BRADENTON, Fla. - Georgia on Monday hopes to begin a two-day sale of $613.85 million of general obligation bonds - the gilt-edged state's first-ever negotiated new-money offering.

The fixed-rate sale also would be the biggest new-money GO deal nationally since Sept. 9, after which turmoil in the credit markets closed off borrowing for many issuers with large transactions and forced some that traditionally sold bonds competitively - like Georgia - to turn to negotiated transactions.

Georgia's deal, which is expected to be sold Monday and Tuesday, will include $61.8 million of five-year Series A bonds and $552.05 million of 20-year Series B bonds.

Proceeds of the Series A bonds will finance various capital needs that have short life spans while the Series B bond proceeds will finance longer-term capital improvements, such as schools, transportation projects, college and university facilities, loans to local governments for water or sewage facilities, and projects at various state agencies.

The state hopes to sell all of the debt next week, and there will be a retail order period both days. But if market conditions warrant it, the amount of debt sold could be reduced, said Susan Hart Ridley, director of the Georgia Financing and Investment Division, which oversees the state's bond sales.

"It's very hard to predict the market," Ridley said. "We're hopeful we can sell the full $613 million. The only question is whether to start at the full amount or start with a smaller amount and go up based on demand. At this point I'm not concerned, but we're taking it day-to-day."

After seeking requests for proposals in a competitive selection process, a large, new underwriting syndicate was chosen earlier this month to conduct next week's sale. Officials selected a primary syndicate of 11 firms.

Merrill Lynch & Co., which has been in the news of late, is the book-runner.

"It was a tough making a decision on the underwriters, but Merrill Lynch has a large retail network," Ridley said. "Their experience since Sept. 15 and the quality of their proposal [gave them] the edge."

In addition to the primary syndicate, the state selected a selling group of 16 firms to boost retail sales.

"This being our first negotiated sale, we recognized that retail is so important," Ridley said. "We thought a larger distribution network would be to our advantage."

He said Merrill has been very positive about the chances that all the debt will be sold next week. The firm could not be reached by press time for a comment.

Fitch Ratings on Tuesday assigned a AAA rating to the GO bonds. Fitch also affirmed the AAA rating on Georgia's $7.9 billion of outstanding GOs and kept the state's rating outlook stable.

New ratings from Moody's Investors Service and Standard & Poor's were not available by press time, though both agencies have previously also rated Georgia's GOs triple-A.

Although the state is experiencing its worst revenue slump in many years, Fitch said Georgia's longstanding AAA rating is the result of its conservative debt management, consistent maintenance of sound finances, and a diversified economy.

Several years of strong revenue growth enabled the state to build $1.5 billion in its revenue shortfall reserve by fiscal 2007, which was 8.2% of net revenues.

However, Fitch said the accelerating national downturn began to affect tax revenue during fiscal 2008, when they fell 3.9% below budget and 0.8% from the prior year. To balance the budget in fiscal 2008, Fitch said officials tapped the reserve fund for $333 million.

So far in fiscal 2009, the rating agency said weakness has gathered speed with tax revenue now expected to fall 4.4% below last year.

"The state's responses have included reducing agency spending by 9.3%, or $2 billion, since the original budget, and deferring $428 million in homestead property tax relief," said a report by analyst Douglas Offerman. A $50 million draw on the reserve fund also is expected.

At present, Offerman said $1 billion remains in the reserve fund, or 5.5% of net revenues, following the mid-year appropriation of 1% for education.

Gov. Sonny Perdue's fiscal 2010 budget proposal is balanced with the expectation that tax revenue will rise 2.2% to $17.3 billion, according to Offerman. He noted that the governor's spending plan includes the use of $408 million from the reserve fund, which would leave a balance of $566 million, or 3.1% of forecast net revenues.

After next week, if all the Series 2009A and B bonds are sold, Georgia will have $478.8 million of authorized and unissued debt to issue. The state will attempt to sell all or part of the remaining authorization before the end of the fiscal year.

The Georgia State Road and Tollway Authority anticipates selling $600 million of grant anticipation revenue vehicle bonds in the third week of February.

In addition to book-runner Merrill, the co-senior managers on next week's deal are Citi and JPMorgan.

The co-managers are Bank of America Securities LLC, Barclays Capital, Jackson Securities LLC, Morgan Keegan & Co., Morgan Stanley, Raymond James & Associates Inc., SunTrust Robinson Humphrey Inc., and Wachovia Bank NA.

The selling group consists of Backstrom McCarley Berry & Co. BB&T Capital Markets, Cabrera Capital Markets LLC, TD Securities USA LLC (formerly Commerce Capital Markets), Depfa First Albany Securities LLC, Edward Jones, Fidelity Capital Markets Services, Jesup & Lamont Securities Corp., M.R. Beal & Co., Pershing LLC, Prager, Sealy & Co., Rice Financial Products Co., SBK-Brooks Investment Corp., Siebert Brandford Shank & Co., Stephens Inc., and Toussaint Capital Partners LLC.

Public Resources Advisory Group is Georgia's financial adviser. Alston & Bird LLP is bond counsel, King & Spalding LLP is underwriters' counsel, and Greenberg Traurig LLP is disclosure counsel.

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