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Market Awaits Delayed Ohio Liquor Deal With Bated Breath

JAN 27, 2013 5:54am ET
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The market is holding its collective breath waiting for the outcome of legal complications surrounding an Ohio Supreme Court appeal that could threaten the planned use of proceeds from a $1.5 billion JobsOhio Beverage System financing that was delayed last week.

The Ohio deal could be priced as early as Monday or Tuesday, according to market sources. The deal is the largest on the primary calendar, which is expected to see $6.41 billion in total estimated new volume, according to The Bond Buyer and Ipreo LLC.

Thomson Reuters reported that a revised $7.22 billion of new issues arrived last week amid slight weakness created by leftover balances from some new deals.

The market opened softer Friday morning on the heels of weakness that began surfacing the day before under the heavy calendar, but despite that the market only gave up a point or two on Thursday. The generic triple-A general obligation scale ended at a 2.74%, just two basis points shy of where it ended on Wednesday, according to Municipal Market Data.

In the backdrop, the Ohio court’s decision on Wednesday to hear the appeal, filed by a liberal nonprofit group called ProgressOhio and two Democratic legislators, came after months of contemplating and just a few hours before the finance team for the senior-lien liquor-profit backed financing was set to price the first part of the deal.

The financing called for the proceeds of $423 million of tax-exempt bonds and a $1.1 billion taxable series to fund a 25-year lease to take over the state’s liquor system, defease outstanding liquor-backed debt and fund job-creation efforts.

The group has challenged the newly created agency’s plan for privatization and the use of the revenue for economic development. The lawsuit was dismissed in the lower courts for lack of standing.

Investors say the unsettled lawsuit challenging the privatization is a chief concern and lack of a back-up pledge in case of an unfavorable court ruling. Moody’s Investors Service rates the bonds A2 and Standard & Poor’s rates them AA.

If priced as expected this week, the Ohio deal headlines an estimated $4.59 billion in negotiated new deals expected this week, Ipreo says, compared with a revised $4.75 billion that was actually priced last week, according to Thomson figures.

Besides the Ohio deal, the Bay Area Water Supply and Conservation Agency has a $334 million revenue sale on tap this week with both tax-exempt and taxable structures. Book-runner Goldman, Sachs & Co. will give retail investors first crack on Wednesday, following an official pricing for institutions Thursday. The bonds are rated Aa3 by Moody’s and AA-minus by S&P.

Meanwhile, two Southeast issuers will share the spotlight in that region. The Metropolitan Government of Nashville and Davidson County, Tenn., is expected to sell $288.84 million of refunding GOs in a negotiated deal led by Raymond James & Associates.

The bonds, expected to be priced on Tuesday, are rated Aa1 by Moody’s and AA by S&P and are structured to mature serially from 2015 to 2027.

A $210 million revenue refunding from the Board of Governors of West Virginia University Projects is planned for pricing on Monday for retail and on Tuesday for institutions by Wells Fargo Securities.  Rated Aa3 by Moody’s and A-plus by S&P, the deal is structured to mature with serials from 2014 to 2032 and term bonds in 2035 and 2042.

Meanwhile, in the competitive market, the calendar is expected to be noticeably lighter at $1.82 billion, judging by the revised $2.46 billion that came to market last week, according to Thomson figures.

Two large state offerings will dominate the activity: a $500 million Illinois GO sale, followed by a $325 million North Carolina GO offering, both of which are planned for Wednesday.

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