The Long Island Power Authority plans to sell up to $250 million of bonds this week with a one-day retail order period beginning tomorrow followed by institutional pricing. It plans to do a combination of new money and refunding, but chief financial officer Elizabeth McCarthy said the final mix had not yet been determined.

"To the extent we do refunding it would be to address some of the remaining insured variable-rate bonds," she said.

Since the collapse of the auction-rate market in February, LIPA has restructured $918 million of auction-rate securities and only has $75 million left, which McCarthy said could be part of this deal. Those securities have continued to fail at auction since February and have a maximum reset rate of 150% of the London Interbank Offered Rate. The authority also has about $740 million of insured variable-rate debt.

The deal is likely to be a mix of term and serial bonds with final maturities yet to be determined, McCarthy said.

Morgan Stanley will lead manage the sale and Citi and Goldman, Sachs & Co. will be co-seniors on the Series 2009A electric system general revenue bonds.

Public Financial Management Inc. is the financial adviser. Hawkins Delafield & Wood LLP is bond counsel.

LIPA has $6.72 billion of debt outstanding on its senior and subordinate resolutions.

The last time the utility went to market it cut the size of its deal in half. Weak market conditions in October spurred the authority to reduce a deal to $149.3 million from $309.2 million.

McCarthy said that demand had gotten better since then. "Market conditions have improved to a level that we wanted to take care of this piece," she said.

Fred Yosca, head of trading at BNY Mellon, said an appetite for more yield could increase demand for deal like this - "if they come cheap."

"High-grades have traded up so much and have left the world behind," he said. "Most recently some of the lower-rated credits have started to narrow that spread because people are horrified at the lack of yield on the high-grade stuff."

Fitch Ratings rates LIPA's senior-lien credit A-minus with negative outlook. The negative outlook is due to attempts by the New York Legislature last year to require the utility to subject rate hikes to the approval by a state board. Although Gov. David Paterson vetoed the legislation in September, the possibility of another attempt has kept the negative outlook in place, Fitch analyst Lina Santoro said. Standard & Poor's also assigns its A-minus but changed the outlook to stable from negative following Paterson's veto. Moody Investors Service rates the credit A3.

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