California Ready to Deal Big GO Hand With $4.5B, Including BABs

The California municipal market is gearing up for a week of brisk activity as the state plans to sell $4.5 billion of general obligation debt — including Build America Bonds — while two other issuers ready sizable offerings.

The issuance will contribute to the estimated $9.08 billion of new volume expected this week, according to Ipreo LLC and The Bond Buyer.

Volume is expected to be noticeably more than last week, when a revised $5.70 billion came to market, according to Thomson Reuters.

As the state prepares for its sale, the California market has been characterized by increased demand for in-state paper due to the rise this year in state income taxes to a top rate of 9.55% from 9.30%, as well as tighter spreads on GO bonds as a result of the swell in BAB debt, according to market participants.

In addition, the Golden State GOs will come to market with split ratings from the three major rating agencies as a result. Moody’s Investors Service has assigned a Baa1 to the GOs, while the bonds are rated A by Standard & Poor’s and BBB by Fitch Ratings.

The deal is expected to consist of approximately $1.3 billion of tax-exempt securities, $2 billion of taxable BABs, and $1.2 billion of traditional taxable securities. The maturity structures for each series were still being finalized at press time on Friday.

The bonds will be priced on Thursday after a two-day retail order period planned for tomorrow and Wednesday.

Citi and Bank of America Merrill Lynch are the joint book-runners for the tax-exempt bonds, while Goldman, Sachs & Co. and JPMorgan are joint book-runners for the taxable bonds.

The state’s mammoth GO sale comes on the heels of last week’s $1.4 billion sale from the Los Angeles Unified School District of GO bonds that were sold as BABs, as well as an $8.8 billion sale of revenue anticipation notes the state sold on Sept. 23.

The California Health Facilities Financing Authority is also planning a trip to the market this week when it sells $500 million of hospital revenue debt on behalf of Southern California’s Cedars-Sinai Medical Center.

Bank of America Merrill Lynch is slated to price the bonds tomorrow with an A2 rating from Moody’s and an A-plus by Fitch.

The maturity structure was not available at press time. The sale date for the deal is Tuesday, but the underwriters added a retail order period on Monday.

In other activity this week, the Los Angeles County Metropolitan Transportation Authority plans to sell $317 million of first-tier senior sales tax revenue refunding bonds.

Book-runner Bank of America Merrill Lynch plans to price the bonds Tuesday with a retail order period on Monday with a structure that consists of serial bonds maturing from 2010 to 2026, according to the preliminary official statement.

The bonds will carry a Aa3 rating from Moody’s and a natural AAA from Standard & Poor’s. The proceeds will be used to pay a portion of outstanding first-tier senior-lien bonds, as well as the principal of certain outstanding commercial paper notes.

Elsewhere in the market, another sizable transportation deal will come to market when New York’s Metropolitan Transportation Authority sells $500 million of transportation revenue bonds in a negotiated deal being priced by Citi tomorrow. That deal is structured with term bonds in 2027, 2029, and 2039, and is rated A2 by Moody’s and A by Standard & Poor’s.

The Northeast will also see the pricing of $400 million of Delaware GO bonds on Thursday by Morgan Stanley, which said the structure was still being discussed on Friday afternoon. The Delaware bonds have natural triple-A ratings from all three agencies.

A $531 million sale of various-purpose GO bonds from Phoenix will add to the new-issue activity this week. The deal includes tax-exempt and taxable debt, including BABs, but the structure was not yet available at press time. RBC Capital Markets LLC is scheduled to price the deal tomorrow, after a retail order period today on the tax-exempt portion.

Switching gears to the competitive market, two sizable deals will make their way to the Southeast market this week, including a $383.2 million North Carolina GO refunding sale tomorrow, and a $271.7 million sale of revenue bonds from the Gwinnett County, Ga., Water and Sewer Authority on Wednesday.

The North Carolina bonds are structured with serial bonds maturing from 2010 to 2020 and have natural triple-A ratings from all three major rating ­agencies.

The Gwinnett deal consists of $247.8 million of tax-exempt revenue bonds scheduled to mature serially from 2010 to 2028, and $23.9 million of taxable recovery zone economic development bonds structured to mature in 2028 and 2029, according to the preliminary official ­statement.

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