In uneasy market, BA Securities buys San Francisco deal; no sympathy move.

BA Securities Inc. stepped up and bought $25 million of San Francisco Parking Authority bonds yesterday, but it was no mercy mission by a sympathetic hometown bank, a syndicate official said.

"There's nothing to do with sympathy with what I do," W. Peck Ferrin, vice president and manager of trading and underwriting, said yesterday." We did it because you know if people start looking through the Orange County debacle, I think what you are going to see is basically a flight to quality," Ferrin said he checked and San Francisco "runs the cleanest fund in the world." The underwriter said he saw a chance to take advantage of a market that's sloppy because of the bad publicity surrounding Orange County.

"We do believe that there is going to be a lot of interest building up for bonds not associated with problem loans, Ferrin said, adding that BA Securities decided to "step up to the plate" and prove itself right. BA Securities bought the bonds at a true interest cost of 6.9390%. Smith Barney Inc. had the cover bid at a 6.953% TIC, he said.

"We bought it and, believe it or not, we couldn't get off the phone -- it just had orders all over the place," he said.

Ferrin estimated that $3 million of bonds were left by late in the day, and all the long bonds had been placed. The Capital Guaranty Insurance Corp.-insured offering consisted of serial bonds reoffered to investors at yields ranging from 5.20% in 1996 to 7% in 2014. A 2020 term was not formally reoffered to investor.

The bonds, which are triple-A rated ed because of the insurance, were priced as if they carried a single-A rating, a municipal analyst said. The credit has an underlying rating of A from Moody's investors Service and A-plus from Standard & Poors Corp.

"It gave us some type of level," he said, "Now is it real? I don't know that."

In secondary activity yesterday, the overall market was down 3/8 to 1/2 point. Dollar bonds were off 1/2 overall, though some were only down 3/8 late in the day. High-grades were weaker by three to five basis points in the long end.

In debt futures, the March municipal contract was down 1/8 to 83 17/32. Yesterday's March MOB spread was negative 498, compared to negative 488 on Wednesday.

Also yesterday, a municipal trader said the Orange County situation is likely to heighten demand for pre-refunded bonds.

"Without a doubt, the most valuable bonds you could hold right now would be pre-refunded bonds because obviously there's no credit questions with pre-refunded bonds or bonds escrowed to maturity."

The trader said that comparing an insured bond to a pre-refunded bonds is "like comparing a used car to a brand new Rolls Royce," he said.

"People have to start wondering whether insurance companies can suffer another Orange County," the trader said.

With a pre-refunded bond "you don't have to worry about anything, what you are buying is a tax-exempt Treasury bond ... That's why they are the cheapest thing in our market," he said.

Topping the negotiated calendar next week is a $675 million New York State Medical Care Facilities Finance Agency deal.

Next week's competitive slate kicks off with with $65.8 million of Louisville-Jefferson Counties Metropolitan Sewer District, Ky., revenue bonds and $60 million of New York State general obligation bonds on Tuesday. Wednesday will bring $115 million of Seattle, Wash., revenue bonds, and $250 million of Suffolk County, N.Y., tax anticipation notes.

The 30-day visible supply of municipal bonds totaled $2.4 billion yesterday, down $370.4 million from Wednesday. That comprises billion of competitive bonds, down $43 million from Wednesday, and $1.218 billion of negotiated bonds, down $327.5 million.

Standard & Poor's Corp.'s Blue List of municipal bonds was up $50.1 million yesterday, to $1.275 billion.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER