The Week Ahead: Helping Continuity, 2 States Finish What They Started

Two deals that were interrupted by the terrorist attacks on Sept. 11 will make a repeat appearance in the market this week, hoping to attract significant demand with special extended retail order periods. Those deals will be joined by a handful of other sizable offerings as the market begins to rebuild its financial liquidity and emotional stability in the wake of the assaults.

"I think it's important for institutional investors to understand their responsibility to helping the continuity of the bond business and the economy of the country in general by staying active and actively managing their portfolios,'' said Peter Delahunt, national institutional sales manager at Raymond James & Associates in New York City.

"The more people can maintain an increased activity in the muni bond market, the better off Wall Street, New York, and the national economy will be,'' he said.

California and Connecticut are the first two municipal issuers with mammoth-sized deals to test the retail market since the terrorist attacks.

A new two-day retail order period began Friday and will conclude today before tomorrow's pricing of California's $5.7 billion revenue anticipation note deal by Lehman Brothers.

The firm took orders for $761 million during the first of its original three-day retail order period that began on Sept. 10, the day before the World Trade Center collapsed, directly affecting Lehman and many other downtown Mahattan firms and closing down most of the activity in the investment community for much of that week.

Similarly, Connecticut will hold a one-day retail order period today to give in-state investors another chance to buy bonds from its special tax obligation offering, which was originally anticipated to be $500 million, but pending how market conditions affect the sizable refunding portion, could rise to as high as $700 million.

The state was only able to navigate through the first day of its two-day retail order period on Sept. 10, taking orders for just $63 million.

These new extended retail order periods will help the market establish current benchmarks for new issues, recognize what price adjustments need to be made before the deals are offered to institutions, and improve liquidity, sources said.

"It will be a good way to take the temperature of retail demand," said Howard Mackey, executive vice president at M.R. Beal & Co. in Manhattan.

While the financial world at large and the economy are experiencing some volatility following the terrorist attacks, Mackey said the tax- exempt market should strive to achieve some resemblance of a normal routine now and in the future.

"While there's some concern with the state of the economy, there are infrastructure needs on the part of municipalities,'' he said. "The worst thing you can do is enter a phase of paralysis.''

"With the packages that the president and Congress are trying to initiate, the idea is it's going to bring the economy back and there is a place for the fixed-income market to participate and it's important to take an aggressive posture on being involved,'' Mackey said.

Other competitive deals expected this week include a $444 million Detroit Water and Sewer Authority offering insured by Financial Guaranty Insurance Co. and maturing from 2003 to 2008 with term bonds in 2010, 2012, 2022, 2039, and 2041.

The deal is tentatively scheduled to be priced tomorrow by UBS PaineWebber Inc.

Meanwhile, the Illinois Sports Facility Authority has a $399 million revenue bond issue listed on the day-to-day calendar that could potentially come to market this week.

That deal is insured by Ambac Assurance Corp. and will be negotiated by George K. Baum & Co.

In other negotiated offerings, UBS PaineWebber is also pricing a $230 million Georgia Private Colleges & Universities Authority revenue deal on behalf of Emory University is tentatively scheduled to price sometime this week. Serial bonds mature from 2002 to 2021 and terms are structured in 2031 and 2033.

In addition, Morgan Stanley will price a $200 million, double-A- rated Kentucky State Property & Buildings Commission revenue offering tomorrow with a structure that includes bonds maturing from 2002 out to 2021.

In the competitive market, a $325 million Clark County, Nev., general obligation bond issue is planned for Wednesday, and a $300 million Florida Division of Bond Finance offering on behalf of the state's Department of Environmental Protection for land acquisition and to fund park and recreation projects could possibly be sold this week, pending market conditions.

Tomorrow, meanwhile, Los Angeles will sell $90 million of sanitation-equipment revenue bonds and the Missouri Board of Public Buildings will sell $86.7 million of state building special obligation refunding bonds.

Other large deals that remain on hold in the wake of the national tragedies in New York, Washington, D.C., and Pennsylvania such as California's $500 million GO offering, and a $561 million Port of Seattle revenue and refunding will likely benefit from pent-up demand once they make it to market, "especially because people have a real anxiety with the stock market,'' Delahunt said.

The California deal is on hold until further notice, while the Port of Seattle issue which is partly interest-rate sensitive is getting closer to a new pricing date, according to a port official, who said the earliest the deal could come is the week of Oct. 1.

A $355 million Minnesota GO deal that was planned for this week the triple-A-rated state's first appearance in the market in nearly a year was also postponed for a few weeks until New York's network of financial underwriters, rating agencies, and market participants get back on track.

In other sizable short-term transactions, an $800 million Puerto Rico tax and revenue anticipation note offering due July 30, 2002, could surface next month.

The deal was originally scheduled to price for retail today and institutions tomorrow, but because of the national crisis, is now tentatively set to come in early October.

"It could be anywhere from Oct. 1 to Oct. 10,'' John Gaylord, managing director and senior trader at underwriter Banc of America Securities in San Francisco, said late last week.

While many Wall Street firms may still be displaced, that did not stop some large deals from being priced late last week and at least one of the issues was repriced because of the strong demand.

"It's all fitting back together again the supply side and the demand side and it has not caused any tremendous move or any volatility in terms of yield,'' Delahunt said.

The $112 million Illinois' sales tax revenue offering for the Build Illinois program was one deal whose yields were lowered slightly by underwriters at Morgan Stanley.

After the repricing, for instance, the coupon on the 2002 maturity was increased to 4% from 3%, but was not reoffered, while the final 2020 maturity with a 5.37% coupon was bumped down three basis points to a 4.90% yield from a 4.93% originally.

"Even though there's uncertainty about the amount of new supply that may come into the market months ahead to help pay for this recovery, there's still demand out there,'' Delahunt said.

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