California, New York BAB Deals Kick Off Fourth Quarter

The official start of the fourth quarter will be marked by some brisk new-issue activity this week as several large financings - led by two significantly sized Build America Bond deals in California and New York - come to market.

The deals are part of an estimated $7.98 billion of issuance scheduled for the week, according to Ipreo LLC and The Bond Buyer.

Last week, the market saw a revised $4.08 billion of new long-term volume, according to Thomson Reuters. In addition, an $8.8 billion sale of revenue anticipation notes was sold by California in what was the second largest note sale on record.

The deal, which garnered sub-2% yields, saw tremendous retail appetite, with $6.64 billion in retail orders, or 75.4% of the entire deal - including the entire $5.975 billion Series A-2 notes, according to state officials.

The top-yielding notes due on June 23, 2010, were priced to yield 1.50% - 113 basis points higher in yield than the generic, triple-A general obligation bond due in 2010 at the time of the note pricing last Wednesday, according to Municipal Market Data.

This week, the Golden State remains in the spotlight with a $1.4 billion sale of general obligation bonds from the Los Angeles Unified School District. Designated as taxable BABs, joint book-runners Citi and Goldman, Sachs & Co. will price the bonds on Thursday with a structure maturing in 2027, 2029, and 2039.

Citi and Goldman will also serve as senior-manager and co-senior manager, respectively, for a $181 million series of traditional tax-exempt GO bonds also being priced for the LAUSD this week.

Retail investors will get first crack at the tax-exempt bonds on Wednesday ahead of Thursday's official pricing. The series consists of mostly serial bonds, but the details on specific maturities were still being discussed at press time on Friday, according to Citi.

The BABs and the tax-exempt GOs are rated Aa3 by Moody's Investors Service and AA-minus by Standard & Poor's.

New York City will make its debut in the BAB market this week with $800 million of GO debt being senior managed and priced by Morgan Stanley.

In addition to the BABs, the city also plans to sell $130 million of traditional taxable debt this week with Morgan as book-runner. The sales dates had not yet been announced as of press time.

City officials hope to benefit from the tighter spreads to Treasuries on recent BAB issues and tighter bid-ask spreads in the secondary market since the first BAB deal priced in April.

Although the structure of the bonds were also still being hammered out late last week, the city's BABs will have shorter as well as longer maturities, according to officials.

Besides the taxable debt, the city also plans to sell $900 million of traditional tax-exempt refunding bonds on Wednesday when senior manager Bank of America Merrill Lynch prices the deal after a three-day retail order period that began Friday.

New York City's GOs are rated Aa3 by Moody's, AA by Standard & Poor's, and AA-minus by Fitch Ratings.

Elsewhere in the Empire State, the New York State Thruway Authority is planning to issue $521 million of local highway and bridge service contract revenue bonds in a negotiated deal being led by Citi.

The firm will price the deal on Wednesday, following a retail order period tomorrow, with a serial structure that matures from 2011 to 2021. The bonds are rated AA by Standard & Poor's and A-plus by Fitch.

In other market activity, the Virgin Islands Public Finance Authority will sell $476 million of revenue bonds to fund public works projects and refund outstanding debt from 1998. The deal will be managed by Citi and priced on Wednesday after a retail order period planned for tomorrow.

The multifaceted offering is comprised of $278.5 million of senior-lien refunding debt and $102.5 million of subordinate-lien refunding bonds, along with $89 million of senior-lien, tax-exempt new money and a $6 million series of senior-lien taxable debt.

The bonds are structured with serial and term bonds out to 30 years, but underwriters at Citi were still discussing the exact structure at press time on Friday.

Moody's rates the senior- and subordinate-lien bonds Baa2, while Standard & Poor's rates the senior-lien debt at BBB, and the subordinate-lien at BBB-minus.

Elsewhere, a $438.5 million sale ofrefunding bonds is being planned by the Virginia Public School Authority.

Wachovia Bank NA is scheduled to price the issue tomorrow with a serial structure that matures from 2011 to 2026. The bonds are rated Aa1 by Moody's and AA-plus by Standard & Poor's and Fitch.

Meanwhile, two utility bond sales are also on expected to be priced this week.

In the Midwest, Columbus-based wholesale power supplier American Municipal Power Inc. is planning to issue $450 million of Prairie State energy project revenue bonds..

Underwriters at book-runner Bank of America-Merrill Lynch said the sale date and structure were still be finalized.

A $325 million sale of electric system revenue bonds from Arizona's Salt River Project Agricultural Improvement and Power District, which is scheduled for pricing tomorrow, is the only sizable deal on the competitive calendar.

The bonds, which are rated Aa1 by Moody's and AA by Standard & Poor's, are expected to be structured as serial bonds maturing from 2013 to 2020, and from 2033 to 2037.

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