California State Public Works wraps $435.15 million sale; primary calendar to thin following holiday

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, April 9 - Flows were extremely slow, but the tone was high for municipals as investors left their desks early for the long holiday weekend.

When the market reopens on Monday, the calendar will look a bit thinner than it did in the previous week, said a senior trader, and "munis will benefit a little from that."

"We'll see tightening of some quality spreads," he said.

Still, the market will have to deal with the fallout from the Moody's sector-wide outlook downgrade, but "people knew a lot of that" and "some of it was built in," he said, although "certain credits will suffer nonetheless."

Products like mortgage-recording tax bonds, which are popular in Florida; highway bonds; and gas tax bonds will likely be the hardest hit.

On the other hand, dedicated revenue stream bonds "people will find more attractive," he said, singling out water and sewer bonds.

For plain general obligation bonds, however, "it's not going to be a surprise that these guys will have budget shortfalls," he said, so the skilled, trained professionals are going to be more important going forward.

Without the backstop of the bond insurers, they will have to look at the underlying ratings and spend their time "deciphering the value of these credits," he said.

Municipal desks were also just beginning to consider the effects of the proposed "bailout bonds" the government may offer in the vein of the previous generations' war bonds.

"I just read that headline," the trader said, but his first impression was that the bonds are "a mixed bag."

"The average Joe is very mixed about the bailout," he said, and the bonds seem designed for "an esoteric group of folks."

Overall, he expressed his frustration with the government for favoring a lower degree of competition in the financial world by supporting the stability brought by the hegemony of the major banks.

Still, "the market has come to favor the big guys' return," he said.

California PWB bonds price

Moving to Thursday's light primary activity, the California State Public Works Board completed its sale of $435.145 million in series 2009 lease revenue bonds, said Tom Dresslar, spokesman for the state treasurer's office.

The board finished its pricing Thursday after struggling to sell the bonds during a two-day retail order period. One trader pointed out Wednesday, the last day of the retail order period, that even though the bonds were going incredibly cheap, they would likely have to go cheaper to garner retail interest.

Indeed, the board sold only $87.700 million of the bonds to retail investors.

The sale included $182.860 million in series 2009A Department of General Services bonds, $107.715 million in series 2009B Department of Education bonds, $90.295 million in series 2009C Department of Development bonds and $54.275 million in series 2009D Trustees of California State University bonds.

The 2009A bonds (A3/A-/A-) are due 2010 to 2029 with a term bond due 2034. The yields range from 1.9% to 6.35%, and the 2034 bonds have a 6.43% yield.

The 2009B bonds are due 2010 to 2029 with a term bond due 2034. The serials have yields from 1.9% to 6.35%, and the 2034 bonds have a 6.4% yield.

The 2009C bonds are due 2010 to 2027 with term bonds due 2029 and 2034. The serials have yields from 1.9% to 6.2%. The 2029 bonds have a 6.23% yield, and the 2034 bonds have a 6.43% yield.

The 2009D bonds are due 2010 to 2029 with yields from 1.82% to 6.3%. The 2034 bonds have a 6.4% yield.

Ramirez & Co. Inc. was the lead manager.

Proceeds will be used for improvements at the various departments.

In Thursday's reoffering activity, the series 2009A 5% 2016s were reoffered at 4.6%, the same as pricing, and the 5.25% series 2009B 2020s were reoffered at 5.45%, also the same as pricing after losing 17 basis points during the shortened session.

A trader reached during the early afternoon said the bonds were being reoffered in limited amounts.

"I'm not seeing a whole lot of reoffering activity going on with these today," he said.

Temple University sells

Looking to other primary offerings, Temple University in Philadelphia brought $120 million in series 2009 commonwealth system of higher education university funding obligations, said a sellside source close to the deal.

The 1.25% bonds (MIG 1) are due April 16, 2010 and were priced to yield 0.41%.

Goldman, Sachs & Co. was the winning bidder for the competitive sale. The true interest cost came in at 0.4138%. Public Financial Management Inc. was the financial adviser.

Proceeds will be used for equipment purchases, facilities, construction and the refinancing of the university's series 2008 funding obligations.

Emory to price

In upcoming offerings, the Private Colleges and Universities Authority of Georgia is expected to sell $251.930 million in series 2009B revenue bonds for Emory University, said a preliminary official statement.

The bonds will be sold through lead manager J.P. Morgan Securities Inc.

Pricing is expected for April.

The bonds are due 2009 to 2029 with term bonds due 2032 and 2035.

Proceeds will be used to refund variable-rate bonds and fund construction projects at Emory University, which is located in Atlanta.

Ahead in the coming week, Richmond, Va., plans to price $146.495 million in series 2009A public utility revenue bonds Tuesday, said a preliminary official statement.

The bonds (Aa3/AA/AA-) will be sold through senior manager Morgan Stanley & Co. Inc.

The bonds are due 2012 to 2029 with term bonds due 2034 and 2040.

Proceeds will be used to reimburse the city for improvement costs to the natural gas, water and wastewater system as well as to fund a debt service reserve requirement.

NYC G.O.s relatively unmoved

The recently priced City of New York G.O. bonds were in big demand Thursday, despite a light day for trading action, a trader told Prospect News Thursday.

For the most part, the bonds ended the shortened session unmoved after experiencing some movement during the day. The 5% 2024s from the series 2009I-1 bonds were off by about 9 bps during the session, trading at 5.01% after pricing at 5.1%.

The 5.45% 2031s continued to see interest from secondary buyers, said a trader reached Thursday afternoon. The bonds were seen trading at par after losing up to 42 bps during the course of the day. The bonds also ended Wednesday at par after pricing Tuesday at 5.48%.

The 3.5% 2015s, which were unmoved on Wednesday, ended Thursday at 3.25%. The bonds priced at 3.52%.

The 2009I-2 bonds were also seen in action Thursday. The 5.96% 2016s were trading at 5.52%. The bonds priced with a spread of Treasuries plus 310 bps.

In other reofferings, the City and County of Honolulu's recently priced series 2009A G.O. bonds were also moving. The 4.25% 2023s were seen at 4.23% on Thursday. The bonds priced Wednesday at 4.11% and were reoffered Wednesday at 4.031%.

The 2009A 5% 2019s were seen Thursday at 3.583% after pricing Wednesday at 4.04%.

The 2009A 5% 2033s were trading at 5.027% Thursday after pricing at 5.01% and being reoffered at 5.02% Wednesday.

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