Citizens headlines week's issuance with $2 billion offering; BABs continue to trade well

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, April 27 - The robust primary calendar this week will be led by a $2 billion sale of senior secured bonds from Florida's Citizens Property Insurance Corp.

The Jacksonville-based insurer is set to sell the series 2009A-1 (A2/A+/) and 2009A-2 bonds (MIG 1/SP-1+/) on Thursday through Goldman, Sachs & Co.

"Citizens, as is typical for this time of year, will be raising the cash for contingency payouts on home insurance policies in high-risk hurricane regions," one sellside source said.

"While Citizens is rated A2/A+, the volatile nature of Citizens' payouts mean that bonds are often treated as high-risk securities."

One senior trader said this seems like a convenient excuse.

"It sounds like an excuse to price it cheaply, but I don't know," the trader said.

The 2009A-1 bonds are due 2016, and the 2009A-2 bonds are due 2010.

The proceeds will be used to make a deposit to reserve accounts.

Build America Bonds

Last week's Build America Bonds were well-received, and that popularity has continued into this week, said market insiders.

"In theory, the cost to an issuer of selling a traditional, tax-exempt muni versus selling a BAB with 35% credit should be identical or near so," one sellside source said.

"The stressed status of the capital markets has, however, introduced something of a hole in this theory and, as it turns out, this particular hole is large enough to float the State of California through. While individual investors have traditionally benefited most from the tax-exempt status of much municipal debt, many institutional investors have avoided the sector because not all institutions - for example, non-profit foundations, foreign firms or banks that aren't income-positive - receive any benefit from tax-exempt income."

The Build America Bonds offer institutional buyers the option to diversify into a previously unavailable, low-risk credit asset class, said the sellsider.

"The real first of BABs came with the N.J. Turnpike's $1.375 billion issue of 30-year BABs on April 20, and the State of California's gargantuan $3.5 billion sale on April 22," the sellsider continued.

"While the combination of these two deals introduced potential for oversupply in an immature market, the bolus of issuance was met with a very strong response. Early secondary market trading indicated a very toasty, some might even say hot, reception to the BABs, and spreads on the 25- and 30-year portion of the California deal were tighter by as much as 25 to 30 basis points in the first few days of trading. Some of that spread tightening is likely related to the discount underwriters offered to ensure the entire deal, which is the second-largest taxable muni issuance ever, would get sold, but much of the immediate price improvement serves as a market stamp of approval for the BAB sector as a whole."

California bonds popular

Some of California's recently priced Build America Bonds are still very active in trading, said one trader reached late in the day.

"We're still seeing a lot of interest, especially for the long bonds," said one trader watching the California Build America Bonds Monday.

The 2034 bonds were seen trading Monday at 7.066% after dropping by as much as 25 bps on the day. The bonds were priced with a tax-exempt equivalent yield of 4.83%.

Stanford brings $1 billion

In recently priced offerings, Stanford University of California sold $1 billion in series 2009 taxable bonds, said Randy Livingston, the university's chief financial officer, on Monday.

The bonds (Aaa/AAA/AAA) were sold Thursday through lead managers Goldman, Sachs & Co., J.P. Morgan Securities Inc. and Morgan Stanley & Co. Inc.

The sale included $350 million in 3.625% bonds due 2014, which were priced to yield 3.648%; $250 million in 4.25% bonds due 2016, which were priced to yield 4.296%; and $400 million in 4.75% bonds due 2019, which were priced to yield 4.788%.

"We were very pleased with the outcome," Livingston said.

"They saw us to be a good credit, [but] I can't explain what moves the market. The whole market for AAA university issues has tightened up."

The value of the university's endowment was $17.2 billion as of Aug. 31, 2008, but the school hopes to reduce distribution of its endowment by 25% over the coming two fiscal years.

Proceeds will be used to finance capital expenditures as well as refinance commercial paper notes.

The university is based in Stanford.

Connecticut's $581 million

In other primary news, the State of Connecticut priced late last week $581.245 million in series 2009 general obligation bond anticipation notes, said an official statement released Monday.

The notes (MIG 1/SP-1+/F1+) were sold on Thursday, downsized from the planned $600 million size.

The sale included $353.085 million in series 2009A bonds due April 28, 2010 and $228.16 million in series 2009B bonds due June 1, 2011.

The 2009A bonds have a 2% coupon to yield 0.47%. The 2009B bonds include $9.065 million in bonds with a 2% coupon to yield 1.15% and $219.095 million in bonds with a 4% coupon to yield 1.15%.

JPMorgan was the lead manager.

Proceeds will be used to pay for housing development and rehabilitation as well as refunding existing debt.

Georgia plans G.O.s

Moving to upcoming sales, the State of Georgia hopes to bring to market this May $314.53 million in series 2009 G.O. bonds, according to a preliminary official statement.

The sale includes $9.5 million in series 2009C bonds and $305.03 million in series 2009D bonds.

Merrill Lynch & Co. Inc. is the senior manager.

The 2009C bonds are due 2010 to 2014, and the 2009D bonds are due 2010 to 2029.

Proceeds will be used to acquire and improve lands, buildings, highways, structures, equipment or facilities as well as repay existing debt.

Also coming up, the Public Facilities Financing Authority of the City of San Diego is set to sell $442 million in series 2009A senior sewer revenue bonds, said a preliminary official statement.

The bonds (A2/A+/AA-) will be sold on a negotiated basis with Banc of America Securities LLC as the senior manager.

The bonds are due 2010 to 2029 with term bonds due 2034 and 2039.

Proceeds will be used to finance capital improvements to the city's wastewater system.

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