UBS Securities LLC opted for insurance on the two series of Nassau County, N.Y.’s $125 million competitive general obligation bonds it bought yesterday.
The bonds sold in two series: Series 2008 A with a par of $105 million, insured by Financial Security Assurance Inc., while UBS chose MBIA Insurance Corp. to insure the $20 million Series 2008 B for sewer and storm water projects.
Triple-A rated FSA has a stable outlook while MBIA, which carries a triple-A rating, was placed on negative watch by Fitch Ratings and given a negative outlook by Standard & Poor’s and Moody’s Investors Service late last year.
The shorter maturities carried nearly identical yields on both series though many of the MBIA insured bonds had a slightly higher coupons.
The larger series — worth $105 million of general improvement bonds insured by FSA — matures from 2009 through 2028, and was won with a true interest cost of 3.94%. Yields range from 2.62% with a 3.5% coupon in 2010 to 4.22% with a 4% coupon in 2028.
The smaller series — $20 million of sewer and storm water resources district bonds insured by MBIA — matures from 2009 through 2029, with a term bond in 2033, and was won with a TIC of 4.10%. Yields range from 2.58% with a 3.5% coupon in 2009 to 4.22% with a 4.125% coupon in 2033. All bonds are callable at par in 2018. Moody’s rates the underlying credit A2, Standard & Poor’s rates it A, and Fitch gives it an A-plus.
The deal was the first fixed-rate deal for Nassau since 2000 when the Nassau County Interim Fiscal Authority took over the issuance of debt for what was then a distressed county. Last month the county sold its first debt since then as variable-rate bonds with a letter of credit.
Nassau had originally intended to sell those bonds as insured auction-rate bonds but changed the deal due to turmoil in the bond insurance market. County debt manager Jeffrey Nogid said before yesterday’s deal priced that he was unsure whether the winning bidder would choose to use insurance.
UBS declined to comment on why it chose to insure the bonds and use these particular insurers.
Nancy Winkler, managing director of Public Financial Management Inc., which serves as Nassau’s financial adviser, said she could only conjecture as to why UBS chose insurance.
“My speculation is the market values FSA and is willing to absorb a higher premium to some degree and pay for that because of the comfort with FSA,” Winkler said. She said the $20 million sewer bond series structured for the retail market was probably was insured by MBIA because the “the retail market has comfort with MBIA.”
The bonds priced about five basis points lower than PFM expected, she said.
“At the end of the day, it’s the all in price that matters and the county priced very strongly,” Winkler said. “This is a good way to establishing [Nassau’s] pricing levels since they’ve attained fiscal recovery.”
