Yields soar even as issuers pull offerings; California delays $10 billion sale due to lawsuit

By Sheri Kasprzak

New York, Nov. 17 - Municipal yields were yet again shoved higher as the glut of new offerings continued. Even though higher yields have forced some issuers to postpone sales, this has done little to help market conditions, said one trader.

"We're overloaded, and some [issuers] are getting out," he said.

"At this point, though, that's not even helping. Treasuries were off today as well, so that's compounding it."

Some issuers, particularly those offering refunding bonds, have left the supply-stuffed market to wait for better conditions.

"Basically, if you can't get the savings to make it worthwhile, why bother?" said another trader.

"It's a tough market. Lots of stuff that is getting priced is downsized."

Meanwhile, it wasn't market conditions but the need to announce a lawsuit that forced the State of California to delay the completion of its planned $10 billion sale of revenue anticipation notes, said Tom Dresslar, spokesman for the state treasurer's office.

On Tuesday, two unnamed taxpayers filed the lawsuit in San Francisco Superior Court seeking to prevent the sale of 24 state buildings on 11 state office properties, allegedly because some of the properties are courthouses, and their sales require judicial council approval that the state has not obtained. Those sales had been scheduled for completion by Dec. 31. According to the treasurer's office, no timeline has been set for the lawsuit. The litigants are seeking preliminary and permanent injunctions to prevent the sales.

"The administration strongly believes that the legislation authorizing the sale and lease back of the 11 state properties is legal and that the proper procedures were followed," said an addendum to the state's preliminary official statement for the notes.

Dresslar said that if the sales are prevented, the state's budget will have a $1.2 billion hole.

Disclosure required

"The state is required to disclose the lawsuit to investors and did so this morning," Dresslar said.

On Monday and Tuesday, retail investors purchased $5.89 billion of the notes. Investors will have the opportunity to cancel their orders before 10 a.m. ET on Thursday. The sale will open to institutional investors on Thursday. Additional retail orders were taken for the notes on Wednesday.

Prices quoted to retail investors on Monday and Tuesday were 1.25% for the May maturity and 1.5% for the June maturity.

J.P. Morgan Securities LLC leads the syndicate for the note offering.

The postponement of the notes has forced the postponement of another state sale. The state's $2 billion offering of various-purpose general obligation bonds (A1/A-/), originally scheduled for pricing Thursday, will now come to market through Citigroup Global Markets Inc. on Friday.

Wisconsin HEFA/Aurora sell

Heading up Wednesday's primary action was an offering from the Wisconsin Health and Educational Facilities Authority, which sold $380 million of series 2010B revenue bonds for Aurora Health Care Inc., according to a pricing sheet.

The bonds (A3//A) were sold through Bank of America Merrill Lynch and BMO Capital Markets.

The bonds are due 2011 to 2020 with 4% to 5% coupons.

Proceeds will be used to finance or reimburse Aurora for the construction, equipment and renovation of health-care facilities and to refund Aurora's series 1996, 1997 and 1999A-B bonds.

Based in Brookfield, Wis., the authority provides funding to educational and health-care organizations throughout the state. Aurora, based in Milwaukee, operates 15 hospitals and health-care centers in Wisconsin and Illinois.

Dasny brings bonds

Elsewhere, the Dormitory Authority of the State of New York sold $320 million of series 2010 revenue bonds for the New School, said a pricing sheet.

The bonds (A3/A-/) were sold through Barclays Capital Inc. and JPMorgan.

The bonds are due 2014 to 2025 with term bonds due 2030, 2040, 2043 and 2050. Serial coupons range from 5% to 5.25%. The 2030 bonds have a 5.25% coupon, and the 2040 bonds have a 5.5% coupon. The 2043 bonds have a 5.5% coupon. The 2050 bonds have a split maturity with a 5.75% coupon and a 6% coupon.

The full pricing details were not available Wednesday evening.

Proceeds will be used to construct a new university building, including a dormitory, and renovate three floors of a leased building, as well as refund the school's series 1999 and 2001 bonds.

The Albany-based authority provides funding to nonprofit health-care, educational and other organizations. The New School is a New York City-based liberal arts college.

North Texas drives sale

Also during the session, the North Texas Tollway Authority priced $332.2 million of series 2010 system first-tier revenue refunding bonds, downsized from $490.81 million, said a pricing sheet.

The bonds (A2/A-/) were sold through Bank of America Merrill Lynch and Loop Capital Markets LLC with First Southwest Co. as the co-manager.

The bonds are due 2034, 2038 and 2043 with 6% coupons. The yields are 6%, 6.15% and 6.25%, respectively.

Proceeds will be used to refund the authority's series 1997A, 2008H-1, 2008J and 2008L-1 bonds.

The authority, based in Dallas, operates and maintains the toll roads of Collin, Denton, Dallas and Tarrant counties.

Louisville sewer bonds price

The Louisville & Jefferson County Metropolitan Sewer District of Kentucky priced $330 million of series 2010A sewer and drainage system revenue bonds, said a pricing sheet.

The bonds (Aa3/AA-/AA-) were sold competitively with Goldman, Sachs & Co. winning the bid, said Marion Gee, the district's budget director.

The bonds are due May 15, 2043 and have a 6.25% coupon priced at par.

Proceeds will be used to expand and improve wastewater and drainage system, rehabilitate combined sewer overflow systems, improve flood control and drainage facilities, construct collector sewer, improve detention basins, construct interceptor sewers and make other repairs.

Hawaii prices harbor bonds

In other news, the State of Hawaii priced $202.782 million of series 2010 harbor system revenue bonds on Wednesday, said a pricing sheet.

The deal included $165.747 million of series 2010A non-AMT bonds and $37.035 million of series 2010B AMT bonds.

The 2010A bonds are due 2014 to 2025 with term bonds due 2030, 2035 and 2040. Serial coupons range from 3.5% to 5%. The 2030 bonds have a 5.25% coupon priced at 96.208. The 2035 bonds have a split maturity with a 5.5% coupon priced at 96.47 and a 5.75% coupon priced at 99.733. The 2040 bonds have a 5.625% coupon priced at 97.532.

The 2010B bonds are due 2011 to 2021 with coupons from 3% to 5.5%.

Bank of America Merrill Lynch was the lead manager with Baird & Co.

Proceeds will be used to finance or refinance land acquisition, construction and replacement of docks and storage facilities at harbors in Honolulu, Oahu, Hilo and Maui as well as refund the state's series 2000A bonds.

Santee Cooper preps deal

Looking out at upcoming sales, the South Carolina Public Service Authority is expected to bring to market $300 million of series 2010C revenue obligations, said a preliminary official statement.

The obligations will be sold on a negotiated basis with Citigroup and Goldman Sachs as the senior managers.

The obligations are due Jan. 1, 2050.

Proceeds will be used to fund a portion of the authority's ongoing capital program.

Based in Moncks Corner, S.C., the authority, known as Santee Cooper, is a state-owned water and electric utility.

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