CHICAGO - The South Dakota Housing Development Authority enters the market today with $100 million in home-ownership mortgage bonds, its second issue this year amid a housing market that remains relatively robust as other states struggle with slumping markets.

After holding a retail order period yesterday, the state today begins institutional sales of the single-family housing bonds, about one-third of which are variable-rate. All the bonds are tax-exempt and interest on most of the debt is subject to the alternative minimum tax, although an $18.6 million chunk is not.

Citi and Merrill Lynch & Co.are co-senior managers on the deal, with JPMorgan, Dougherty & Co., and Wells Fargo Brokerage Services LLC rounding out the underwriting team. Bond counsel are Dorsey & Whitney LLP and Danforth & Meierhenry LLP. The authority's long-time financial adviser is New York City-based Caine, Mitter & Associates Inc.

Founded in 1974, the highly rated housing authority is South Dakota's top bond issuer most years. The single-family bond program is the authority's busiest program, and this year activity shows no signs of abating despite a national slump in housing sales volume and values. Mark Lauseng, who has been the SDHDA's finance director for 22 years, said the program's delinquency and foreclosure rates so far this year are at or below rates of the last five years.

Of today's $100 million issue, $34.5 million is variable-rate. The variable-rate debt will be enhanced with a standby bond purchase agreement with the Federal Home Loan Bank of Des Moines, and will also be hedged with a floating-to-fixed rate swap. The counterparty on the swap is expected to be Merrill Lynch.

The SDHDA linked a deal earlier this year for the Federal Home Loan Bank of Des Moines to act as liquidity provider on all deals through 2008, which could likely add up to around $300 million. The authority hired the Des Moines bank instead of one of the Wall Street banks it has used in the past because it offered better prices, according to Lauseng.

"This was a very good deal," he said. "We've been trying to get them into the liquidity market for the last few years. They were more competitive on the pricing than the others."

The authority sold $100 million in single-family housing bonds in March and expects to return to the market later this fall, Lauseng said.

The sale of single-family homes to first-time homeowners remains relatively brisk in South Dakota, which was largely immune to the dramatic jump in home prices across the U.S. over the last 10 years - and so now is not suffering from the subsequent drop in prices.

"The housing market in South Dakota is much better than the rest of the nation," Lauseng said. "We've been affected a little, but we don't have the volume of subprime [loans] that other states have, and our delinquency and foreclosure rates are at or below what they normally are over the last five years."

The SDHDA's foreclosure rate for the first three months of the year was 0.54% compared to a national rate of 2.47%. Its delinquency rate was 2.89% compared to a national rate of 6.35%.

The housing authority's single-family bond program has $1.7 billion in outstanding debt. The authority's multi-family program has about $100 million in outstanding debt. About 20% of the authority's total debt is variable-rate, and nearly all of that is hedged in swaps.

The state has a small retail investor base, in part because South Dakota has no income tax, making tax-exempt bonds less attractive.

Moody's Investors Service rates the SDHDA's single-family mortgage debt Aa1 and Standard & Poor's rates it AAA.

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