Build America Bonds rally ahead of big supply; Albuquerque school district sells $124.7 million

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, April 15 - Municipals saw a slight improvement Wednesday as the market prepares for an influx of Build America Bonds, market insiders said.

In the primary market, one sellside source said several issuers are gearing up to sell Build America Bonds in the coming weeks. The bonds were created under the stimulus package to finance capital projects.

"Under the program, the federal government provides either an upfront cash payment to issuers or a tax credit to holders equal to 35% of the interest on the bonds," said the sellsider.

In the coming week, the New Jersey Transportation Authority is set to price $1 billion in revenue bonds under the program. The full terms of that sale were not immediately available Wednesday.

Elsewhere, the State of California plans to sell $3 billion in new bonds in the coming weeks, and a portion of those bonds are expected to be Build America Bonds.

Also, the Metropolitan Transportation Authority of New York City is set to sell $650 million in dedicated tax fund bonds through J.P. Morgan Securities Inc., of which $200 million will be Build America Bonds.

BABs rally

"We've had a Build America Bond rally," a trader said.

The retail side had already registered its strong interest, but now there is "more institutional participation on the secondary," he said.

Also, "it's all a hypothesis now," the trader said, but it "sounds very plausible" that issuers may begin to pull tax-exempt deals as they receive bailout funds from the federal government.

Issuers in hard-hit places such as California may prove to be examples, he said.

Next week's calendar volume may be a good indication of which direction issuance will go. This week has posted nearly $2.5 billion, but a smaller number in coming weeks may be telling.

"We'll have a better picture in a week or two," he said.

In the meantime, tone remains strong, he said, as the market is "reluctantly" doing better, "which is always a good sign."

A market that almost cannot help but go higher feels like it may be the "early stages" of a general recovery.

Municipal bonds have been recently "selling themselves," he said, but similar to Treasuries, there may be a bubble building.

"At some point they're not going to be as attractive," he said.

Albuquerque district bonds

Moving to Wednesday's primary activity, the Albuquerque Municipal School District No. 12 brought $124.7 million in series 2009A general obligation bonds to market, said a sellside source connected to the deal.

The bonds are due 2010 to 2022 with coupons from 3.5% to 5% and yields from 0.75% to 3.9%.

Barclays Capital Inc. was the winning bidder for the competitive sale with a 3.420145% true interest cost.

RBC Capital Markets Corp. was the financial adviser.

Proceeds will be used to construct new school buildings and related facilities.

Another school district - the Renton School District No. 403 in Washington State - priced $85.4 million in series 2009 unlimited tax G.O. and refunding bonds (Aa3/AA-/) at a TIC of 4.37%, according to Scott Bauer of DashenMusselman Inc.

Hutchinson, Shockey, Erley & Co. won the auction over 10 competing bids. DashenMusselman acted as financial adviser to the deal.

"We felt it was quite strong," Bauer said of the "good, big turnout" for the auction.

The bonds carry maturities from 2009 to 2028.

Proceeds will be used to refund the district's series 1998 G.O. bonds and to pay for capital expenditures.

Stamford sells $51 million

In other pricing news, the City of Stamford in Connecticut priced $51.765 million in series 2009 G.O. refunding bonds, said Lisa Reynolds, the city's controller.

The bonds (Aaa/AAA/) were sold at a TIC of 2.96% and had an average yield of 2.62%.

Morgan Keegan & Co. was the lead manager for the negotiated sale.

"We are very happy," Reynolds said.

"We had been watching the market for a while. We had even talked about doing this in February. We waited until we could at least predict we were going to hit our 2% savings before we called and said 'Let's roll with this.' We're very happy."

The deal included $8.665 million in series 2009A bonds, which are due 2014 to 2018, and $43.1 million in series 2009B bonds, which are due 2012 to 2015.

Proceeds will be used to refund the city's series 2003A, 2004B, 2006B and 2008B bonds.

Denver, Charles County

The secondary market saw some improvement on Wednesday.

In reofferings, the City and County of Denver saw lots of demand for the series 2009A excise tax revenue refunding bonds, said one trader reached Wednesday.

"We didn't see any reoffering activity right after pricing, but there has been a lot of demand today," he added.

The 6% 2023s were seen at 4.75% Wednesday afternoon. The bonds priced Tuesday to yield 4.95%. The 2021s were trading at 4.8% after pricing Tuesday at 4.65%.

Charles County in Maryland also saw some interest for its series 2009 G.O. consolidated public improvement bonds. The series 2009B 4.25% 2027s were reoffered at 4.124% Wednesday afternoon. The series 2009C 4.5% 2016s were reoffered at 4%. The series 2009A 2012s were reoffered at 1.1%. The bonds priced Tuesday.

Also reoffered Wednesday were Beaumont Independent School District of Texas's series 2009 school building revenue bonds. The bonds were priced Tuesday with yields from 2.57% to 5.25%. On Wednesday, the 5% 2038 bonds were reoffered at around par, said a trader. The 5% 2034s were reoffered at 5.15% after pricing Tuesday at 5.23%. The 5% 2021 bonds were reoffered at 3.9% after pricing Tuesday at 4.17%, and the 5.25% 2028 were reoffered at 5%, the same as pricing.

Elsewhere in secondary action, Honolulu's recently priced series 2009 G.O.s were trading Wednesday. The series 2009A 5% 2034 bonds were seen at 4.748%, and remained fairly flat throughout the day. The 2009B 4.61% 2014s were moving at 3.73%.

New Mexico ahead

Looking to upcoming offerings, the State of New Mexico is set to sell $222.8 million in series 2009 capital projects G.O. bonds on April 22, said a notice of sale released Wednesday.

The bonds will be sold competitively with Fiscal Strategies Group Inc. and Public Resources Advisory Group as the financial advisers.

The bonds are due 2010 to 2019.

Proceeds will be used to construct, acquire or improve senior facilities, libraries, health, higher education and state special school projects.

U of Virginia deal

Also ahead, the Rector and Visitors of the University of Virginia is set to sell $250 million in series 2009 taxable general revenue pledge bonds, said a preliminary official statement.

The bonds (Aaa/AAA/AAA) will be sold on a negotiated basis with J.P. Morgan Securities Inc. and Morgan Stanley & Co. Inc. as the senior managers.

The maturity for the bonds has not been set.

Proceeds will be used for capital improvements at the university's campuses in Charlottesville and Wise County.

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