Most swap dealers hankering to bid on today's New York City note issue are shrugging off worries about the city's credit ratings.

Standard & Poor's gave its highest short-term rating of SP-1 plus to a portion of the notes yesterday. But the agency gave the bulk of the offering, including the series 1995B revenue anticipation notes that could include swaps, its second highest rating of SP-1.

Last year's note deal carried the same SP-1 plus and SP-1 rating, but the city used swaps on the higher-rated shorter maturity.

This year, swap dealers hope to bid on the longer maturity revenue anticipation notes structured as indexed floating-rate securities. If the floating-rate bids win, New York will enter interest rate swaps to lock in a fixed rate for the life of the notes.

Market participants said price talk on the notes was "all over the place" yesterday.

One official said fixed-rate yields were expected at 3.25% to 3.50% on the February notes, which have the highest rating, 3.50% to 3.75% on the April notes, and 4% to 4.20% on the July notes.

But the official said he expected aggressive bidding for the notes. The July notes are likely to come well below 4.20%, he said. A $100 million note offering by Erie County, N.Y., backed by a letter of credit from Union Bank of Switzerland and due August 15, 1995, was repriced to yield 4%, the official said.

Potential swap counterparties are unconcerned about the city's rating for such a short-term swap, market participants said.

Even though the city's notes are rated below SP-1 plus, "most counterparties are comfortable with the city's ability to meet its obligations over one year," one derivatives professional said.

However, some buyers of market index notes may be concerned by the SP-1 rating. Money market mutual funds buy most such notes and, by law, they are sensitive to minute changes in credit quality.

Derivatives professionals will poll the funds today to test demand for the indexed notes. "lt depends on the ratings," one swap professional said. "There is a lot of demand for New York paper, but people may shy away from a lower rating."

A note that is rated lower than the top short-term rating is considered a second-tier security under rule 2a7 of the Investment Company Act of 1940. A money fund can have only 5% of its assets in second-tier securities.

In other news, last week's $260 million issue by South Orange County Public Financing Authority managed by PaineWebber Inc. included $100.2 million of derivatives.

An $85.2 million term bond due in 2015 was structured as auction-set floating-rate securities and corresponding inverse floating-rate securities. A $15 million term due in 2017 had the same structure.

The derivatives are insured by Financial Guaranty Insurance Co. The floating-rate bonds will be reset at auction every 35 days but will pay semiannual interest.

The derivatives saved the authority about eight basis points, an official on the deal said.

J.P. Morgan and Bankers Trust were very busy in the secondary derivatives market at the end of last month, according to Moody's Investors Service.

During the week of July 25, the rating agency gave Aa and Aaa ratings to nine deals sponsored by J.E Morgan totaling $56 million. UnderLying issuers backing the derivative securities included the New York State Dormitory Authority, and general obligation bonds from Ohio, New Jersey, and Connecticut.

County Regional Transportation Commission, carried bond insurance.

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