Moody's cuts FGIC to A3, but issuers may not be put off yet; Nashville, Davidson to price G.O.s in March

By Cristal Cody and Sheri Kasprzak

New York, Feb. 14 - Even though Moody's Investors Service had no love for FGIC Corp., downgrading the bond insurer to A3 from Aaa on Valentine's Day, issuers may not be bailing out of the market just yet, a market source said.

"You know, there might be some who are going to hold off, maybe delay their offerings for a while, but there are ways around it," he said.

"Some may try to go the uninsured route. I do think there is a market for A rated insurers. The market is in bad shape now and insurers aren't immune. They're paying now for some mistakes. Doesn't mean the whole muni market is going to melt."

One issuer going the uninsured route, at least for now, is the Metropolitan Government of Nashville and Davidson County out of Tennessee. But the issuer may seek insurance before its $310 million in general obligation bonds goes out for pricing March 4.

"We plan to go uninsured," said Lannie Holland, the city and county government's treasurer in an interview Thursday afternoon.

"We will look at it up until the pricing date, with an option to insure. Our credit is such that as a standalone, it has been sufficient to give us a good pricing."

Holland said market conditions and insurers' woes have little to do with the government's choice to try to price the bonds uninsured.

The G.O.s from Nashville will price competitively and were rated Aa2 Thursday by Moody's and AA by Fitch earlier this week.

The government will buy back commercial paper used as bond anticipation notes with the proceeds, Holland said.

Moody's downgrades FGIC

Looking back at the downgrade of FGIC by Moody's, the financial strength rating of the insurer's operating subsidiaries was downgraded to A3 from Aaa on Thursday and the senior debt rating of the parent was downgraded to Ba1 from Aa2.

"The downgrade reflects the company's weakened capitalization and business profile in part from exposure to the U.S. residential mortgage market," a statement from Moody's said Thursday.

"The ratings remain on review for downgrade, reflecting continuing uncertainty about the firm's strategic and capital plans."

The ratings agency may downgrade the insurer again a Baa level, if an unfavorable outcome in those areas continues, the statement said.

Earlier this month, Moody's downgraded XL Capital Assurance Inc. to A3 from Aaa.

Nebraska bonds price

Moving to Thursday's pricing news, the Nebraska Investment Finance Authority confirmed it priced $50 million single family housing revenue bonds.

The series 2008 A fixed-rate bonds mature 2009 to 2018 with term bonds in 2028 and 2039. Series 2008 B floating-rate bonds mature in 2038.

The final terms were not available before press time.

Lehman Brothers is the senior manager.

Proceeds will be used to refund outstanding bonds and to purchase and finance mortgage loans and mortgage-backed securities in Nebraska.

Also set to price Thursday was $170 million in school facility revenue bonds for the Erie County Industrial Development Agency for the Buffalo, N.Y., city school district.

The bonds (Aaa/AAA/-) have serial maturities from 2009 through 2029.

Citigroup Global Markets is the lead underwriter of the negotiated pricing.

Proceeds will be used to help finance the third phase of a 10-year comprehensive redevelopment program of Buffalo's public schools.

Additional information was not available.

Minnesota metro council's bond sale

In upcoming offerings, the Metropolitan Council of Minnesota will price $129.15 million in three series of bonds competitively on Feb. 20, an official statement said Thursday.

The offering includes $40.3 million in series 2008B general obligation transit bonds, $80 million in series 2008C general obligation wastewater revenue bonds and $8.85 million in series 2008D general obligation wastewater revenue refunding bonds.

Proceeds from the series B bonds will be used for capital expenses outlined in the council's transit master plan and transit capital improvement plan. The C bonds will be used to acquire and improve equipment in the district's wastewater system and the D bonds will be used to refund the council's outstanding general obligation promissory note issued in 1993.

Howard Hughes Medical Institute bonds

Elsewhere, the Howard Hughes Medical Institute plans to price $83.5 million multi-modal revenue bonds on Feb. 21, Ed Palmerino, vice president of finance and treasurer for Howard Hughes Medical Institute, said Thursday.

The series 2008A bonds (Aaa/AAA/-), issued through the Maryland Economic Development Corp., will be set on a weekly basis, he said.

The institute also plans to price $76.5 million series 2008B refunding bonds on April 1, Palmerino added.

Citi is the underwriter on the series 2008A bonds, and Lehman Brothers is managing series 2008B bonds.

The medical research organization plans to use the proceeds from the 2008A bonds to renovate and expand the administrative headquarters offices in Chevy Chase, Md. Proceeds from the 2008B bonds will be used to refund existing debt on the headquarters from the institute's series 1990 bonds.

Fairfield plans bond sale

Looking ahead, the city of Fairfield in Connecticut will price $51.115 million in series 2008 refunding bonds to refund its 2003A and 2003B bonds, a preliminary official statement indicated Thursday.

The bonds will be sold through lead manager William Blair on a negotiated basis and will have a serial structure from 2010 to 2023, the official statement said.

The proceeds will refund the city's 2003A and 2003B bonds. The 2003A bonds have a serial structure from 2011 to 2023 with coupons from 3.25% to 4.5%, priced at par. The 2003B bonds have a serial structure from 2009 to 2016 with coupons from 2.75% to 3.75%, also priced at par.

In other news, the Beaumont Independent School District of Jefferson County, Texas will price its previously announced $90 million offering of unlimited tax school building bonds on Feb. 21, a source familiar with the deal told Prospect News Thursday, correcting an earlier assertion that the bonds would be sold on March 14.

The bonds (Aaa/AAA) will be sold through a syndicate led by UBS Investment Bank and the district will use the proceeds to construct, equip and renovate school buildings.

Secondary seen weaker

A trader told Prospect News Thursday afternoon that the market was off a touch, weaker by as much as 5 basis points on the long end.

"The real weakness is long," said the New York-based trader late Thursday afternoon.

"I'm seeing a few trades here and there on the shorter end and they're not that much changed, to be honest. The real trouble seems to be longer, 40 years, 30 years."

The trader did not have any specific trades to share, but said he felt the muni market is probably just following Treasuries.

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