After digesting a revised $5.23 billion of new issues last week - highlighted by the mostly oversubscribed $1.54 billion Wisconsin state appropriation financing - California this week will leave an even larger footprint in the primary with its planned $4 billion sale of general obligation bonds as volume soars to an estimated $9.25 billion, according to Thomson Reuters.
The Golden State issue will be the largest to hit the market since 2007, when Ohio's Buckeye Tobacco Settlement Financing Authority sold $5.53 billion. California officials believe the deal will be successful despite receiving dual, one-notch downgrades Thursday from Moody's Investors Service and Fitch Ratings to A2 and A, respectively, on the heels of a downgrade from Standard & Poor's to A last month.
The mammoth deal is expected to be priced by co-senior managers Citi and Merrill Lynch & Co. on Wednesday, following a two-day retail order period that begins today and will be expanded to target mom and pop investors as far away as New York City with radio and print advertisements.
The various-purpose GOs are structured to mature serially from 2010 to 2029, with term maturities in 2034 and 2039.
The sale marks the state's return to the GO bond market after a nine-month absence caused by California's long-running budget and cash-flow problems, which has created a large backlog of projects requiring financing.
Last week, investors devoured the Wisconsin bonds in what had been the largest deal to hit the primary following the months of turmoil and distress caused by Wall Street's meltdown and the worsening recession.
The state's maiden sale of general fund annual appropriation debt last Thursday by Barclays Capital was touted for its timing on the heels of the Federal Open Market Committee's meeting and concluding statement, which prompted a rally and yields to tumble in the tax-exempt and Treasury markets.
Despite being oversubscribed and repriced to lower yields on most maturities compared to the preliminary retail scale, the single-exempt credit still offered yields - some as high as 6% - that were viewed as attractive when compared to the national generic market.
For instance, the 2036 maturity with a 6% coupon was lowered by three basis points in yield to 6.02% - 118 basis points higher in yield than the generic, triple-A GO scale in 2036 at the time of the pricing, according to Municipal Market Data.
Returning to this week's activity, the negotiated market will also see the arrival of a handful of sizable deals from Texas, Illinois, Oregon, and New York - the largest of which is a planned $481.1 million sale by Houston of combined utility system first-lien revenue and refunding bonds.
Piper Jaffray & Co. is expected to price the bonds tomorrow with a structure of serials maturing from 2009 to 2039. The bonds are rated A1 by Moody's and AA by Standard & Poor's.
The Illinois Finance Authority tomorrow will sell $455.9 million of revenue debt on behalf of Northwestern Memorial Hospital. The deal will consist two tranches, one of $352.2 million and the other totaling $103.4 million, both of which mature from 2009 to 2039 and are rated Aa2 by Moody's and AA-plus by Standard & Poor's.
Meanwhile, the Oregon Department of Administrative Services will sell $444 million of lottery revenue bonds in a sale planned for pricing by Citi tomorrow following a retail order period today. The deal will consists of a structure of serial bonds maturing from 2010 to 2029 and is rated Aa3 by Moody's, AAA by Standard & Poor's and is not rated by Fitch.
In the Northeast, the New York State Environmental Facilities Corp. is planning to issue $361.5 million of clean water and drinking water revolving fund revenue bonds in a negotiated deal being priced by Goldman, Sachs & Co. tomorrow after a two-day retail order period that ends today.
The second resolution of subordinated revenue bonds, whose proceeds will be used to finance New York Municipal Water Finance Authority projects, are rated Aa1 by Moody's, AA by Standard & Poor's, and AA-plus by Fitch. The bonds are structured to mature serially from 2010 to 2029 with term bonds in 2034 and 2038.
Elsewhere in the region this week, the Metropolitan Washington Airports Authority is planning to issue $235 million of revenue bonds, with a retail pricing today and tomorrow and official pricing for institutions on Wednesday by senior manager Siebert Brandford Shank & Co.
The deal is structured to mature from 2010 to 2029 and is rated Aa3 by Moody's, AA-minus by Standard & Poor's, and AA by Fitch. It will finance projects at both Washington Dulles International Airport and Ronald Reagan Washington National Airport.
"We should get a lot of attention because it is the first large airport deal in over six months," said Sherman Swanson, managing director of underwriting at Siebert.
He said offerings like his will have strong demand - even in the shadow of the California deal - because it offers variety from the plain-vanilla market. The issue is not subject to the alternative minimum tax, which is rare among airport deals, and is exempt from Virginia income taxes, since both airports are located in the state, according to Swanson.
"The California deal will impact everything to some extent, but mostly the generic market," he said. Looking back at last week, he said the Wisconsin sale and others generated stronger demand than new issues have in recent weeks, but it remains to be seen if the market's positive tone will be sustainable.
"We hope that plays out again next week," Swanson added. "It's hard to call things for a week ahead of time or even a day ahead of time right now."
Bill Mason, senior vice president of municipal trading and underwriting at David Lerner Associates Inc. in Syosset, N.Y., agreed. He said the retail appetite for New York paper, for example, has been particularly strong lately, though the ability of the market to absorb the swell of visible supply going forward depends on levels.
"There certainly is demand out there and more dollars going into municipals lately," Mason said. But it's hard to judge whether the positive tone following the Fed meeting last week will carry through to this week, he added.
"In the economy, in general, it seems like you get a pop on the good news and anticipation of good news, and then the actual action doesn't seem to provide much follow-through and subsides a little bit," Mason said. "It is a difficult time, but as long as the deals are priced accordingly I think retail will come."
