Build America Bonds improve market conditions; Mesa, Arizona, sells $121.73 million

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, May 7 - Build America Bonds helped improve the municipals market on Thursday, said traders. Municipals were seen better despite a weaker Treasury market.

"The market has improved; the spreads to Treasury have improved," said John Vincent, financial adviser for John S. Vincent & Co. LLC in Chicago.

"They've been trading in the secondary at lower yields." he said. "They are gaining broader market appeal."

There has even been some improvement in the tax-exempt market since the introduction of the Build America Bonds with tighter spreads to MMD, he said.

"They've eased supply pressure on the tax side," he said, while the taxable bonds were "plagued with limited demand."

The market now sees with Build America Bonds there is "a fair amount of volume which would have been done as tax-exempt," he said.

Mesa's $121.73 million

Moving to primary market action Thursday, Mesa, Ariz., priced $121.73 million over two tranches of series 2009 bonds, according to deputy city manager Bryan Raines.

The $59.9 million of taxable Build America Bonds were sold competitively to Robert W. Baird & Co. Inc. at a winning true interest cost of 6.345738%. Nine bidders participated in the auction for the bonds, which carry maturities from 2023 to 2033.

The $61.83 million tax-exempt general obligation bonds were sold to Merrill Lynch & Co. at a TIC of 4.4%. Six bidders participated in the auction for the bonds, which carry maturities from 2010 to 2029.

"We were very pleased with the results," Raines said after the city made its first attempt at selling Build America Bonds.

For the G.O. bonds, the city priced nearly 15 basis points tighter than expected.

Proceeds will be used for capital expenses.

In reoffering news, the 6% 2026 bonds were reoffered Thursday at 5.9% after pricing at 5.93%, said a trader watching the deal. The 6.375% 2033 bonds were reoffered at 6.3%, the same as pricing, and the 6% 2025 bonds were reoffered at 5.8%, also the same as pricing.

Salukis sell $53.74 million

Southern Illinois University priced $53.735 million in Build America Bonds at a TIC of 3.71% (A1/A+/), according to Vincent.

The issue came entirely as Build America Bonds rather than as a combination of taxable and tax-exempt offerings.

The Build America Bonds attracted greater interest and allowed for yields of 2.4% for the bond due 2011 and 6.2% for the bond due 2025. The term bond due 2030 will carry a yield of 6.0%.

"We offered it all as taxable Build America Bonds, and even though the Treasury market was weaker today, our market held," Vincent said.

"We had a very good reception," he said. "We lowered the final term by 5 bps."

BMO Capital Markets GKST Inc. and Barclays Capital Inc. acted as co-lead underwriters for the negotiated bonds. John S. Vincent & Co. LLC acted as financial adviser for the deal.

Proceeds will be used to construct a new football stadium and make renovations to existing arenas.

Southern Illinois University is based in Carbondale, Ill.

Tulsa prices $51.8 million

Tulsa, Okla., priced $51.8 million series 2009 revenue bonds at a TIC of 3.804941%, according to director of finance Michael Kier.

Morgan Stanley & Co. Inc. won the auction. "We had good interest from eight bidders," Kier said.

The yields were "a little better than we expected," he added.

The bonds carry maturities from 2011 to 2029.

Proceeds will be used for capital expenditures.

Illinois toll road bonds

Moving to upcoming bond sales, the Illinois State Toll Highway Authority is expected to sell $500 million in series 2009 toll highway senior priority revenue bonds, said a preliminary official statement.

The sale includes series 2009A taxable bonds and series 2009B revenue bonds.

The bonds (Aa3/AA-/AA-) will be sold on a negotiated basis with Goldman, Sachs & Co. and Morgan Stanley as the lead managers.

The 2009A bonds are due 2034, and the 2009B bonds include serials and a term bond due 2034. The serial maturities for the 2009B bonds have not been set.

Proceeds will be used to pay for capital improvements.

Harris County sale

Moving to other upcoming deals, the Harris County Cultural Education Facilities Financing Authority in Texas plans to bring to market $150 million in series 2009 revenue refunding bonds for Methodist Hospital System, said a preliminary official statement.

The sale includes $100 million in series 2009A bonds and $50 million in series 2009B bonds.

J.P. Morgan Securities Inc. is the lead manager for both bonds (/AA/).

The maturities for the bonds have not yet been set.

Proceeds will be used to refund the Houston-based hospital system's series 2006C and 2008C bonds.

Secondary market firms

In the secondary market, traders said the market felt firmer on the popular Build America Bonds in the market this week.

"We're a little firmer today," said one trader. "The BABs are trading stronger, so that seems to be pushing the rest of the market."

In specific trades, Sedgwick County Unified School District No. 259 of Kansas' series 2009B bonds were seen at 6.086% Thursday. The bonds priced Tuesday at 6.22%.

Elsewhere, the Industrial Development Authority of the County of Maricopa in Arizona saw its recently priced Catholic Healthcare West bonds moving Thursday. The 4.5% 2017 bonds were seen at 4.525%. The 5% 2013s were seen at 3.5%.

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