Citizens bonds seen by investors as a big risk; market remains unchanged as volume drops

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, May 4 - A potentially heavy hurricane season has got investors on edge, and this may have resulted in the cheap pricing - and smaller size - of Citizens Property Insurance Corp.'s recently priced $1.646 billion series 2009A senior secured bonds, said a sellsider reached Monday.

"Despite the fact that Citizens is rated A2/A+, the skewed nature of the issuer's risk (low probability, high severity hurricane losses) means that it's often considered a high-yield type credit," the sellside source said.

"Particularly with the memories of [Hurricane] Katrina relatively fresh in investors' minds, not to mention the high level of overall risk aversion, it's easy to see why investors aren't the biggest fan of the Citizens [Property] Insurance Corp., and why pricing on the deal was substantially worse than that of other A2/A+ type credits. In addition, the deal was actually downsized from an initially planned $2 billion to $1.64 billion on lack of demand."

A trader reached during the day agreed that the Citizens name has taken a beating.

"The name has gotten beat up, to say the least, over the last few years," the trader said about Citizens.

Otherwise, "it was very quiet today," he said. "People are waiting for the Treasury auctions."

Many are hanging back in order to wait for new trends to develop with the OIS-Libor and TED spreads, he said.

Still, with the S&P 500 index topping 900 points along with a broader equity rally, "munis are not a primary market concern right now," he said.

"The attention span is definitely with equities right now," he said, although some larger deals are on the way this week, including bonds from Georgia and Utah.

3.625%-5.7% yields

The Citizens bonds priced on Friday and were downsized to $1.646 billion from a planned $2 billion. The deal included $1.021 billion in series 2009A-1 bonds and $625 million in series 2009A-2 short-term notes.

The 2009A-1 bonds (A2/A+/) are due 2012 to 2017 with coupons from 4% to 6% and yields from 4.125% to 5.7%. The 2009A-2 notes (MIG 1/SP-1+/) are due June 1, 2010 with a 4.5% coupon priced to yield 3.625%.

Goldman, Sachs & Co. was the senior manager for the sale.

Proceeds will be used for reserve accounts for payouts expected during Florida's upcoming hurricane season.

The bonds were seen reoffered Monday lower by as much as 60 basis points. The 4% 2012 2009A-1 bonds were seen during the early afternoon at 3.53%. The 5.5% 2017s were reoffered at 5.345%, and the 5% 2016s were seen at 4.726%. The 4.5% 2014 bonds were seen reoffered Monday at 4.228%.

Citizens is based in Jacksonville, Fla.

Ohio's turnpike bonds

In other pricing news, the State of Ohio priced $135.6 million in series 2009A turnpike revenue refunding bonds Monday, said a sellsider familiar with the deal. The state had planned to bring $155 million of the bonds.

The bonds (Aa3/AA/AA) are due 2011 to 2024 with coupons from 3% to 4.375% and yields from 1.6% to 4.4%.

Morgan Stanley & Co. Inc. and J.P. Morgan Securities Inc. were the lead managers.

Proceeds will be used to refund the state turnpike commission's series 1998 and 2001 bonds.

The bonds, a trader noted during the day, were not immediately reoffered.

Big D Community Colleges

The Dallas County Community College District in Texas priced $110 million in series 2009 general obligation bonds at a true interest cost of 4.05% (Aaa/AAA/AAA), according to Ed DesPlas, executive vice chancellor for business affairs.

Full terms were not released for the competitive offering; however, the bonds carry serial maturities from 2010 to 2029.

Still, the district was expecting to pay a TIC of as much as 4.08%, DesPlas said.

"It came in better than we thought," he said, with "six times more orders than bonds."

Southwest Securities Inc. acted as financial adviser for the deal.

Proceeds will be used for capital expenses.

The district is based in Dallas.

Georgia plans $314.5 million

Elsewhere, Tuesday will bring the State of Georgia's $314.53 million in series 2009 G.O. bonds, said a sellside source.

A retail order period was conducted on Monday.

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

Morgan Stanley was the lead 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, highways, structures, equipment or facilities as well as repay existing debt.

Golden Eagles float issue

Looking to upcoming sales, the Massachusetts Development Finance Agency announced plans to issue $95.74 million of revenue bonds in two tranches on behalf of Boston College (Aa3/AA-/), according to a preliminary offering statement.

The $71.125 million series Q-1 bonds will carry serial maturities from 2016 to 2029.

The $24.615 million series Q-2 bonds will carry serial maturities from 2010 to 2016.

Barclays Capital Inc. will act as underwriter for the negotiated deal. Public Financial Management Inc. will act as financial adviser.

Proceeds will be used to refinance existing debt.

The agency is based in Boston, and the college is based in Chestnut Hill, Mass.

Secondary market unmoved

In a light day of trading, a trader said the market looked relatively unchanged to only slightly weaker.

"We're not really seeing a lot of stuff moving," the trader said. "We're really mostly unchanged."

Moving to specific trade news, Cary, N.C.'s series 2009 public improvement bonds were seen moving. The 4% 2028s were seen at 4.14%. The 3% 2013s were seen at 1.5% Monday after pricing at 1.47%.

Elsewhere, the University of Arizona's recently priced series 2009A revenue bonds were seen moving. The 4.5% 2029 bonds were seen at 4.4%.

Catholic Healthcare West's series 2009A revenue bonds sold through the Industrial Development Authority of the County of Maricopa in Arizona were also seen in action. The 2039 bonds were particularly popular. The 6% bonds were seen at 5.903% Monday after pricing at 6.13%.

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