Ohio Capital Cuts Build America Sale as Spread Narrows to Lowest in Month

Columbus, Ohio, the capital whose debt rates a grade above the state’s, sold about $191 million in Build America Bonds as the premium to Treasuries shrank to the lowest in a month.

The top-rated issue totaled $413 million in general obligations instead of the $430 million originally planned, including $266 million in Build Americas. Even with the decrease, the taxable Build America issue was the week’s second- largest such offer, and came as the yield spread with 30-year Treasuries narrowed to the lowest since June 28.

“I think in the future you’re going to see deals that are half tax-exempt and half BABs, like this Columbus deal is,” said Anthony Shields, a principal in the public-finance department at Williams Capital Group in New York. “Assuming we get the BABs extended at the end of this year.”

The 10-year maturity of the federally subsidized bonds priced to yield 3.89 percent, 90 basis points higher than a 10- year U.S. Treasury.

The Build America Bond program, under which the federal government pays 35 percent of the interest costs of taxable bonds sold to pay for public works projects, was created last year as part of President Barack Obama’s economic-stimulus package to help ease borrowing by state and local governments. The program was set to expire at the end of 2010, though a bill was introduced yesterday in the U.S. House to extend it two years.

“We’ll probably end up close to a 50/50 split between tax- exempts and taxables,” Steve Wentzel, Columbus’s debt management specialist, said in a telephone interview yesterday. Calls to Wentzel today weren’t immediately returned.

Municipal Boon

Build Americas have been a boon for state and local governments, which have sold about $124 billion of the securities. They also have been a plus for investors, according to Justin Hoogendoorn, a bond strategist at BMO Capital Markets in Chicago.

“What we’re telling clients is that BABs and the broader municipal market in general are very favorable compared with corporates right now,” Hoogendoorn said. “Ohio paper is definitely pricing wider than the overall market, but with Columbus, I wouldn’t expect them to have too many problems with pricing on the deal.”

This month, top-rated taxable municipal securities have returned more than triple the rate of comparable corporate bonds, according to indexes compiled by Bank of America Corp.’s Merrill Lynch & Co.

Tax-Exempts

Columbus also sold about $195 million in tax-exempts that priced at 2.62 percent for 10-year maturities. Yields on top- rated, tax-exempt general obligations that mature in 10 years averaged 2.86 percent yesterday for a sixth consecutive day, the lowest since at least January 2001, according to data from Municipal Market Advisors, an independent research firm in Concord, Massachusetts.

The Columbus issue was marketed by a group led by St. Louis-based Stifel Nicolaus & Co. Proceeds from the general obligations with maturities of two to 21 years will go toward building medical facilities, parks, transportation projects and debt refinancing.

Following are descriptions of pending sales of municipal debt in the U.S.:

MINNESOTA, which is delaying its tax refunds for a second year to fulfill legal obligations to balance its books, plans to sell through competitive bidding $865 million in general- obligation taxable and tax-exempt bonds as soon as next week to finance capital improvement projects. The state is raising $635 million for various purposes and $225 million for trunk highways, both of which are tax-exempt, and $5 million of taxable debt. The bonds are top-rated by Fitch and carry Moody’s second-highest grade at Aa1. (Added July 29)

MIAMI-DADE COUNTY EXPRESSWAY AUTHORITY, which operates the five major highways in Florida, will sell $350 million in tax- exempt debt as soon as next week to add reserves to the agency’s construction and debt-service funds. The bonds, backed by toll revenue, are rated A3 by Moody’s and A- by Fitch, the fourth- lowest investment grades, and A by S&P, one level higher. Underwriters led by Citigroup will market the securities. (Added July 26)

To contact the reporters on this story: Justin Doom in New York at jdoom@bloomberg.net

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