Arizona Gas Deal Week’s Largest at $1.2B

A $1.2 billion offering from Arizona’s Salt Verde Financial Corp. will lead the way in the new-issue market this week, the lone scheduled billion-dollar deal in a week dominated by mid-range offerings. The deal, which represents about 19% of the roughly $6.2 billion scheduled to be priced this week — up from the approximately $5.6 billion of bonds which were sold in the primary last week — is one of the first gas prepay offerings to come to market in months.Since subprime mortgage concerns widened credit spreads in the secondary market for prepaid gas bonds in early August, very few of these deals have come to market. This will be the largest prepay gas issue to price since Georgia’s Main Street Natural Gas Inc. sold $496.7 million of gas project revenue bonds in early September.At the height of the subprime woes two months ago, several large scheduled deals were moved to the day-to-day calendar. They included a $2.6 billion prepaid gas transaction for Jackson, Tenn.-based Tennergy Corp., which would have been the largest ever such offering. However, despite the appearance of the Salt Verde deal on this week’s calendar, the Tennergy deal remains day-to-day, according to the syndicate desk at underwriter JPMorgan.Dexter Torres, a portfolio manager and trader at Samson Capital Advisors LLC, said it shouldn’t be a problem for the market to soak up more supply as the calendar begins to beef up a bit.“There were a couple large deals this week, like the [$1 billion New York State Thruway Authority sale], that were priced well and got absorbed by the market quite easily,” he said. “The deals that we saw in the market that were decent sized actually got absorbed by the market without a problem. You always have to be concerned about that, but if this past week is any indication there is some decent demand out there.”In the Salt Verde transaction, Citi will price $1.2 billion of gas prepay bonds for the Salt Verde Financial Corp., a conduit issuer for the Salt River Project Agricultural Improvement and Power District. This will be the Salt River Project’s first gas prepay deal, issued through the SVFC, which was created for this deal. The bonds are slated to mature through 2037. The credit is rated Aa1 by Moody’s Investors Service and AA by Standard & Poor’s.According to Steven Hulet, the treasurer of both the Salt River Project and the newly-created conduit, the SVFC will sell the bonds and use the money to pay Citigroup Energy Inc. for natural gas. Once the gas is received, the SVFC will sell it to the Salt River Project through a gas contract.“This will represent a little over 20% of SRP projected gas needs for the time period,” Hulet said. “SRP operates an electric system made up of various resources, including nuclear, hydroelectric, coal-fired plants, and gas-fired plants. This will be for the gas-fired part of the portfolio.”The Salt River Project is the largest provider of water and power to the Phoenix metro area, and the third largest public power entity in the United States, serving 925,000 electric customers.“We think this is one of the strongest credits that has come to the market — the combination of SRP’s credit and Citi’s credit — so we expect a pretty good response to it,” Hulet said.Public Financial Management Inc. is financial adviser. Nixon Peabody LLP is bond counsel.In other activity, Lehman Brothers Wednesday will price $418 million of limited project revenue bonds for the Regents of the University of California. The credit is rated Aa3 by Moody’s and AA-minus by Standard & Poor’s.The regents last sold limited project revenue bonds in October 2005. Lehman Brothers priced that $616 million deal in two series. Bonds from the $600.5 million Series B mature from 2009 through 2030, with term bonds in 2033 and 2038. Yields range from 3.20% with a 3.25% coupon in 2009 to 4.65% with a 5% coupon in 2038. Bonds maturing from 2012 through 2038 are insured by Financial Security Assurance Inc. All remaining bonds are uninsured.Among 5% coupon paper in the deal, bonds maturing in 2029 were tightest to that day’s Municipal Market Data triple-A yield curve, with yields 26 basis points over the curve. Bonds maturing in 2016 were widest to the scale, with yields 40 basis points over.Citi will also price $400 million of tax-exempt and taxable revenue bonds tomorrow for the New York State Power Authority. The tax-exempt bonds will mature from 2014 through 2019, with term bonds in 2027. The taxable bonds are slated to mature from 2013 through 2017, with term bonds in 2042. The authority expects to insure the bonds, and the underlying credit is rated Aa2 by Moody’s, AA-minus by Standard & Poor’s, and AA by Fitch Ratings.The bonds will be issued to finance costs associated with the federal relicensing and upgrading of its Niagara and St. Lawrence power plants in upstate New York. Hawkins Delafield & Wood LLP is bond counsel and PFM is financial adviser.The Power Authority last sold revenue bonds in Jan. 2006. Morgan Stanley priced that $173 million deal, which had bonds maturing from 2007 through 2020. Yields range from 3.23% with a 3.2% coupon in 2007 to 4.06% with a 5% coupon in 2020. Bonds maturing from 2010 through 2020 are insured by Financial Guaranty Insurance Co. All remaining bonds are uninsured.Among insured 5% coupon paper in the deal, bonds maturing from 2018 through 2020 were tightest to that day’s MMD triple-A yield curve, with yields seven basis points over the curve. Bonds maturing in 2013 and 2014 were widest to the scale, with yields 11 basis points over.In addition, Citi will price $350 million of general obligation bonds tomorrow for the Los Angeles Community College District. The bonds, which will be insured by FGIC, are slated to mature from 2008 through 2027, with term bonds in 2032. The underlying credit is rated Aa2 by Moody’s and AA by Standard & Poor’s. First Southwest Co. is financial adviser.Citi will price $275 million of state clean water revolving fund revenue bonds for the Michigan Municipal Bond Authority Thursday. The bonds, which are slated to mature from 2010 through 2029, are rated triple-A by both Moody’s and Fitch.Leading the competitive slate, the Virginia Public School Authority Thursday will sell $227.4 million of school financing bonds. The bonds are scheduled to mature from 2008 through 2032. The credit is rated AA-plus by both Standard & Poor’s and Fitch.BB&T Capital Markets is financial adviser. Sidley Austin LLP is bond counsel.