Worst may be over for auction-rate crisis, analysts say; issuers continue to bid, convert auction-rate bonds

By Cristal Cody and Sheri Kasprzak

New York, April 11 - Even though the current auction-rate crisis might be the most serious in recent memory, some analyst were cautiously optimistic Friday about the future of auction-rate bonds.

One analyst at the Municipal Analysts Group of New York's monthly luncheon said he feels that auction-rate bonds are not necessarily permanently doomed.

"I don't think it's dead," he told Prospect News. "I think that for the short term, it may be dead."

It may not be dead yet, but some analysts have certainly been taken aback by the magnitude of this market collapse.

Another analyst said she has spoken to municipal professionals who have been in the business for a very long time and has been surprised by the response.

"There are some old-timers who have been doing this for much longer than I have, and even they're saying this is the worst they've seen," she noted.

Others remained certain that issuers will merely convert what they have got and move on.

"Almost everybody is converting to fixed rate," said one analyst. "At this point, that's about the best you can do. The worst is over, if you ask me."

Healthcare issues have been impacted particularly hard by the auction-rate fiasco and now they are converting their auction-rate securities en masse.

Catholic Health Initiatives of Colorado and Ohio joined the group of healthcare issuers converting their bonds on Friday, announcing plans to switch modes on $300 million in series 2006C auction-rate bonds (Aa2/AA/AA).

The bonds being converted include $250 million in Colorado Health Facilities Authority variable-rate revenue bonds and $50 million in Montgomery County, Ohio, variable-rate revenue bonds.

Of the bonds being converted, Catholic Health plans to convert a portion of the bonds to a weekly rate mode from an auction-rate mode and a portion to a fixed-rate or long-term rate mode.

JPMorgan and UBS Investment Bank are the remarketing agents.

New York Law to bid on auctions

Elsewhere in auction-rate news, the New York Law School announced plans to bid on a portion of the $67.5 million civic facility revenue bonds in an April 16 auction, according to a notice released Friday.

The series 2006A bonds priced through the New York City Industrial Development Agency.

The school expects to bid for up to $15 million of the bonds at an annual interest rate.

The bonds had a low bid of 1.89% and a high bid of 6% in the auction held Wednesday.

UBS Securities LLC is the broker dealer.

The Greenville Hospital System Board of Trustees in South Carolina also announced plans to bid on $78.55 million hospital refunding revenue bonds in an April 16 auction.

The hospital will bid 2.05% on the series 2006B bonds, according to a notice released Friday.

The bonds had a low bid of 4% and a high bid of 6.37% in the auction held Wednesday.

Citigroup Global Markets, Goldman, Sachs & Co., Morgan Stanley & Co. and Wachovia Bank are the broker dealers.

Medical issuers also reported plans to bid on auction rate bonds.

Reading Hospital and Medical Center in Pennsylvania expects to bid on $110 million variable-rate bonds in auctions next week.

The medical center will bid on $50 million series 2005A3 bonds in the upcoming auction on Tuesday.

In the March 11 auction, $22.125 million of the bonds available for sale received a low bid of 3.5% and a high bid of 10%.

The center also plans to bid on $60 million series 2005A1 bonds in the April 16 auction.

The bonds had a low bid of 4% and a high bid of 10% in the March 12 auction.

Reading expects to bid at an annual rate of interest equal to the Sifma index plus 75 basis points.

The bonds priced through the Berks County Municipal Authority.

Bear, Stearns & Co. is the broker dealer.

The Cleveland Clinic Health System also plans to purchase $129.375 million auction rate bonds that mature Jan. 1, 2036 in lieu of redemption.

The series 2004A1 bonds will be purchased on April 23; the series 2004A2 bonds will be purchased on April 24; the series 2004A3 bonds will be purchased on April 25; and the series 2004A4 bonds will be purchased on April 29.

The bonds priced through the county of Cuyahoga, Ohio.

Chicago prices $550 million

Moving to Friday's light pricing news, Chicago released additional details of the sale of $549.915 million second lien water revenue project refunding bonds.

The series 2008 bonds (Aaa/AAA/AAA) priced with 4% to 5% coupons to yield 2.1% to 4.95% from 2009 through 2028.

The 2033 term bond priced with a 5.25% coupon to yield 4.92%.

The 2038 term bond priced with a 5.25% coupon to yield 5.07%.

The bonds are insured by Financial Security Assurance.

UBS Investment Bank was the senior manager. Co-managers were M.R. Beal & Co., Cabrera Capital Markets, Gardner Rich & Co. and Morgan Stanley & Co.

The proceeds will be used to pay for improvements to the city's water system.

Boston Housing prices $77.4 million

In other pricing news, the Boston Housing Authority priced $77.462 million in series 2008 capital program revenue bonds on Thursday, the issuer confirmed with Prospect News Friday.

The bonds (/AA/) are due 2012 to 2028 with coupons from 3.5% to 5% and yields from 3.16% to 4.68%. The overall yield came in at 4.67%, said Lydia Agro with the issuer.

Lehman Brothers was the lead manager for the negotiated deal.

"We're using it [the proceeds] to upgrade a number of our public housing developments," Agro told Prospect News.

"We're very happy with the way it turned out."

Sacramento County plans $640.9 million

Sacramento County, California, plans to price $640.915 million airport system revenue and refunding bonds in retail and institutional sales, the issuer said Friday.

A retail order period will be offered April 16 and an institutional period will be held April 17, said Chris Marx, county debt officer.

The county intends to price $186.445 million series 2008A, $347.49 million series 2008B and $13.055 million taxable series 2008C airport system senior revenue bonds.

The county also plans to price $48.72 million series 2008D and $45.205 million series 2008E airport system subordinate and PFC revenue refunding bonds.

The bonds (Aaa/AAA/) are insured by Financial Security Assurance.

The series 2008A bonds have maturities from July 1, 2008 through July 1, 2028 with term bonds due 2032 and 2041.

The series 2008B bonds have maturities from July 1, 2008 through July 1, 2028 with term bonds due 2033 and 2039.

The series 2008C bonds are due July 1, 2012.

The series 2008D bonds have serial maturities from July 1, 2008 through July 1, 2026.

The series 2008E bonds have serial maturities from July 1, 2008 through July 1, 2024.

Morgan Stanley is the senior manager of the negotiated sale.

Proceeds will be used to finance capital improvements in the airport system, establish escrow funds to refund and defease outstanding revenue bonds and fund the senior debt service and subordinate debt service reserve funds.

Hillsborough airport authority to sell $154.9 million

Moving to this week's bond sales, Florida's Hillsborough County Aviation Authority will bring to market $154.905 million in series 2008 Tampa International Airport revenue bonds on April 17, a calendar of bond sales and a preliminary official statement said.

The authority will sell the bonds (//AA-) on a negotiated basis with Bear, Stearns & Co. as the lead manager.

The sale for April 17 includes $137.635 million in series 2008A bond and $17.27 million in series 2008B bonds.

The bonds are due from 2024 to 2028 with term bonds due 2033 and 2038.

The authority also intends to sell $34.28 million in series 2008C and $11.075 million in 2008D non-AMT refunding bonds during the week of April 28.

Proceeds will be used to finance improvements to the Tampa airport's economy parking garage, cargo roadways, east-side cargo area and north terminal complex site.

The proceeds from the 2008C and 2008D bonds will redeem the authority's series 2006C and 2006D variable-rate revenue refunding bonds.

Elsewhere, Bryant University in Rhode Island plans to price $50.42 million higher education facility revenue refunding bonds on April 24, according to a release from Moody's Investors Service.

The series 2008 variable rate weekly demand bonds (A2) will price through the Rhode Island Health and Educational Building Corp.

Lehman Brothers is the underwriter of the negotiated sale.

Proceeds will be used to refund the university's series 2005 and 2007 auction rate bonds.

Calls for additional comment were not returned.

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