Despite some goods news from a major rating agency yesterday, the $54 million tax anticipation note deal planned by Suffolk County, N.Y., is still going to be a hard sell, according to municipal market participants.
The county got a small boost when Standard & Poor's Corp. placed its general obligation bonds on CreditWatch with positive implications. In June the agency had demoted the GOs to BB from BBB-plus and put them on negative CreditWatch.
Yesterday's change means the county could pay less of a penalty on its note sale today. Preliminary pricing talk has the negotiated sale of one-year notes yielding between a 6.50% to a 6.75%, although some market pessimists have suggested the yield may go as high as 7.00%. The Bond Buyer's one-year note index was 4.87% yesterday.
But the fiscally troubled county could still have problems with the note sale, a number of market participants said.
In addition, three members of the negotiated underwriting syndicate -- Lehman Brothers, Merrill Lynch & Co., and co-manager Oppenheimer & Co. -- have left the underwriting group for various reasons during the past week.
And the county decided to push the deal through with only a note rating from Fitch Investors Service, which rates the Tans F-2. In a release, the rating agency said the county executive and the county legislature recently adopted a comprehensive package designed to regain budget balance. Although the plan involves some one-shot moves, actions have been taken that should help to restore annual balance, the agency said.
Concerned that Standard Poor's would not rate the notes favorably, county Comptroller Joseph R. Caputo said, "I feel there wasn't any benefit going there."
In June, Standard & Poor's lowered its short-term rating on the $51 million of Tans due yesterday to SP-3 from SP-2. Mr. Caputo said the county had the funds to pay off the notes.
He said he expected the sale to go well. "I think it is going to be okay. I have a lot of enthusiasm from the underwruters. It is just a matter of price."
He said he had inquiries from a big insurance company interested in buying $12 million of the notes and from a mutual fund interested in $10 million.
Retail investors have also expressed a strong interest in the offering, said Herman r. Charbonneau, a managing director with Chemical Securities Inc., which is the co-senior manager and book-runner for the offering. "I think there is real good individual interest and we hope it wil bring some crossover buyers," he said.
He noted that there has been an extensive premarketing effort.
As for firms dropping out, Mr. Charbonneau said, "I can't honestly say what everyone's motives were."
In announcing its rating action, Standard & Poor's said that in July the county executive, Patrick Halpin, and the county legislature agreed to a fiscal stabilization plan that makes heavy use of significant one-shot revenues for fiscal 1991 to address the estimated combined fiscal 1990 and 1991 deficit of $75 million, and also provides an estimated $63 million in 1992 from a new, temporary 5-cent county sales tax.
The legislature eased the 1991 budget problems by authorizing the county treasurer to temporarily borrow available valances from two restricted reserve funds.
The county executive's proposed 1992 budget, which begins Jan. 1, is scheduled for release on Sept. 20,
Moody's Investors Service was not asked to rate the notes. The rating agency rates the county's uninsured GO bonds Baal.
Responding to the rating action by Standard & Poor's, Robert A. Kurtter, deputy county executive for finance, said, "It is small step in the right direction. We think we have demonstrated we are an investment-grade credit, and we are disappointed that S&P has not acknowledged that at this time.
"We are going to continue to work with S&P to reestablish the county as an investment grade credit," he said.
Fitch noted that the softening of the economy has hurt revenues, with economically sensitive items coming in at flat levels.