Competitive sales get rocked by market conditions; Pennsylvania cuts size of G.O. bond offering

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, Dec. 4 - A lack of liquidity in the municipals market may be causing issuers to reevaluate their competitive offerings, and several of the largest offerings of the past few months are being scaled back as a result.

In the wake of the Port Authority of New York and New Jersey's failed competitive offering of $300 million in series ZZ consolidated notes Wednesday, some issuers Thursday were taking another look at their upcoming competitive sales.

The Commonwealth of Pennsylvania won't let the PANYNJ news stop it from moving forward with its sale of series 2008 general obligation bonds, set for Tuesday, but the offering size has been cut in half. The commonwealth will now sell only $300 million, down from its planned $600 million.

The cut was made on Monday, before the PANYNJ brought it sale to the table, but the commonwealth is on edge and eyeing market conditions carefully, said Rick Dreher with the Pennsylvania Governor's Budget Office.

"We're still moving ahead," Dreher told Prospect News Thursday.

"We'll take whatever actions are necessary to adjust the size of the offering or the scheduled bid date in response to market conditions."

Dreher said he feels the PANYNJ offering won't impact the Pennsylvania sale that much since the Port Authority sale was taxable and the commonwealth's deal is tax-exempt.

Miami-Dade may cut sale

Pennsylvania was not the only competitive issuer taking a second look at an upcoming offering.

Miami-Dade County in Florida, which has a $350 million competitive offering of series 2008B Building Better Communities Program G.O.s up for grabs on Dec. 11, is considering cutting the size of the issue.

"We will decide next week, but we may reduce the offering to $100 million to $150 million, depending how we perceive the market to be," Rachel Baum, the county's finance director, said in an interview Thursday.

The Miami-Dade sale may be conducted in multiple tranches, Baum added.

The basic problem, said Dreher, is a lack of liquidity.

"The liquidity isn't there in the market to get these bonds sold," he said.

"I think I saw somewhere that there's a $20 billion backlog [of new offerings] since September when Lehman Brothers filed for bankruptcy."

A sellside source reached earlier this week agreed.

He noted that there is a glut of new deals - so much so that investors to buy all of those bonds are scarce. The sellsider also noted that underwriters are keener to get investors in on negotiated sales.

Northern California agency delays deal

The competitive market isn't the only one grappling with shaky market conditions.

The Transmission Agency of Northern California postponed its negotiated sale of $424.475 million in series 2008 California-Oregon Transmission Project revenue refunding bonds, said Jim Shelter, vice chairman of the agency, Thursday. The agency is now waiting for a window in which to sell its bonds.

"It's so difficult right now," Shelter told Prospect News. "We're ready and waiting."

Shelter said it's too soon to tell when the offering might price, but the agency is watching market conditions. The sale may be delayed until the beginning of 2009.

"It'd be lovely to price these next week, but the market seems to be open only in short windows," Shelter added. "We've got the ability to wait a little while."

J.P. Morgan Securities Inc. is the lead manager for the deal.

The sale includes $104.485 million in series 2008A bonds, $229.615 million in series 2008B bonds, $32.05 million in series 2008C bonds and $58.325 million in series 2008D bonds.

Proceeds for the offering, once it does price, will be used to retire the agency's series 2002 and 2003 bonds, as well as retire commercial paper notes.

University of Chicago bonds price

Looking to what did price on Thursday, the Illinois Finance Authority sold $500 million in series 2008B revenue bonds for the University of Chicago, according to a pricing sheet released by a sellside source.

The bonds (Aa1/AA/) were sold on a negotiated basis with J.P. Morgan Securities as the lead manager.

The bonds are due 2013 to 2025 with term bonds due 2028, 2033 and 2038. The serials have coupons from 3.5% to 5.5% with yields from 3.28% to 5.25%. The 2028 bonds have a 5.5% coupon to yield 5.8%, the 2033 bonds have a 5.75% coupon to yield 6% and the 2038 bonds have a 6.25% coupon to yield 6%.

Proceeds will be used for financing, refinancing or reimbursing the University of Chicago for construction, acquisition, equipment or renovation of educational facilities on campus.

Wisconsin Health bonds on day-to-day

Elsewhere Thursday, the Wisconsin Health and Educational Facilities Authority's $136 million series 2008 revenue bonds (/AA-/AA-) on behalf of Froedtert & Community Health have been moved to day-to-day status, said a source familiar with the issue.

The sale had been scheduled for Thursday. It could not be determined Thursday if the sale was pushed back due to market conditions.

Morgan Stanley & Co. Inc. is the lead underwriter for the issue.

Proceeds from the sale will refund prior bonds and terminate a qualified hedge related to a prior bond sale.

Harvard sale ahead

Moving to upcoming deals, the Massachusetts Health and Educational Facilities Authority is expected to sell $600 million in series 2009A revenue bonds for Harvard University, according to a preliminary official statement.

The bonds (Aaa/AAA/) will be sold on a negotiated basis with J.P. Morgan Securities as the lead manager.

Proceeds will be used to repay the university's outstanding commercial paper notes and to pay for other corporate purposes, including the termination of an interest rate swap agreement.

Secondary remains light

In secondary market action Thursday, trading was light as municipals took another hit. A trader said municipals were still off a few basis points in afternoon trading.

"Not a lot going on," said the trader. "It's a quiet day, but a down day for us."

Looking to particular trades on Thursday, the Dormitory Authority of the State of New York's series 2008 personal income tax revenue bonds were seen in play. The 5% 2025s were seen trading at 5.114%.

Also trading Thursday was the Lower Colorado River Authority's recently freed-to-trade series 2008A refunding and improvement revenue bonds. The 6.5% 2037s were seen trading at 6.519% on Thursday. The 6.25% 2028s were seen trading at 6.4%.

Rhode Island's series 2008A consolidated capital development loan bonds were trading Thursday with the 5% 2012s trading at 3%. The series 2008B consolidated capital loan bonds were trading Thursday as well with the 4.125% 2017s seen at 4.22%. And the state's series 2008C consolidated capital development loan bonds were also in play with the 5.25% 2010s trading at 3.434%.

Finally, the Christus Health series 2008B revenue refunding bonds sold through the Louisiana Public Facilities Authority traded Thursday. The 6.5% 2030s were seen trading between 6.38% and par.

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