New York City expects to price almost $1 billion of general obligation bonds on Dec. 18, and to tap its newly free-up credit enhancement capacity for the deal, a city official said yesterday.

The city also has decided to close the deal on Jan. 7 as a marketing strategy. Investors would be able to collect on some of the $13 billion in municipal bond coupon and principal payments made by issuers around the nation in early January and then use that money to buy city bonds, said Darcy Bradbury, deputy comptroller for the city.

New York City last came to market in late November with a $1.3 billion refunding bond issue rated Baa1 by Moody's Investors Service and A-minus by Standard & Poor's Corp. The maximum yield on the offering was 7.87%.

The proceeds from the refunding issue were escrowed and will be used to defease outstanding enhanced city bonds from the market. The deal also freed up future credit capacity for the city. Next week's deal marks the first time city officials will take advantage of this capacity.

Under a tentative pricing plan, the city plans to use bond insurance on $600 million of fixed-rate debt, and $200 million of bonds will be structured with variable rates with letters of credit attached, Ms. Bradbury said. About $185 million of the deal will be uninsured, fixed-rate bonds offered on the long end of the deal, she noted.

Bear, Stearns & Co., one of the city's five rotating senior managers, will serve as book runner on the negotiated offering. The size and structure of the deal may increase or change, Ms. Bradbury said.

The letters of credit will be used on maturities ranging from 1994 to 2001, she said, adding that Morgan Guaranty Trust Company of New York, Industrial Bank of Japan, Fuji Bank, and Sumimoto Bank are the providers.

Bond insurance will be used on maturities starting in 1999 and go out from there, she noted. Municipal Bond Investors Assurance Corp., Financial Security Assurance Inc., and AMBAC Indemnity Corp. will be providing the insurance.

"The very end of the deal will probably be uninsured," she noted. The deal includes uninsured bonds because "there is some demand on the long end for uninsured paper," she said.

"Our senior managers did an investor poll last Friday to see what the demand was for insured versus uninsured" paper, she said. As a resutl, "we were getting the feeling that there was more demand for uninsured bonds."

The poll also found demand for more insured paper, so "we also upped the insured portion," she added.

"This uses up most of the LOC capacity" the city freed up with its bond issue sold on Nov. 20. Because the benefits credit enhancers received from the defeasance, the city obtained agreements from them to guarantee credit enhancement totaling $1.6 billion on future deals.

The city's next deal is tentatively slated for February and sized at $750 million. City officials will probably use the rest of its bond insurance capacity on that deal. They also are expected to draw on a newly created liquidity facility for long-term, variable-rate bonds provided by Financial Guarantee Insurance Co. and its new corporate affiliate, FGIC Securities Purchase.

As for closing the deal early next year, Ms. Bradbury said the city's senior managers said this would be a good marketing tool to entice investors to buy city bonds at a time when the investors would be "cash rich" after municipal bond coupon and principal payments are made in early January.

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