The Week Ahead

Illinois, Connecticut GOs Top Week

Two large state general obligation deals consisting of taxable Build America Bonds are headed to the market this week amid an estimated $5.58 billion in total new volume, according to Ipreo LLC and The Bond Buyer.

The offerings come on the heels of a revised $6.13 billion of volume that was priced last week, according to Thomson Reuters.

If the deals are priced against the same firm tone that the market saw at the close of trading on Friday, some of the biggest issues should find an eager audience, said Fred Yosca, managing director and manager of trading and underwriting at BNY Mellon Capital Markets LLC in New York City.

The triple-A GO scale in 2040 ended at a 4.15% yield Friday, which was down from 4.17% last Monday, according to Municipal Market Data, while the 30-year benchmark Treasury yield ended at a 4.67% last Friday after closing at a 4.73% the prior day.

A $700 million GO sale from Illinois will be priced by William Blair & Co. tomorrow. It features an all-BAB structure that includes serial bonds maturing from 2011 to 2025 and a term bond in 2035.

But since the state has made numerous trips to the market in recent months, Yosca say the deal may get overlooked by some investors unless it is priced at cheaper rates to provide a concession for the state’s level of market “saturation.”

Proceeds from the sale will be used to provide grants to school districts for construction and repair of public school facilities.

The BABs are rated A2 by Moody’s Investors Service with a negative outlook. They are rated A-plus and are on credit watch negative by Standard & Poor’s, and are rated A-plus and are on negative watch by Fitch Ratings.

Connecticut, meanwhile, is planning to issue $642.3 million of GO debt in a negotiated deal being senior-managed and priced by M.R. Beal & Co. today.

The three-pronged sale includes $353 million of GO bond anticipation notes maturing May 19, 2011; $184.2 million of direct-pay BABs maturing 2019 to 2026; and $105 million of tax-exempt GO bonds maturing serially from 2015 to 2018. On Friday, the 2018 maturity was structured with a 5% coupon and was priced to yield 2.88% during a one-day retail order period.

The shorter serial bonds from the Connecticut BAB sale, meanwhile, should fare much better from a liquidity and diversity standpoint given recent trading activity in the secondary market, compared with the Illinois BABs, Yosca said.

“We had some Connecticut BABs trade from a recent deal. They have not worn out their welcome like Illinois,” he said.

The notes are rated MIG-1 by Moody’s, SP1-plus by Standard & Poor’s, and F1-plus by Fitch. The GOs are rated Aa3 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch.

The Los Angeles Unified School District, the largest school district in California and the second-largest in the U.S.,  is gearing up to sell approximately $450 million of GO bonds on Thursday.

Goldman, Sachs & Co. will lead manage the pricing of $290.1 million of taxable, direct-pay, qualified school construction bonds. Rated Aa2 by Moody’s and AA-minus by Standard & Poor’s, the QSCBs are backed by ad valorem property taxes and will mature in 2027.

Meanwhile, Citi and Morgan Stanley will co-senior manage the pricing of $159.4 million of the district’s tax-exempt school bonds on Thursday, following a retail order period on Wednesday. The maturity structure was not available by press time, according to an underwriter at Citi. The tax-exempt GOs are rated Aa3 by Moody’s and AA-minus by Standard & Poor’s.

“LAUSD is a credit that has been in the market a few times with large BAB deals and they have gotten very good reception. It is a strong credit and a lot of investors realize that,” said a source familiar with the deal.

Elsewhere in the Far West, Oregon will come to market with $343.2 million, comprising five series of state board of higher education GO bonds and one series of Department of Administrative Services Oregon Opportunity Program refunding GOs.

The offering, which includes tax-exempts traditional taxables, and taxable BABs, is expected to be priced by Bank of America Merrill Lynch next week, but the firm could not provide the exact date at press time.

Series A of the higher education bonds consists of $44.72 million of tax-exempt GO bonds maturing from 2016 to 2028. Series B totals $73.50 million of traditional taxable securities maturing from 2011 to 2025. Series C is comprised of $113.73 million of BABs maturing in 2026, 2030, and 2039. Series D consists of an additional $21.41 million of tax-exempt bonds maturing from 2023 to 2029. Series E is comprised of $31.50 million of traditional taxable debt maturing from 2011 to 2026.

Meanwhile, Series F consists of $58.39 million of tax-exempt refunding bonds maturing from 2013 to 2022.

The higher education bonds are being issued to finance capital projects for the Oregon University System, and refund some bonds previously issued on behalf of the system, while the opportunity bonds are being sold to refund GO bonds previously issued on behalf of the Department of Administrative Services, according to the preliminary official statement.

The Oregon Opportunity Program, which was approved by the 2001 Legislative Assembly, is a program to support research in health care and biotechnology. All of the series are rated Aa2 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch.

In one of the only other relatively sizable negotiated deals this week, the Puerto Rico Electric Power Authority will price $275 million of power revenue refunding bonds in a negotiated deal being led by co-senior managers Morgan Stanley and Citi. The bonds will be offered to retail investors tomorrow ahead of an official pricing on Wednesday.

The Series ZZ bonds are rated A3 by Moody’s, and BBB-plus by the two other major rating agencies. They are backed by the net revenues of the authority’s electric generation, transmission, and distribution system.


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