DALLAS — Despite increased sales activity and a rally that sent yields for The Bond Buyer indexes plummeting last week, market volatility continues to put the brakes on deals in Texas. But two large refundings may get to market at some point this week, as well as a handful of bank-qualified issues from utility districts.

The North Texas Tollway Authority last week finally managed to price $425 million of revenue refunding bonds. The sale completes the takeout of $3.5 billion of bond-anticipation notes for the authority’s State Highway 121 project.

The deal came in four series with an overall average yield of 5.99% and a maturity in 2038.

Pearland was set to issue $12.8 million of water and sewer system revenue bonds today following an upgrade of the credit to AA-minus from A by Standard & Poor’s, but will now delay the issue.

RBC Capital Markets is the financial adviser to the city and Andrews Kurth LLP is bond counsel.

Finance director Claire Bogard said last week that officials hoped to sell the bonds as earlier as today but chose to wait as “the market and the rates we’re seeing just aren’t favorable right now.”

Ryan O’Hara, vice president at RBC, said the sale isn’t pressing and the city has the financial the flexibility to hold off for now.

First Southwest Co. and Wells Fargo Brokerage Services LLC are co-managers for the negotiated sale.

Analysts said the upgrade reflects the “consistently strong coverage of debt service and a growing customer base” for the utility services within the rapidly growing suburb.

Pearland is south of downtown Houston and has watched its population move close to 80,000, which is more than double the 37,640 in 2000. Some estimates show the population reaching 150,000 to 200,000 by 2020, assuming continued development.

Bogard said growth has abated somewhat, but officials still budgeted for 1,600 new single-family homes in fiscal 2009.

Moody’s Investors Service assigned its A2 rating to the coming sale and affirmed the rating on the nearly $106 million of parity debt outstanding. Analysts said the water and sewer customer base is up 73% the past five years, as the city’s residential sector blossomed. The city also has become a center for commercial activity in Brazoria County.

Houston hopes to get two tranches worth about $420 million to market this week.

The city will issue roughly $387 million of public-improvement refunding bonds in a commercial-paper take out and $32 million of tax and revenue certificates of obligation through negotiated sales led by Goldman, Sachs & Co.

The city’s communications director, Frank Michel, said officials anticipate issuing the debt at some point next week. First Southwest Co. is the financial adviser and Andrews Kurth is bond counsel.

City officials recently announced plans to possibly delay up to $200 million of public infrastructure projects, including many water and sewer upgrades and expansions, due to the uncertainty in the credit markets.

Moody’s assigned a Aa3 rating to the coming issue with a positive outlook. Analysts also affirmed the rating on the city’s $2.4 billion of outstanding parity debt. Houston’s credit strengths include a “large and steadily increasing tax base, spurred by vibrant energy sector and construction activity,” and increasing operating reserves, according to Moody’s.

The nation’s fourth-largest with nearly 4 million residents carries underlying ratings of AA from Standard & Poor’s and AA-minus from Fitch Ratings on its general-obligation debt.

The University of Texas Board of Regents wants to offer $401 million of variable-rate demand refunding bonds Wednesday for its Permanent University Fund.

The triple-A rated fund endows the UT and Texas A&M University systems. The bonds will be issued in a weekly mode with swap agreements to achieve synthetically fixed rates. Morgan Stanley Capital Services Inc. and Royal Bank of Canada will be counterparty for two identical $200.5 million tranches.

Fitch assigned the AAA rating to the sale based on “the PUF’s vast, highly diversified investment holdings, which has a market value of $10.3 billion on Aug. 31,” and the expertise of the investment company that manages the fund’s portfolio.

Moody’s also assiged its Aaa rating and said the outlook on the fund and system’s long-term debt is stable.

Jeffrey Timlin, portfolio manager at Sage Advisory Services in Austin, said he would be watching the refundings with a great deal of interest, particularly the PUF bonds because they contain swaps to achieve a sythetic fixed rate. The PUF bonds will get a lift from the continuing flight to quality, he said, with investors taking a defensive position amid collapsing stock prices.

“I think retail’s going to be the area that provides a boost to the municipal market,” Timlin said. “Wealthy investors want to get the highest return for the least amount of risk right now. With good-credit munis, they’re able to get an asset class that’s going to retain its value.”

“Also, it looks like [Barack Obama]’s going to be president, so if they raise taxes on the top 5% of income earners, they’re going to need to invest in something like this.”



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