Dasny sells $808.6 million in PIT bonds; California's budget woes face political impasse

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, June 24 - Municipals were mostly unchanged as supply tapered off. Wednesday's primary action was led by an $808.6 million sale from the Dormitory Authority of the State of New York.

Meanwhile, in the secondary market, traders said volume remained fairly quiet with yields relatively unmoved during the session.

"There's really not a lot to report today," said a trader reached during the afternoon. "It's been a pretty quiet day on the secondary side."

Moving back to the primary, Dasny sold $808.6 million in series 2009B state personal income tax bonds, said Marc Violette, spokesman for the authority. The deal was upsized from a planned $800 million.

The sale included $584.130 million in series 2009A bonds, $214.275 million in series 2009B refunding bonds and $10.195 million in series 2009C federally taxable refunding bonds.

The 2009A bonds are due 2010 to 2039 with yields from 0.428% to 5.19%. The 2009B bonds are due 2010 to 2031 with yields from 0.52% to 5.05%. The 2009C bonds are due 2010 with a 0.908% yield.

The bonds (/AAA/AA-) were sold through J.P. Morgan Securities Inc.

Proceeds will be used to fund capital projects.

Dasny draws little interest

The Dasny bonds may have been the largest deal of the day, but one market source said it fell flat on the retail side.

"We didn't see a lot of retail interest on it," said trader Anthony Shields, Grigsby & Associates senior vice president.

"It seemed to do OK," he said, but he noted a recent overuse of personal income tax bonds, whether it is Dasny, the Metro Transit Authority or others.

"The size of that pie keeps getting smaller," he said.

"They keep going to the well and there's less money to pay it [and] clients say the same thing."

There is a possibility that the issuers are counting on a large influx of cash from a July 1 dividend reinvestment, he said.

Overall, volumes were still healthy and relatively unshaken by the Federal Reserve meeting.

There was no news, but it is looking more like chairman Ben Bernanke is not going to be reappointed, Shields said as the administration will need a scapegoat.

There has been a "blame game" going on between the government and Merrill Lynch/Banc of America Securities LLC over "who was strong-arming who," he said.

"I think Obama wants [Larry] Summers in there anyway" as Federal Reserve chairman, he said.

Meanwhile at the trading desks, "bonds are going away in the secondary," he said.

Names would come up and "two minutes later: traded," he said.

In the current environment, "people aren't stocking bonds," he said.

California's budget problems

On the West Coast, California's budget woes continued to puzzle market insiders.

"Strategies California can use to plug their $24 billion budget are at issue," said Tom Kozlik, analyst with Janney Montgomery Scott LLC.

"Democrats will not allow areas such as health care, social services and educational funding to be further cut, and Gov. [Arnold] Schwarzenegger and the Republicans will not settle for increases in taxes or fees. A proposal from the California executive and legislative branches would save $2 billion by funneling a portion of the state's fuel tax revenue directly to state coffers. Local officials expressed dismay over the legality of this proposal, which is particularly concerning because a share of the funds are supposed to be used to pay some local government's debt service."

California has been a white elephant in the municipal market as the state comptroller warned legislators that merely a week is left to act before the state is broke.

"I haven't been buying any Cals lately," Shields said. "[But] they're getting cheaper and cheaper."

The bonds have been seen at a spread of 180 basis points over MMD in the 10-year range, but "they're probably headed to 200 [bps]," he said.

At 200 bps, "that indicates an A minus credit," he said, but even if the state is downgraded, as expected, "it's already priced in."

U of North Carolina sale

Also on Wednesday, the University of North Carolina Board of Governors priced $127.405 million series 2009 system pool revenue bonds, according to Merrill Lynch & Co. Inc. vice president Sarah Strickland.

The $45.115 million series 2009A bonds (Aa3) priced at a true interest cost of 4.46% and an average coupon of 4.92%. Serial maturities range from 2010 to 2029, and term bonds mature from 2030 to 2034. Proceeds will be used to build residence and dining halls, a softball field as well as refunding $2.8 million of outstanding debt for Eastern Carolina University.

The $21.615 million series 2009B bonds (A1) priced at a TIC of 4.61% and an average coupon of 4.69%. Serial maturities range from 2010 to 2029, and term bonds mature from 2030 to 2034. Proceeds will be used to build new residence and athletic facilities as well as to refund $6.2 million of outstanding debt for Appalachian State University and the University of North Carolina Charlotte.

The $60.675 million series 2009C bonds (A3) priced at a TIC of 5.27% and an average coupon of 5.23%. Serial maturities range from 2010 to 2029, and term bonds mature from 2030 to 2034. Proceeds will be used to build a residence hall, parking facility and improve a physical education facility for North Carolina Central University.

The three tranches carry a par call in 2020.

Merrill Lynch acted as lead underwriter for the negotiated deal.

The University of North Carolina Board of Governors is based in Wilmington.

Moonraker bonds

The New Mexico Finance Authority priced $58.81 million series 2009C senior lien public project revolving fund revenue bonds (Aa2//AA+) at an all-in TIC of 4.48%, according to Michael Zavelle, chief of investor relations.

RBC Capital Markets Inc. acted as lead underwriter. Samuel A. Ramirez & Co. Inc. and Goldman, Sachs & Co. acted as co-managers.

The bonds carry maturities from 2010 to 2029.

Proceeds will be used to finance part of the $200 million cost of a spaceport that is a joint venture between the state and Richard Branson's Virgin Galactic.

The groundbreaking ceremony for the facility, which is approximately 45 miles north of El Paso in the New Mexico flatlands, was held on Saturday.

The spaceport, with its 10,000-foot runway, is intended for scientific work as well as the expected $200,000 space tourism flights.

Other New Mexico bonds

Meanwhile, New Mexico priced $218.45 million series 2009A severance tax bonds at a TIC of 2.73% Tuesday, according to Olivia Padilla-Jackson, director of the state board of finance.

The bonds priced in time with the "normal cycle for severance bonds," Padilla-Jackson said, "following the legislative session."

"I was pretty happy," she said about the TIC.

JPMorgan won the auction over five other bidders. Fiscal Strategies Group Inc. acted at financial adviser.

The bonds carry serial maturities from 2010 to 2019.

Proceeds from the deal will be used to refinance nearly $73 million from the state's series 2003A and series 2004A bonds as well as to fund capital improvement projects.

The capital projects include a "broad list" of improvements to state buildings and universities as well as waterworks and tribal infrastructure refurbishments, she said.

The state has seen "a lot of reforms" to ensure that bond proceeds are used for lasting capital projects rather than non-appreciable investments, she added.

Puerto Rico bonds

Looking ahead to Thursday's pricing action, the Puerto Rico Building Authority is set to sell $350 million in series 2009 revenue bonds through senior manager Merrill Lynch.

The authority plans to use the proceeds to fund building costs.

In other upcoming sales, the San Diego Unified School District in California is set to price $180 million in series 2009-10 tax and revenue anticipation notes Thursday, said a preliminary official statement.

The notes (MIG 1/SP-1+/) will be sold on a negotiated basis with Citigroup Global Markets Inc. as the lead manager. The co-managers are Goldman Sachs and De La Rosa & Co. Inc.

The notes are due July 8, 2010.

Proceeds will be used to fund general expenses ahead of the collection of taxes and revenues.

Secondary remains quiet

Moving to the secondary market, traders reported a quiet day for trading action as the tone of the market remained fairly firm. No major moves were seen for municipal yields.

Among the bonds traded Wednesday were the Regional Public Transportation Authority of Arizona's recently priced revenue bonds. The 6.46% 2025 bonds were seen at 6.42%.

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