CHICAGO -- Michigan and two of its bonding authorities will issue a total of almost $1.3 billion of debt this week, mainly to bolster the state's cash flow and take advantage of low interest rates to refund previously issued debt.

The state will sell $700 million of short-term general obligation cash-flow notes tomorrow in a deal headed by First Boston Corp., according to Nick Khouri, the state's chief deputy treasurer, who predicted a good reception for the debt.

Also in negotiated deals, the Michigan State Building Authority will sell $304 million of revenue refunding bonds and $195 million of 1991 lease-backed revenue bonds for prisons either tomorrow or Wednesday.

And the Michigan State Housing Development Authority will issue about $50 million of multifamily mortgage revenue bonds and nearly $38 million of current refunding bonds later in the week.

Wall Street traders said the deals will come amid a deluge of supply that may force cheaper price levels.

"It's not so much the credit itself," said the head of a major trading desk. "We've had so many bonds priced in the last month and more coming this week that deals have come cheaper."

Mr. Khouri said he did not believe selling that much state debt in one week would have an adverse effect on pricing the isues.

"We think it is an advantage that we are going to the market with a consistent theme for Michigan," he said.

That theme, according to Lawrence Bashe, a vice president at First Boston, is that Gov. John Engler, who took office Jan. 1, and the Legislature have dealt successfully with the state's budget problems.

"The issue is no longer the state budget or the will of the administration and the state Legislature to deal with deficit problems," Mr. Bashe said. "The underlying issue is Michigan's relationship to the national economy."

While the state maintained its AA rating with Standard & Poor's Corp., the agency continued to assign a negative outlook to the rating because of a "sluggish" economic outlook, "optimistic" revenue expectations, continued social services cost pressures, and possible costly tax reform proposals in the next election.

Still, the notes received the highest rating from the agencies -- SP-1-plus from Standard & Poor's and MIG-1 from Moody's Investors Service. Standard & Poor's cited the "strong coverage of debt service by pledge revenues" and the fact that the state will set aside money to pay principal and interest on the notes six weeks prior to maturity.

A rating from Fitch Investors Service Inc. is expected to be released today, according to Richard Raphael, a senior vice president.

Co-senior managers for the note issue, which is expected to close at the end of the week, are Morgan Stanley & Co. and Prudential Securities. Co-bond counsel for the deal are Dickinson, Wright, Moon, Van Dusen & Freeman and Lewis, White & Clay.

State officials had been considering a cash-flow borrowing since September, following the passage of a $7.7 billion general fund budget for fiscal 1992, which began Oct. 1. Mr. Khouri said the administration decided to issue notes because it was more cost-effective than borrowing internally at taxable rates. The notes will be paid off during the fiscal year, he added.

Last March, the state sold a $500 million note issue backed by the state's GO pledge and an unconditional standby note purchase agreement from three Swiss banks. The notes, which were sold in a deal headed by Prudential Securities, marked Michigan's first cash-flow borrowing since September 1985.

The Michigan State Building Authority's bonds were rated AA-minus by Standard & Poor's and Fitch, and A by Moody's.

Tom Saxton, the authority's executive director, said the bonds would be priced midweek with a possible closing on Dec. 27. The refunding issue, which has Merrill Lynch & Co. and First Boston as co-senior managers, should save the state about $130 million over the next five to six years, he added. Prudential Securities and Morgan Stanley are co-seniors for the $195 million of new revenue debt.

The $88 million of housing debt, which carries the state's moral obligation pledge, was rated A-plus by Standard & Poors. George Fox, the housing authority's finance director, said no rating was sought from Moody's. He added that the authority would delay pricing the issue until at least a day after the building authority was done with its deal. Co-senior managers on the deal are Goldman, Sachs & Co. and First Boston. Closing on the new bonds is scheduled for Dec. 30 and closing for the refunded bonds is expected to take place Jan. 2.

Michigan has an A1 GO rating from Moody's and AA from Fitch.

Meanwhile, the Michigan Education Trust board adopted a resolution Wednesday encouraging Gov. Engler to offer the state's first college save bond program.

Mr. Khouri said the administration agreed with the resolution and was exploring options, including issuing "a relatively small" amount of the zero coupon college saver bonds as part of a state environmental GO bond issue that may be sold early next year.

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