Puerto Rico will headline primary market activity this week with its scheduled sale of $1.1 billion of general obligation bonds, along with a handful of education deals and at least two sizable auction-rate conversion deals.
Overall, an estimated $7.1 billion of new competitive and negotiated volume is expected to come to market this week. Last week, a revised $9.2 billion of supply made its way to market, according to Thomson Reuters, including a $2 billion Connecticut taxable GO sale.
This week, Puerto Rico is preparing to sell $1.1 billion of GOs on either Wednesday or Thursday after pricing $200 million of tobacco bonds on Tuesday. The commonwealth has approximately $46 billion of total outstanding debt, including $8.16 billion of GOs, but at the same time is facing a $1 billion structural deficit for fiscal 2009, which begins July 1.
The new Puerto Rico GO deal will be priced by UBS Securities LLC and is tentatively structured as serial bonds maturing from 2009 to 2038. It carries ratings of Baa3 by Moody's Investors Service and BBB-minus by Standard & Poor's.
The commonwealth's last GO sale was in October, 2007, when it issued two series of public improvement refunding bonds totaling just under $1 billion. The final 2022 maturity, which was insured by Financial Guaranty Insurance Co., carried a 5 1/2% coupon and was priced to yield 4.22% - only two basis points higher in yield than the generic, triple-A insured GO bond in 2022 at the timing of the pricing, according to Municipal Market Data.
The island will also sell $205 million of tobacco bonds with Citi and Bear, Stearns & Co pricing the deal, which includes turbo bonds and maturities going out through 2058. Officials postponed the tobacco deal in late July due to a hike in interest rates.
"The demand had dried up momentarily and anyway the rates were too high and now we've come back to a point where it works," said Jorge Irizarry, president of the Government Development Bank for Puerto Rico. "It works for us in terms the demand is there and the levels of yields also work."
Meanwhile, in California, the state's Department of Water Resources is on tap to issue $633.3 million of water system revenue bonds on behalf of the Central Valley Project.
The bonds, which are rated Aa2 by Moody's and AAA by Standard & Poor's, are expected to be priced by Goldman, Sachs & Co. on Wednesday after a retail order period tomorrow. Bonds are structured to mature serially from 2008 to 2029, with a term bond in 2035.
With an upgrade in hand, Advocate Health Care Network - the Chicago area's largest hospital system - enters the market later this week with a mix of $620 million of variable-rate demand bonds and one-year term bonds to refund its auction-rate securities. The bonds will sell through the Illinois Finance Authority. The Oak Brook, Ill.-system will sell $470 million of VRDBs that will be remarketed weekly. Citiis the underwriter and remarketing agent.
Most of the week's other activity will center on a handful of education deals hailing from issuers in the Northeast and Midwest.
In New Jersey, a $543.5 million sale of school facilities construction refunding bonds will come to market on Thursday when UBS prices the bonds through the New Jersey Economic Development Authority.
The bonds are rated A1 by Moody's, A-plus by Standard & Poor's, and AA-minus by Fitch, and are structured to mature from 2008 to 2020.
The Chicago Board of Education will sell $475 million of unlimited-tax GO refunding bonds on Thursday in a deal being negotiated by Lehman Brothers. Structured to mature serially from 2008 2033, the bonds are rated A1 by Moody's, AA-minus by Standard & Poor's, and A-plus by Fitch Ratings.
Elsewhere in the education sector, the New Jersey Educational Facilities Authority will issue $291 million of revenue refunding bonds in a deal being priced by Morgan Stanley tomorrow on behalf of the College of New Jersey.
Insured by Financial Security Assurance Inc. and maturing from 2008 to 2039, the bonds will refund all of the college's Series 1999 A bonds and Series 2002 D bonds.
Meanwhile, a health care deal in California will round out the activity.
The California Health Facilities Financing Authority is expected to sell $329.1 million of revenue bonds when it converts auction-rate bonds on behalf of Sutter Health, a Northern California based nonprofit network of community-based providers.
Morgan Stanley will price the bonds on Thursday however the structure of the deal was not available at press time. The authority's long-term revenue bonds for Sutter are rated Aa3 by Moody's, AA-minus by Standard & Poor's, and AA by Fitch.
Michelle Kaske and Yvette Shields contributed to this story.
