Market prepares for Build America Bonds; New Jersey Turnpike Authority to bring $1.75 billion

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, April 17 - Municipals saw another day of improvements Friday after rallying throughout the week, buoyed in part by better Treasuries and in part by the coming Build America Bonds set for the coming week.

The market was filling with taxable Build America Bonds Friday for the upcoming weeks.

"While taxable munis traders are still establishing fair value levels for this new type of security, the strong performance in their first showing suggest that we'll see issuers consider more of the BABs in the near future," a sellside source said Friday morning.

"Some traders were indicating that bonds on the long end of the tax-exempt curve were stronger by as much as 10 basis points on BAB optimism and a few early morning block trades, though one report from a muni credit default swap broker suggested that credit spreads for big names were tighter by as much as 30 basis points. Intuitively, that seems like too large a movement for a single day in what's traditionally a slow-moving market, so perhaps recent low derivative trading volume exaggerated the CDS spread tightening."

The sellsider noted that more realistic indications of the movements on the long end of the yield curve Thursday were 5 to 7 bps.

Meanwhile, the coming week is proving to be a big one for the primary market with billions in sales planned, including a $4 billion offering of taxable bonds from the State of California with about $3.5 billion of those as Build America Bonds, said a market source.

New Jersey Turnpike

Among the other upcoming Build America Bonds is a $1.75 billion offering of series 2009 revenue bonds from the New Jersey Turnpike Authority, said a sellside source familiar with the deal.

The authority will conduct a retail order period Monday.

The bonds (//A) will be sold on a negotiated basis with Morgan Stanley & Co. Inc. as the senior manager.

A portion of the bonds - a taxable portion that has not yet been determined - will be Build America Bonds.

The authority had originally announced it would sell at least $650 million of the bonds, but the deal was upsized, said the sellsider, because of expected demand.

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

MTA's Build America Bonds

In other upcoming Build America Bonds, the Metropolitan Transportation Authority in New York City plans to price $650 million in series 2009 dedicated tax fund bonds on Thursday, said a calendar of upcoming deals.

The deal includes $450 million in series 2009B bonds and $200 million in series 2009C federally taxable Build America Bonds.

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

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

Constitution State to sell

Looking to Thursday's deals, Connecticut plans to offer two tranches of $300 million general obligation anticipation notes, according to a preliminary offering sheet.

J.P. Morgan Securities, Citigroup Global Markets Inc., Goldman, Sachs & Co. and M.R. Beal & Co. will act as underwriters for the negotiated issue.

The series A bonds will mature on April 28, 2010, and the series B bonds will mature on June 1, 2011.

Proceeds will be used for general budgetary purposes.

Miami, Tennessee deals

Also ahead for the upcoming week, Miami-Dade County of Florida is scheduled to come to market with $600 million in series 2009 revenue bonds Tuesday, according to a calendar of upcoming deals.

The bonds will be sold through lead manager Barclays Capital Inc.

Proceeds will be used to refinance commercial paper notes and reimburse the county for capital improvements made by the county's port authority.

On Wednesday, the State of Tennessee plans to sell its previously announced $367.045 million in series 2009 G.O. and G.O. refunding bonds (Aa1/AA+/AA+), said a calendar of upcoming sales.

The deal includes $291.5 million in series 2009A G.O.s and $75.545 million in series 2009B G.O. refunding bonds.

Morgan Stanley is the lead manager for the negotiated deal.

The 2009A bonds are due 2010 to 2029, and the 2009B bonds are due 2010 to 2019.

Proceeds will be used to repay the state's commercial paper notes.

Citizens Property deal

Moving to deals on the horizon, Citizens Property Insurance Corp. in Florida is expected to sell $2 billion in series 2009 senior secured bonds in two tranches, said a preliminary official statement.

The bonds will be sold on a day-to-day basis in two tranches: a 2009A-1 tranche (A2/A+/) and a 2009A-2 tranche of short-term notes (MIG 1/SP-1+/), the breakdown of which has not yet been determined.

The 2009A-1 bonds are due 2016, and the 2009A-2 bonds are due 2010.

Goldman Sachs is the lead manager.

Proceeds will be used to make deposits to reserve accounts.

Citizens Property Insurance is based in Jacksonville, Fla.

Also ahead, the Catholic Health Facilities Financing Authority and the Industrial Development Authority of the County of Maricopa in Arizona are expected to sell $590.6 million in series 2009 variable-rate revenue bonds, said a preliminary official statement. The bonds will be sold for Catholic Healthcare West.

The sale includes $51.915 million in series 2009A Maricopa IDA bonds, $340.785 million in series 2009A Catholic Health bonds, $76.1 million in series 2009B and C Maricopa IDA bonds and $121.8 million in series 2009B, C and D bonds.

J.P. Morgan Securities and Citigroup Global Markets are the senior managers for the negotiated offerings.

Proceeds will be used to fund capital expenses at Catholic Healthcare West as well as refund current interest bonds.

Catholic Healthcare West has its headquarters in San Francisco.

Secondary firms

Moving to the secondary market, a trader said conditions felt firmer as the market prepares for an influx of Build America Bonds.

"It's feeling a little better today. Intermediate has been more improved all week and the long end [of the yield curve] has been slightly better," said one trader.

In reoffering news, the State of North Carolina's series 2009 G.O.s were moving Friday. The 5% 2017s were reoffered at 3.03% after pricing at the same level Thursday. The 2.25% 2013s were seen at 1.674% after pricing at 1.9%, and the 3% 2016s were reoffered at 2.8%. The 2016s were priced at 2.8% Thursday.

Stamford, Conn.'s series 2009 refunding G.O.s were reoffered on Friday after pricing Wednesday. The 3.25% 2010s were reoffered Friday at 1.107%.

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