire outstanding principal amount of each of the ... bonds," said a statement released Wednesday by the hospital.

The issuer will make bids beginning March 5 until the hospital secures a fixed rate on the bonds.

The block of bonds includes series 2007B, 2007C, 2007D and 2007E hospital revenue bonds.

Also set to convert auction-rate bonds is the California Statewide Communities Development Authority, which will convert $14.625 million of its series 2004A variable-rate revenue bonds in an effort to postpone the next auction until November.

The bonds were sold on behalf of Trinity Health Corp. and will be converted on March 10 from to a special auction period from a seven-day auction, assuming sufficient clearing bids exist on the conversion date, a statement from the authority said Wednesday.

If the conversion is successful, the next auction will be Nov. 18, 2008.

Other auction-rate bonds

In other auction-rate news, the East Bay Utility Municipal District gave notice that on March 25 it will redeem the $50 million outstanding principal on its auction rate bonds.

The wastewater system subordinated revenue/refunding series 2003A bonds mature in 2033.

The bonds will be payable from the proceeds of refunding bonds the district issued.

The Development Authority of Bartow County, Ga., also reported that the interest rate will be changed March 25 on the $46.79 million Georgia Power Co. first series 1998 pollution control revenue bonds.

The bonds will be converted to bear interest at a long-term interest rate, according to a notice.

The long-term interest rate period will end on April 1, 2010.

U.S. Bank NA gave notice that the Polk County Industrial Development Authority will have a mandatory tender and will convert the interest for the Winter Haven Hospital series 2005A and 2005B industrial development revenue bonds.

The rate will be converted March 27 to a daily interest rate.

Additional information about the bond price was not available by press time Wednesday.

Essentia to price variable-rate bonds

While most issuers are avoiding auction-rate bonds, Essentia Health of Wisconsin, North Dakota and Minnesota will price $293.495 million in health care facilities variable-rate demand revenue bonds on Monday.

The issuer refused to comment on the issuing of variable-rate debt in this economic climate.

Still, one market source reached Wednesday afternoon said some issuers feel more comfortable than others.

"There are some who will go out and think that they can do all right with a variable rate," he said.

"There is the option to convert, so if things get too rough, they can switch to another mode."

The bonds (F1+/A-1+) include $61.1 million in series 2008A bonds for Cass County, North Dakota, $12.975 million in series 2008B-1 Wisconsin Health and Educational Facilities Authority bonds and $219.42 million in series 2008C Minnesota Agricultural and Economic Development Board bonds.

Goldman, Sachs & Co. is the remarketing agent for the series 2008A-1 North Dakota bonds, the series 2008C-3 Minnesota bonds and the series 2008C-5 Minnesota bonds. Piper Jaffray is the remarketing agent for the rest of the bonds.

The North Dakota bonds will be used to refinance a portion of acquisition costs of assets from Dakota Clinic, Dakota Specialty Institute and Medical Properties Inc.

The Wisconsin bonds will be used to equip and improve facilities owned by Essentia and to refund a portion of series 1999B Wisconsin Health and Educational Facilities Authority health care revenue bonds.

The Minnesota bonds will be used to refund series 1999A Minnesota Agricultural and Economic Development Board health care revenue bonds and to refund 1999B Duluth Economic Development Authority health care revenue bonds.

Maryland prices G.O.s

Moving to Wednesday's pricing action, Maryland priced $400 million in general obligation bonds, said Patti Konrad, director of debt management for the State of Maryland's Treasurer's Office.

The bonds (Aaa/AAA) were sold on a competitive basis with Merrill Lynch winning the bid.

The bonds have a serial structure from 2011 to 2023 with coupons from 4% to 5% and yields ranging from 2.78% to 4.625%.

The state will use the proceeds for capital improvement projects, particularly for educational facilities, Konrad told Prospect News.

Also priced Wednesday were $65.5 million in series 2008A subordinate lien water and sewer revenue obligation bonds from the City of Glendale in Arizona.

The city priced bonds in a serial structure from 2009 to 2028 with coupons from 3% to 5% and yields from 2.35% to 5%.

Piper Jaffray won the competitive bid.

Proceeds from the sale will be used to pay for the city's share of upgrades and rehabilitation to the 91st Avenue Regional Wastewater Treatment Plant, the replacement and rehabilitation of water lines in the system, the design and construction of upgrades to the Cholla Water Treatment Plant to meet federal regulations and the construction of water treatment plants.

Florida prices bonds

Coming up on Thursday, Florida plans to price $155 million series 2008A bonds.

The full faith and credit Department of Transportation right-of-way acquisition and bridge construction bonds (Aa1/AAA/AA+) have serial maturities from 2008 through 2017.

The bonds will price in a competitive sale.

Proceeds will be used to acquire property for rights of way and state bridge construction.

Also on the horizon are $200 million in highway revenue commercial paper notes on March 13 from Clark County in Nevada.

The series 2008A and series 2008B motor vehicle fuel tax notes (P-1) will be sold on a negotiated basis. The notes mature no later than 270 days after issuance.

Citigroup Global Markets is the underwriter of series 2008A, and UBS Securities LLC is the underwriter of series 2008B.

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