Specialty States Offering Ample Opportunities for Investors

Investors flush with June 1 coupon and maturity payments looking to reinvest these proceeds at the height of spring reinvestment season this week will be met with a wide selection of new issues.

Offerings include everything from plain-vanilla tax-exempt general obligation bonds and short-term notes to Build America Bonds, high-yield paper, and securities being converted from variable to fixed-rate mode.

The total estimated volume is expected to hit $7.1 billion, according to data compiled by The Bond Buyer and Ipreo LLC, compared with a revised $2 billion last week, according to Thomson Reuters.

Some of the largest deals hail from specialty states, like California, New Jersey and New York - some of which may offer relatively higher yields to offset the recent and upcoming supply glut, as well as a recent decline in the ratio of municipals to Treasuries.

"No one is clamoring to gobble up bonds at the current levels, so if you want to entice some of the June 1 money, you better make it attractive," said Fred Yosca, managing director of trading and underwriting at BNY Mellon Capital Markets LLC in New York City.

For instance, the 30-year natural triple-A GO bond ended at 4.55% on Friday, according to Municipal Market Data.

Yosca said that, besides heavy volume, the 10-year municipal bond is yielding about 82% of the 10-year Treasury, which is considerably lower than last fall at the height of the nation's financial crisis.

Since municipals "are not as attractive on a relative sense as they had been months ago," Yosca predicted that this week's New York deals, for example, will be "priced to travel" - especially the $600 million New York Transitional Finance Authority building aid revenue bond deal.

The TFA deal traditionally comes slightly cheaper than the MMD triple-A GO scale by virtue of its A1 rating from Moody's Investors Service and AA by Standard & Poor's.

The deal is expected to be priced Wednesday by Citi and is structured with serial bonds maturing from 2011 to 2029 and term bonds in 2034 and 2039.

Also in New York, the Local Government Assistance Corp. will add to the Northeast activity when it sells a $297.1 million deal - part of which is a refunding and part of which is a conversion from variable to fixed-rate mode. Series 2008B and Series 2003A bonds will be converted from variable to fixed-rate.

The bonds, which are to be priced Wednesday after a retail order period tomorrow led by underwriter Morgan Stanley, are rated Aa3 by Moody's and have natural triple-A ratings from Standard & Poor's. The maturity structure was not yet available at press time.

Meanwhile, in the short-term market, a $1.1 billion one-year tax and revenue anticipation note sale from Los Angeles County is the week's largest overall. Merrill Lynch & Co. late last week increased the size of the sale from $900 million. On Friday, the firm said the pricing date had not yet been decided but that the deal would still arrive this week. The notes are expected to be rated MIG-1 by Moody's, SP-1-plus by Standard & Poor's and F1-plus by Fitch Ratings.

Elsewhere in California, the Los Angeles County Metropolitan Transportation Authority is planning to issue $246.8 million of second senior Proposition C sales tax revenue refunding bonds in a negotiated deal slated to be priced by Goldman, Sachs & Co. on Thursday. Rated A1 by Moody's and AA-plus by Standard & Poor's, the bonds are structured to mature from 2010 to 2034.

Far West activity also will include a $440 million issue from the Arizona Transportation Board of excise tax revenue bonds via a negotiated sale being led by Morgan Stanley.

The bonds, which are rated Aa2 by Moody's and AA-plus by Standard & Poor's, are to be priced for institutions tomorrow after a retail order period today. However, the structure was not available at press time.

In the Garden State, a pair of sizable offerings is on tap for New Jersey investors.

A $450 million sale of senior student loan revenue bonds from the New Jersey Higher Education Student Assistance Authority is expected to be priced by Merrill Lynch tomorrow. The bonds are structured to mature from 2013 to 2030 and are rated A1 by Moody's, AA by Standard & Poor's, and A-plus by Fitch.

This deal is to be followed by the competitive pricing of $238 million of New Jersey GO refunding bonds expected to mature from 2012 to 2022 and rated Aa3 by Moody's, AA by Standard & Poor's and AA-minus by Fitch.

Rounding out the Northeast activity, the Washington Metropolitan Area Transit Authority is expected to issue $310.2 million of gross revenue transit bonds - including $54 million of taxable Build America Bonds.

The larger portion of the deal consists of $256.2 million of Series 2009 A revenue bonds maturing from 2010 to 2029 with a term in 2032. The 2009 B series of BABs is expected to consist of one term maturity in 2034.

The deal, which will carry ratings of A1 from Moody's and A from Standard & Poor's, is to be priced by Goldman tomorrow, after a retail order period planned for today.

Last week, the New Jersey Transportation Trust Fund Authority sold $412.7 million of taxable transportation system Build America Bonds, which carried a final 2039 maturity with a 6.875% coupon and 7.00% yield that came at a spread of about 240 basis points over Treasuries.

A $304.8 million sale of senior-lien revenue bonds from Detroit is one of the other large deals involving a conversion of variable to fixed-rate debt.

The two-pronged sale consists of $154.8 million of Series 2001 C-1 sewage disposal system senior lien revenue refunding bonds and $150 million of Series 2003 B sewage disposal system senior lien revenue bonds - both being converted from a variable, weekly mode to a modal fixed-rate mode.

The bonds are to be insured by Financial Security Assurance and have underlying ratings of A2 from Moody's and A-plus from the two other major rating agencies.

Meanwhile, in what will probably be one of the most eye-catching, yet riskier, deals to be priced, the government of Guam plans to issue $283 million of B-plus rated GO debt on Wednesday. Citi is to price the deal with a structure that includes term bonds in 2014, 2019, and 2039, and a sole rating of B-plus from Standard & Poor's.

Trading sources said the deal would probably dangle attractive yields to entice investors and offset the risks associated with speculative credits.

Though MMD does not publish a single-B scale, its triple-B-rated GO bonds due in 2039 - the closest generic benchmark in the B-category available - were yielding 6.64% on Friday.

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