DART gears up for $829 million sale; yields end session flat ahead of massive primary calendar

By Sheri Kasprzak

New York, Sept. 27 - Municipal yields were largely unchanged to kick off a week jam-packed with new offerings, said market insiders. Among those new deals is an $829 million offering of senior-lien sales tax revenue bonds from Dallas Area Rapid Transit.

The size of the sale has more to do with timing than any urgent need for funding, said DART chief financial officer David Leininger in an interview with Prospect News Monday.

"We don't know what the fate of BABs is beyond the end of the year," Leininger said.

"There's lots of speculations, and we made a calculated decision. It was well worth the effort, even though we had to do some things on an accelerated basis."

DART brings bonds at once

Leininger explained that DART had anticipated coming to market this month with a smaller deal that would comprise a minimum of $400 million in revenue bonds and a minimum of $100 million in refunding bonds. Another $365 million in bonds would have been sold in another year. The organization decided to come to market now because of the uncertainty surrounding the extension of the Build America Bonds program into 2011 and beyond.

The retail order period on the bonds began Monday, and while Leininger was hesitant to discuss specific figures, he said pricing in retail had already exceeded their expectations.

"I'm reluctant to talk about pricing because we haven't finished for the day, but they're selling below our expectations. Our all-in true interest cost net of the tax credit is going to be good and very favorable against our financial plan estimates, which were completed not too long ago," he noted.

The bonds (Aa2/AA+/) are being sold by a syndicate led by Bank of America Merrill Lynch.

Leininger said that rather than use the proceeds to begin new projects, DART plans to complete ongoing projects, including the green, orange and blue lines of its light rail. The green line is nearly completed. The orange and blue lines are scheduled to open in December 2012.

Muni yields flat

In the broader market, a trader reported that yields were largely unchanged as the market awaits nearly $9 billion in supply for the week ahead.

"It's mostly flat," said the trader.

"Secondary is really quiet, but I think the market is waiting for supply. Looks like another busy week [for primary], so we'll see how it pans out as the week goes on, but today it was flat and quiet."

In addition to DART's large offering, the State of New Jersey will conduct its own large deal on Thursday. The state plans to bring $664.585 million in series Q-S general obligation bonds (Aa2//AA) through Morgan Stanley & Co. Inc.

The offering includes $490.01 million in series Q bonds, $92.71 million in series R federally taxable bonds and $81.865 million in series S bonds.

"New Jersey credit spreads to the AAA Municipal Market Data benchmark have risen almost 10 bps since the middle of September, partly as a result of Moody's lower outlook action taken last week," said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC.

Moody's dropped New Jersey's outlook to negative last week, Kozlik added.

Proceeds from the sale will refund various existing G.O. bonds.

California water deal ahead

A massive deal from the State of California Department of Water Resources is looming. The department intends to bring to market $1.9 billion in series 2010M power supply revenue bonds, said a preliminary official statement. Pricing is expected for Oct. 5.

The bonds (Aa3/AA-/AA) will be sold through senior managers Bank of America Merrill Lynch, Stone & Youngberg and Wells Fargo Securities LLC.

The bonds are due 2011 to 2020.

Proceeds will be used to redeem outstanding variable-rate bonds and refund the department's series 2002A fixed-rate bonds.

Dasny deal planned

Another billion-dollar sale is coming up from the Dormitory Authority of the State of New York. Dasny is expected to price $1.363 billion in series 2010 state personal income tax revenue bonds, said a preliminary official statement.

The offering is comprised of $554.515 million in series 2010E tax-exempt bonds, $61.275 million in series 2010F tax-exempt bonds, $149.5 million in series 2010G federally taxable bonds and $597.91 million in series 2010H Build America Bonds.

M.R. Beal & Co. and Bank of America Merrill Lynch are the senior managers for the 2010E and series 2010F bonds. The lead managers for the 2010G and series 2010H bonds are M.R. Beal, Bank of America Merrill Lynch and Siebert Brandford Shank & Co. LLC.

Proceeds will be used to finance capital projects at the State University of New York and the City University of New York as well as fund economic development grants under a variety of state-run projects.

Dasny, based in Albany, provides funding for a variety of public and private infrastructure projects.

Septa sets deal

In other offerings for the coming week, the Southeastern Pennsylvania Transportation Authority plans to sell $220.74 million in series 2010 revenue refunding bonds on Tuesday, said a preliminary official statement and sales calendar.

The bonds (A1/AA-/AA) will be sold through Citigroup Global Markets Inc.

The bonds are due 2011 to 2028.

Proceeds will be used to refund the authority's series 1999 bonds and fund the termination of a swap agreement connected with the 1999 bonds.

Based in Philadelphia, the authority provides public transit for Philadelphia, Delaware County, Bucks County, Montgomery County and Chester County in Pennsylvania as well as New Castle County in Delaware and Mercer County in New Jersey.

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