Seattle Leads Mixed Bag of Deals With $810M Utility Sale

The primary market is expected to include a handful of large deals that run the gamut from long-term, fixed-rate, tax-exempt offerings in various sectors to short-term, floating-rate, and taxable issues that are part of an estimated $7.56 billion of new volume anticipated for pricing this week, according to Ipreo LLC and The Bond Buyer.

The deals will arrive on the heels of an eventful market last week that saw municipals gained two points late Thursday after the Dow Jones industrial average slid nearly 1,0000 points, or 9.2%, and closed down 347.80, or 3.20%, following comments by the European Central Bank at its monetary policy meeting and possible trading problems.

The benchmark 10-year Treasury ended Thursday at a 3.38% — its lowest level since late November — after ending at 3.55% on Wednesday, while the muni market saw a revised $8.43 billion in new volume, according to Thomson Reuters.

Market participants, like Howard Mackey, president of the broker-dealer division of Rice Financial Products in New York City, does not expect any fallout from last week’s equity turmoil to negatively affect the pricing of municipal issues this week.

Mackeye said the problems in overseas sovereign debt markets could have a positive effect on domestic fixed-income markets.

“In Treasuries, it helps negate the downward drift in pricing and helps to firm that market,” he said.

In municipals, the imbalance of supply and demand going forward is creating more interest in tax-exempt paper, particularly on the long end, according to Mackey.

“I think we have a firm market and some pretty interesting issues and my suspicion is there is going to be pent-up demand,” he said.

“There are more positive elements that are in this market that are going to affect munis more than anything that was more serendipitous” in the equity market, Mackey added.

Seattle will kick off the activity as the largest negotiated deal of the week when it sells $810 million of improvement and revenue refunding bonds on behalf of Washington Municipal Light and Power.

The multifaceted deal, which is slated for pricing on Thursday by Citi, consists of taxable Build America Bonds maturing from 2017 to 2025 with term bonds in 2030 and 2040, tax-exempt bonds maturing serially from 2011 to 2026, and recovery zone bonds that mature in 2040.

The bonds are expected to be rated Aa2 by Moody’s Investors Service and AA-minus by Standard & Poor’s.

Meanwhile, the Florida Hurricane Catastrophe Fund Financing Corp. is readying its $692.8 million sale of revenue debt that JPMorgan will price on Thursday.

The bonds, which are structured to mature as two serial bonds in 2015 and 2016, are expected to be rated Aa3 by Moody’s and AA-minus by Standard & Poor’s and Fitch Ratings.

They are being sold by the state-run nonprofit reinsurer ahead of the upcoming hurricane season, which begins June 1 and lasts six months.

Proceeds will be used to pay storm-related losses associated with hurricanes Dennis, Katrina, Rita, and Wilma that battered the South in 2005.

Further north, $650 million of Dulles Toll Road revenue bonds are slated to be issued by the Metropolitan Washington Airports Authority and priced by joint book-runners Morgan Stanley and Citi. The MWAA delayed its initial sale schedule due to market turbulence, but still expects to the debt to price this week.

The deal, whose proceeds will help finance a portion of the $5.26 billion Dulles International Airport Metrorail extension project and various capital improvements, will be comprised of four series of bonds with a variety of structures.

The maturities and the sizes of each series were still being finalized at press time Friday.

According to the preliminary official statement, Series 2010A consists of second senior-lien revenue bonds that will be structured as capital appreciation, or zero-coupon, bonds that are not subject to the alternative minimum tax, while Series B will consist of second senior-lien revenue bonds structured as non-AMT convertible CABs.

Series C is comprised of subordinate-lien revenue bonds that are structured as current interest, non-AMT bonds, and Series D consists of subordinate-lien revenue bonds that are designated as taxable BABs.

In the higher education sector, the University of Chicago will bring to market $300 million of taxable fixed-rate securities in a negotiated deal being senior-managed and priced by Bank of America Merrill Lynch tomorrow.

The bonds are expected to be rated Aa1 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch, and are structured to mature in 2022, 2023, 2024, and 2026, with a term bond in 2030.

Proceeds will be used to finance general university costs, including financing and reimbursing the university for various capital costs and to pay the cost of issuance, while a portion will refinance certain short-term borrowings, according to the preliminary official statement.

The New Jersey Economic Development Authority will add some diversity to the negotiated market when it issues $750 million of floating-rate notes designated as taxable school construction BABs — potentially the BAB market’s largest-ever floating-rate note sale.

Rated Aa3 by Moody’s and AA-minus by Standard & Poor’s and Fitch, the securities will be priced by Bank of America Merrill on Wednesday with yields based on the three-month London Interbank Offered Rate plus a spread. The current three-month Libor is 0.37%.

The state appropriation-backed securities will mature in 2013. New Jersey plans to refinance the notes into long-term debt or roll them over with additional notes at maturity.

Proceeds will finance school construction and pay a $250 million school construction note scheduled to expire June 18.

There is less activity planned in the competitive market this week. The largest of the only two sizable deals is a $492.6 million sale of capital project transportation revenue bonds from the Virginia Transportation Board expected to arrive on Wednesday.

The deal is structured to mature serially from 2011 to 2035 and is rated Aa1 by Moody’s and AA-plus by Standard & Poor’s.

Bidders will be able to bid the deal as taxable BABs, tax-exempt bonds, or a combination of both, according to request for proposals.

The only other competitive deal of any magnitude on the calendar  is a two-pronged Alabama general obligation offering earmarked for tomorrow.

Series 2010C is comprised of $80.2 million of GO refunding bonds maturing from 2012 to 2021 that will retire bonds from Series 2001C, and finance costs associated with park improvements.

Series 2010D consists of $110 million of GO capital improvement bonds that mature serially from 2013 to 2032 and will finance costs associated with economic development projects.

Both series are expected to carry ratings of Aa1 from Moody’s and AA-plus from Fitch.

Looking back to last week, one of the largest deals — a $1 billion multi-state sale of revenue bonds to benefit the ­Sisters of Charity of Leavenworth Health ­System of Lenexa, Kan. — still managed to get priced against the backdrop of the plummeting Dow.

The unenhanced fixed-rate bonds were priced by JPMorgan in five separate series that were rated Aa3 by Moody’s, AA by Standard & Poor’s, and AA-minus by Fitch, one of which had a top yield of 5% in 2040.

That maturity came 101 basis points higher in yield than the generic triple-A GO bond due in 30 years tracked by ­Municipal Market Data at the time of the pricing last Thursday.

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