SAN FRANCISCO - Washington state Treasurer Mike Murphy will conduct his final bond sale this week, and the debt will be sold at competitive auction, as Murphy has done throughout his 12 years in office.

But the outgoing treasurer's staff members say Wednesday's transactions will reflect the difficult realities that have emerged in the municipal bond market in recent months, in which it has become much harder to get deals done.

Murphy did not seek re-election last year, and his term expires at noon on Jan. 14, when Jim McIntire will be sworn in.

His final bond sale will come in two pieces, for a total of $400 million - less than half the deal's original $864 million planned size, said Rick Patrick, deputy state treasurer for debt management.

"We recognize the market's not been receptive to these large deals since the middle of September," he said. "We've structured the deal in a way that gives us a best chance for a successful sale."

Patrick said the treasurer's office has held extensive discussions with potential underwriters and its financial advisers, Seattle-Northwest Securities Corp. and Montague DeRose and Associates LLC.

The office has worked to make the issues as appealing as possible to bidders, said Svein Braseth, the bond program director.

"The bid format should be very accommodative," he said. "Some more flexibility goes into the bid parameters."

The deals include $270 million of Series 2009C various-purpose general obligation bonds, and $130 million of Series 2009D motor vehicle fuel tax GOs, structured so that fuel tax revenue covers debt service but is ultimately backed by the state's GO pledge.

The state plans to take bids over Ipreo's Parity for Series 2009C until 8 a.m., Pacific Standard Time, and for Series 2009D until 7:30 a.m., PST.

Fitch Ratings Wednesday revised its outlook on the state's GOs to stable from positive, affirming its AA rating. The outlook revision reflects "the state's weakened financial and economic position due to the current downturn, particularly in consumer spending," according to Fitch.

Last week, Standard & Poor's affirmed its AA-plus rating and stable outlook, and Moody's Investors Service has affirmed its Aa1 rating and stable outlook.

While competitive deals may have become harder to do since the fall, they are not impossible - in fact, Seattle priced two $200 million-plus competitive deals in December, one for power revenue bonds and one for water revenue bonds. The credits, both with underlying ratings in the double-A band, each drew five bidders, with Merrill Lynch & Co. winning both deals, according to Thomson Reuters.

The largest competitive transaction to price since Lehman Brothers Holdings Inc.'s collapse in September was a $300 million Pennsylvania GO deal on Dec. 9, according to Thomson. The deal, with double-A ratings, drew five bids and was won by JPMorgan.

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