Sell-sider says issuers 'eager' to convert auction-rate securities as 70% of auctions seen failing

By Cristal Cody and Sheri Kasprzak

New York, March 7 - The week has been crowded with notices from issuers eager to convert their auction-rate securities to a fixed rate. Friday was no exception with even more conversion notices announced.

"Yields are just out of control," noted one sell-side source reached Friday afternoon.

"Obviously, as you said, some issuers are pretty eager to convert if they can."

According to one report Friday, nearly 70% of all bond auctions failed this past week.

On Friday, it was announced that even more bonds will be converted, including $140.775 million in airport system revenue variable-rate bonds from the Metropolitan Washington Airports Authority.

The series 2003D bonds will be converted March 13 from an auction-rate mode to a weekly interest rate, a remarketing statement said Friday.

The series includes $70.475 million subseries 2003D-1 bonds and $70.3 million subseries 2003D-2 bonds. The bonds are due 2033.

Goldman, Sachs & Co. is the remarketing agent for the 2003D-1 bonds and Morgan Stanley is the remarketing agent for the 2003D-2 bonds.

Also being converted are series 2007-3 variable-rate revenue bonds sold for Children's Hospital of Wisconsin by Wisconsin Health & Educational Facilities Authority.

The bonds will be converted to a fixed rate on March 26, a notice of conversion said.

The bonds were sold in 2007 and are due in August 2028.

Portland to convert bonds

In other conversion news, Portland, Ore., will convert $150 million in limited-tax pension obligation revenue bonds in April, the city's debt manager told Prospect News.

The city will restructure the seven-day taxable auction-rate series 1999D and 1999E bonds to a fixed interest rate, said Eric Johansen, debt manager for the city.

The $75 million in series D bonds will convert April 22 and the $75 million in series E bonds will convert on April 24.

The city has a 5% to 5.25% goal on the rate, Johansen said.

"We're up a little less than one percent point where we were prior to this market disruption," Johansen said.

"We could tolerate this rate if we wanted to keep it, but it looks like the auction-rate market is in a period where it's not likely to resolve the issues it's facing for some time, so we decided to go ahead and convert and take advantage of what are still attractive fixed rates."

Goldman, Sachs & Co. is the remarketing agent.

Also planning a conversion is the Kaiser Foundation Hospitals Inc., which plans to remarket $150 million revenue bonds on May 1.

The series H bonds, priced through the California Statewide Communities Development Authority, are due April 1, 2034.

Kaiser Foundation Hospitals and 1800 Harrison Foundation also are evaluating whether to refund or convert $491.53 million auction-rate bonds, according to a notice released Thursday.

If the groups move forward, the refunding and/or conversion will happen by May 1.

The bonds under consideration include $350 million California Statewide Communities Development Authority-issued insured revenue bonds series 2004 A, B, C and D of $87.5 million each, due April 1, 2032; and $141.525 million insured revenue bonds due May 1, 2034.

The $141.525 million series, sold through the California Infrastructure and Economic Development Bank, include $55.85 million series 2004 A-1; $55.85 million series 2004 A-2; $5.675 million series 2004 A; and $24.15 million series 2004 B.

March 12 slammed with offerings

Issuers will be out in force on March 12 with new offerings, led by $1.025 billion in revenue bonds from the California Department of Water Resources.

Also coming on Tuesday is $700 million in consolidated bonds from the Port Authority of New York and New Jersey.

The deal includes $350 million in series 150 bonds due from 2013 to 2027 and $350 million in series 151 bonds due 2019 to 2035.

The bonds will be sold on a competitive basis and the proceeds from the deal will be used to series 7 versatile structure obligations.

The Maryland Transportation Authority will price another sizable deal, bringing $573.305 million in transportation facilities projects revenue bonds (Aa3/AA-/AA-).

The bonds will be sold competitively and are due from 2012 to 2041.

The authority will use the proceeds for transportation projects and for interest on its series 2008 bonds through July 1, 2011.

Another deal pricing Tuesday is $137 million in general revenue bonds (A1) from the Nebraska Public Power District.

The bonds have a bullet maturity of January 2014 and Morgan Stanley is the lead manager for the negotiated deal.

The district will use the proceeds to refund outstanding bonds and eliminate auction-rate securities from the district's debt structure, including 2007A general revenue bonds due 2014 and taxable series notes used to redeem 2004A general revenue bonds.

Sacramento brings $350.675 million

Looking a bit further ahead, Sacramento County in California will sell $350.675 million in taxable pension funding bonds on a negotiated basis on March 18, according to the issuer.

The bonds, due 2030, are expected to bear interest at the one-month Libor plus a spread, which will be determined March 20, said Chris Marx, the county's debt officer.

Morgan Stanley is the lead manager.

Proceeds will refund and defease $346.8 million in outstanding principal of series 2004C-1 taxable pension funding bonds.

Also on March 18, the Alaska Municipal Bond Bank will bring $62.025 million in general obligation bonds in a competitive offering.

The series 2008 bonds are due from 2009 to 2038.

Proceeds will be lent to the cities of Dillingham, Seward, Kodiak and Kodiak Island Borough for school renovations, a public pool, a long-term care facility and a public safety building.

Michigan MBA brings $560 million

Elsewhere in upcoming offerings, the Michigan Municipal Bond Authority plans to sell $560 million in school loan revolving fund revenue bonds (AA-/F1+), according to an official statement.

The negotiated deal will include $160 million in series 2008A-1 weekly rate bonds, $100 million in series 2008A-2 bonds, $150 million in series 2008A-3 term-rate bonds and $150 million in series 2008A-4 bonds. All four series of bonds are due 2048.

Merrill Lynch & Co. is the lead manager for the offering. The pricing date could not be determined by press time.

Proceeds will be used to make loans under the school loan revolving fund, to make loan payments to the state of Michigan, to refund previous bonds and to make deposits to reserve and clearing accounts.

University of North Carolina bonds price

In other news, the University of North Carolina System priced $64.03 million in series 2008A public university pool revenue bonds (A1).

The bonds are due from 2009 to 2024, but the exact terms were not immediately available Friday, a source at the issuer told Prospect News.

The proceeds will be used for housing renovations, parking improvements, athletic facilities and dining and student recreation facilities.

Wachovia Securities was the lead manager for the negotiated sale.

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