Primary Ready to Pick Up With Over $3 Billion Set to Price

The primary market will pick up significantly this week, with more than $3 billion of bonds set to price as demand for new deals looks to increase as market participants return from the holiday break. This week’s expected issuance marks an increase of 360% over last week’s $650 million, with the market enjoying the first full week of trading since the holidays began. This week’s volume stands as the most since the second week of December, when $6.4 billion was sold. However, January is often a slow month, and the situation is not helped by the questions in the market surrounding bond insurers. “The calendar starting off the year is relatively thin and it doesn’t look to pick up until later in the month,” said Richard Ciccarone, managing director and chief research officer at McDonnell Investment Management LLC. “This gives everybody a pause to see if the insurance company thing is a temporary situation or not, and then make the choice of whether to go alone or go with insurance.”For issuers coming to market this week and going forward, questions of whether to use credit enhancement or not will be on the forefront of discussions. In the week’s largest scheduled transaction, the state of Washington Tuesday will competitively sell $921 million of general obligation bonds in two series. Bonds in the larger series, $546.2 million, are various purpose, while bonds in the smaller series, $375 million, are motor vehicle fuel-tax bonds. The state will offer maturities from 2009 through 2033, with the winning firm deciding on any term bonds. The winning bid will also choose whether to use insurance or not. “We will allow for insurance but it is entirely up to the underwriter,” said Svein Braseth, the director of the state’s bond program. “We will leave it up to the market to decide, and we expect the bonds to be very well received.”Seattle-Northwest Securities Corp. is the financial adviser. Foster Pepper PLLC is bond counsel. The bonds are rated Aa1 by Moody’s Investors Service, AA-plus by Standard & Poor’s, and AA by Fitch Ratings. Proceeds from the sale of the larger series will pay for projects at the state capital, for colleges throughout Washington, and for other environmental preservation and protection efforts. Proceeds from the fuel tax bonds will be used for transportation projects, namely road widening and intersection construction. The state last came to market in September with two series of bonds totaling $900 million. Moody’s rates the bonds Aa1, while Standard & Poor’s and Fitch each assign a rating of AA. JPMorgan won the larger series, $512.9 million of GOs, with a true interest cost of 4.64%. Bonds in the series mature from 2013 through 2032. Among all 5% coupon paper in the deal, bonds maturing in 2016 through 2025 were tightest to that day’s Municipal Market Data triple-A yield curve, with yields 11 basis points over the curve. Bonds maturing from 2030 through 2032 were widest to the scale, with yields 13 basis points over.JPMorgan also won the smaller series, $387 million of motor vehicle fuel tax GOs, with a TIC of 4.61%. Bonds in the smaller series mature in 2009 through 2030 with a term bond in 2032. Financial Security Assurance Inc. insures bonds maturing in 2016, 2017, 2024, and 2025; Ambac Assurance Corp. insures bonds maturing in 2018 through 2023; and MBIA Insurance Corp. insures bonds maturing in 2029, 2030, and 2032. Of the deal’s uninsured, 5% coupon paper, bonds maturing in 2010 were tightest to that day’s MMD triple-A yield curve, with yields five basis points over the curve. Bonds maturing from 2026 through 2028 were widest to the scale, with yields 13 basis points over.In the week’s second-largest scheduled deal, Citi on Wednesday will sell $550 million of personal income tax bonds for New York’s Empire State Development Corp., following a retail order period tomorrow. The bonds are slated to mature serially from 2009 through 2027, though Frances Walton, the chief financial officer for ESDC, said “there is likely to be a mix” of serials and term bonds. Standard & Poor’s rates the debt AAA, while Fitch assigns a AA-minus. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC is bond counsel.The proceeds of the sale will go to a variety of projects and programs administered by the ESDC, such as economic development projects, university projects, and the empire opportunity program. The slow pace of this time a year, and the generally low level of issuance, make it a good time for some issuers to come to market, according to Walton.“There hasn’t been a huge amount of issuance and January is generally a pretty good time to issue,” she said. “This market is so volatile you never know what will happen, but historically this will be a good time.”Issuers will often decide on an insurer ahead of time with negotiated deals, but the “upheaval in the insurance market” will make it difficult to know whether to use insurance, Walton said. As a result, the ESDC will wait until the day of sale to decide on an insurer, as many other issuers are also likely to do in the future until the cloud over the industry is resolved. Lehman Brothers will price two large issues next week, the first being $297.8 million of GOs for the University of California Regents. In the second, Lehman will price $261 million of revenue bonds for the Maryland Health and Higher Educational Facilities Authority. The bonds will go to finance the construction and expansion at several hospitals run by Lifebridge Health Inc., a health care system headquartered in Baltimore. The deal was originally scheduled for last week. The bonds will mature serially in 2008 through 2022, and term bonds will be offered in 2027, 2037, and 2047. Killarney Advisors Inc. is financial adviser, and McKennon, Shelton & Henn LLP is acting bond counsel. The bonds are rated A2 by Moody’s and A by Standard & Poor’s.