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Texas Trans Lead With $7.8B in Light Long-Term Market

While the seasonal note calendar is in full swing, the dog days of summer are plaguing the long-term bond market.

Amid the largest budget shortfall in Texas history, a $7.8 billion issuance of tax and revenue anticipation notes will dominate the short-term market, while longer-term supply is expected to be fairly skimpy this week.

Volume in the primary market is estimated at $4.77 billion, according to Ipreo LLC and The Bond Buyer.

That follows a revised $5.65 billion that was priced last week, according to Thomson Reuters.

On behalf of the state, the Texas Public Finance Authority will thunder into the competitive market on Tuesday. Bids will be received by the state comptroller through a website operated by Grant Street Group at www.trantexas.com. It is the largest Tran issue in Texas since a $7.4 billion offering in 2003.

The Trans, which have the highest short-term ratings from all three major rating agencies, are being issued to avoid a temporary cash shortfall in the unrestricted accounts in the state's general revenue fund during fiscal 2011, which begins Sept. 1, according to the preliminary official statement.

Texas officials currently project that the maximum temporary cash shortfall in fiscal 2011 will be $10.8 billion before application of the note proceeds and other available interfund and intrafund borrowing.

The state expects to begin fiscal 2011 with a $2.2 billion negative cash balance in the general fund's unrestricted accounts. It's expected to end fiscal 2011 with a negative cash balance of $4.5 billion after payment of the Series 2010 notes.

Rated MIG-1 by Moody's Investors Service, SP1-plus by Standard & Poor's, and F1-plus by Fitch Ratings, the notes are secured by a lien on all amounts held in the proceeds account, the payment account, and the sinking account of the note fund.

The deal comes as the summer note season has been heating up in recent weeks. Last week, New Jersey sold $2.25 billion of Trans that mature in June 2011. JP-Morgan won a total of $2.05 billion, the largest being $750 million with an effective rate of 0.33%, eight basis point higher than last Thursday's one-year triple-A scale by Municipal Market Data.

Looking West, a $533 million revenue sale from the Southern California Public Power Authority also will be priced by JPMorgan on Wednesday following a retail order period Tuesday. The bonds are being issued on behalf of the Windy Point/Windy Flats power project. They mature from 2011 to 2030 and have AA-minus ratings from Standard & Poor's and Fitch.

The North Carolina Capital Facilities Finance Agency plans to issue $243.2 million of solid-waste disposal revenue and refunding bonds Thursday. Wells Fargo Securities will price the deal. It is rated A1 by Moody's and A by Standard & Poor's, and the $143.2 million new-money portion will finance the Duke Energy Carolinas project, while $100 million is refunding debt.

Meanwhile, back in Texas, a $229 million sale of combined utility revenue bonds is on tap from Houston. RBC Capital Markets is planning a Tuesday pricing with serials from 2011 to 2019 rated Aa2 by Moody's, AA by Standard & Poor's, and AA-minus by Fitch.

Elsewhere, the New Mexico Educational Assistance Foundation is readying a $228 million sale led by Bank of America Merrill Lynch on Wednesday after a retail order period Tuesday.

Rated triple-A by Moody's and Standard & Poor's, the $155 million of tax-exempt, fixed-rate bonds will mature from 2011 to 2022.

Also, $140 million maturing in 2028 and $88 million maturing in 2038 are tax-exempt, floating-rate bonds in which the foundation will enter into an interest-rate swap with the Royal Bank of Canada.

The foundation will pay to the swap counterparty floating amounts based on a floating rate equal to a percentage of the London Interbank Offered Rate. The swap counterparty will pay the foundation fixed amounts based on a fixed rate, "in each case based upon on a notional amount equal to the scheduled principal amount outstanding from time to time of the Series 2010A-1 bonds," according to the POS.

Last week, the largest long-term issue was a $467.5 million offering of taxable bonds from the Kentucky Asset Liability Commission, priced by JPMorgan with a 2020 final maturity and a 4.20% coupon at par — 160 basis points higher than the comparable Treasury yield as of last Wednesday.

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