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The Week Ahead

All Aboard For Big BAB Sales

In a year that has seen nearly $58 billion of Build America Bond issuance, this week might afford one of the last opportunities in 2009 for investors to buy into sizeable offerings of the taxable debt.

A $616.1 million BAB sale from New York City on Thursday, a $500 million sale of BABs by the Massachusetts School Building Authority slated for today, and a $600 million District of Columbia BAB sale on Wednesday punctuate the already impressive 689 BAB issues worth $57.74 billion that have barraged the market for year to date through Thursday, according to Thomson Reuters.

In November alone, there were 100 BAB issues sold totaling $7.57 billion.

“They are no longer a novelty. The appetite has not abated ... there is still plenty of demand for BABs,” said Peter Delahunt, national institutional sales manager at Raymond James & Associates in New York City. “There’s still a big demand for municipals as evidenced by the continued healthy cash inflows into the municipal bond funds, but the BABs are taking away from what could have been more supply of tax-exempt bonds 20 years and out.”

But as issuers, bankers, and underwriters prepare to close the books on 2009, that could mean fewer large BAB deals will be available before the holiday period puts a seasonal halt to issuance until the New Year.

“There are basically two more weeks to bring deals and that’s pretty much it,” said Fred Yosca, managing director and manager of trading and underwriting at BNY Mellon Capital Markets in New York.

“Deals are coming at a time when the market has a pretty good appetite and there is cash available from the Dec. 1 reinvestment,” Yosca explained. “That’s one advantage deals that come in December have — it’s the time of the year with the best cash inflows in the municipal marketplace, besides June and July.”

Even as the market for BABs winds down in coming weeks, Delahunt said the securities will continue to command interest in 2010.

“They are getting better liquidity, better understanding, and better penetration, and next year I think there will be a greater involvement by foreign banks whereas this year the demand was mostly domestic,” he said.

There was a modest opportunity to invest last week given the market’s revised $3.40 billion in new volume, according to Thomson Reuters. But investors’ interest should be piqued by this much larger week’s slate, which is pegged at $10.1 billion, according to Ipreo LLC.

JPMorgan will price the New York City BABs on Thursday with a final 2038 maturity and ratings of Aa3 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-minus by Fitch Ratings. JPMorgan is also the senior book-runner on the District of Columbia BABs, which are expected to have one term bond structured in 2034 and are rated Aa2 by Moody’s, AAA by Standard & Poor’s, and AA by Fitch.

Samuel Ramirez & Co. will price the Massachusetts BABs today. The larger series consists of $500 million of direct-pay BABs, while an additional $100 million of tax-exempt debt will also be priced. The structure of the deal was not available by press time. Both series are rated Aa2 by Moody’s Investors Service and AA-plus by Standard & Poor’s.

The BAB deal is one of three bond issues expected from New York City this week. On Thursday it also plans to enter the competitive market where it will issue $83.8 million of traditional taxable general obligation debt that matures from 2011 to 2015.

In addition, on Wednesday, Citi will price $700 million of New York City GO debt — albeit tax-exempt — following a three-day retail order period that began last Friday. The bonds are slated to mature serially from 2010 to 2026, and rated Aa3 by Moody’s, AA by Standard & Poor’s, and AA-minus by Fitch.

Besides the large BAB sales, much of the other activity in the primary market is expected to take place in the Northeast market.

The Maryland Transportation Authority is expected to bring a $551.1 million offering of facility project revenue bonds to market in a two-pronged deal that consists of $69.3 million of tax-exempt debt in Series 2009 A and $482 million of BABs in Series 2009B.

Slated for pricing by Goldman, Sachs & Co., the tax-exempt bonds will be offered to retail investors on Wednesday, and entire deal will be priced for institutions on Thursday. The bonds are rated Aa3 by Moody’s and AA-minus by Standard & Poor’s and Fitch. The deal’s structure was being discussed at press time on Friday, according to an underwriter.

Elsewhere in the region, the Pennsylvania Turnpike Commission is planning to sell $437.1 million of Series 2009B senior-lien revenue bonds in a Morgan ­­Stanley-led deal.

The bonds — which carry ratings of Aa3 from Moody’s and A-plus from Standard & Poor’s — will be priced on Wednesday following a retail order period tomorrow. While the structure was still being finalized at press time, the deal has a tentative final maturity in 2039.

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