Billion-dollar deals from issuers in California and Texas will dominate the municipal market this week on the heels of two similar offerings that priced last week, and at a time when investors continue to clamor for paper in the face of a nearly $50 billion supply shrinkage this year.

Supply-hungry investors, however, will see only a little more than half of last week's supply as an estimated $4.25 billion in total long-term volume is expected in the primary market, according to Ipreo LLC and The Bond Buyer. Last week the market absorbed a revised $8.36 billion in total long-term volume, according to Thomson Reuters.

This week's major deals will include a $1.01 billion sale of prepaid gas revenue bonds from California's M-S-R Energy Authority, which represents three municipal utilities, in the long-term market - which accounts for a third of the estimated $3.12 billion in negotiated supply expected this week.

The deal, which is expected to be priced by Citi on Thursday following a retail order period on Wednesday, consists of serial bonds maturing from 2020 to 2029 and term bonds due in 2034 and 2039. The bonds, whose proceeds will be used to purchase a 30-year supply of natural gas, are rated A by Standard & Poor's and A-plus by Fitch Ratings.

Short-term investors, meanwhile, will see an additional flood of supply when Texas sells its $5.5 billion tax and revenue anticipation note deal in the competitive market tomorrow. Short-term deals are not included in the estimated weekly volume.

The one-year Texas Tran deal will come to market with the highest short-term ratings from all three major rating agencies - MIG-1 from Moody's Investors Service, SP1-plus from Standard & Poor's, and F1-plus from Fitch Ratings.

The agencies said factors that led to the stellar ratings included adequate estimated debt service coverage, ample alternative liquidity to repay note holders, sufficient projected cash balances in the general revenue fund, a history of successful short-term borrowing, conservative revenue forecasts, and substantial borrowable resources.

Texas has used the Tran program for more than 20 years to manage its cash flow and avoid a temporary shortfall in fiscal year 2010 temporary shortfall in the unrestricted accounts of the state's general revenue fund during its fiscal year - which this year runs from Sept. 1, 2009, to Aug. 31, 2010. The general revenue fund is expected to end with a cash balance of $2.1 billion in the unrestricted accounts.

Similarly, last week the short-term market welcomed a $1.2 billion note deal from Illinois that was priced in three separate series - all of which were won by JPMorgan with a 2% coupon, but were not formally reoffered.

The Illinois notes due in March 2010 were won with a true interest cost of 0.77%, while those due in June 2010 were won with a TIC of 1.15% and the April 2010 notes had a TIC of 1.06%.

Though not as large as the Texas note deal, the Dallas Hospital District will offer up a $705 million dose of GO debt on Wednesday - the majority of which will be direct-pay Build America Bonds.

Merrill Lynch & Co. will price the deal, which is structured with serial bonds maturing from 2014 to 2025 and term bonds from 2029 to 2044. An underwriter at Merrill on Friday said a bulk of the issue will be designated as BABs, but said that actual amount was still being discussed at press time. Proceeds are being sold on behalf of Parkland Health and Hospital System in Dallas.

This week's largest deals will be priced in the shadow of oversized deals from issuers in California and Texas last week. For instance, the Texas Transportation Commission issued $1.2 billion of state GO, direct-pay BABs in a Merrill-led deal, while the University of California brought $1.37 billion of general revenue bonds to market in a deal led by Barclays Capital that included $758.32 of direct-pay BABs, plus $264 million of tax-exempt bonds in one series and $300.6 million of tax-exempt bonds in another series.

The Texas BAB deal contained a maximum 30-year term maturity, which was priced at par with a 5.52% coupon and yield and ended up 120 basis points over the comparable Treasury yield. The bonds, which are rated Aa1 by Moody's and AA-plus by the two other major rating agencies, also came 98 basis points higher in yield than the generic triple-A GO scale in 2039 at the time of the pricing last Wednesday, according to Municipal Market Data.

The California higher education deal had a final BAB maturity in 2043 that was priced at par to yield 5.70% - 145 basis points over the comparable Treasury, and 116 basis points higher in yield than the 30-year generic, triple-A GO bond at the time of the pricing last Wednesday, according to MMD.

Back in this week's market, Pennsylvania intends to sell a $689.6 million offering of GO refunding bonds tomorrow with a structure that includes serial bonds maturing from 2010 to 2021. The deal, which is rated Aa2 by Moody's and AA by both Standard & Poor's and Fitch, accounts for a majority of the $1.12 billion in long-term competitive supply expected to be priced this week.

Besides the Pennsylvania deal, elsewhere in the Northeast region the Dormitory Authority of the State of New York is planning to issue $244 million of health care revenue debt on behalf of the Long Island Jewish Obligated Group .

Citi will offer the bonds to retail investors tomorrow, followed by an institutional pricing on Wednesday, with a structure that includes serial bonds maturing from 2013 to 2020 and term bonds in 2025, 2030, and 2037. The bonds are rated Baa1 by Moody's and A-minus by Standard & Poor's and Fitch.

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