San Diego Water moves up $625 million bond sale on buyer demand
By: Dunstan McNicho (Bloomberg News)

The San Diego County Water Authority, the wholesale water provider for 3 million Southern Californians, went to market a day early with about $625 million in taxable Build America Bonds and tax-exempt debt, citing demand.

The $526.1 million of subsidized Build America securities, set to mature in 2049, attracted 125 orders for three times the amount of bonds available in preliminary pricing yesterday, said Eric Sandler, the authority's finance director.

The response prompted the authority to adjust pricing on the bonds, narrowing the so-called yield spread over 30-year U.S. Treasuries to 160 basis points from 175 basis points. A basis point is 0.01 percentage point. After a 35 percent interest rebate from the U.S. government under the Build America program, the bonds will cost the authority 3.98 percent, Sandler said.

"We had tremendous demand," Sandler said in an interview after the decision to move up the sale previously set for Thursday. "The Treasury market had been easing, and rather than take the risk of the Treasury market, we went to market" Wednesday.

The so-called true interest cost of the taxable, subsidized securities and about $100 million of tax-exempt debt was 4.045 percent, less than the 4.81 percent paid by the authority two years ago, when it last went to market, Sandler said. The water revenue bonds are rated Aa3 by Moody's Investors Service and AA+ by Standard & Poor's.

The sale to raise money for system improvements came as tax-exempt yields on top-rated general obligations due in 10 years held at 3.08 percent Wednesday, unchanged from Jan. 19, according to a daily survey by Municipal Market Advisors of Concord, Mass.

Ten-year, tax-exempt San Diego water bonds were priced to yield 3.59 percent. Citigroup Inc. (NYSE: C) handled the transaction.

Top-rated Princeton University, the Ivy League college in New Jersey, offered $250 million in tax-exempt bonds through the state's Educational Facilities Authority. The largest competitive sale scheduled for the week was won by JPMorgan Chase & Co., out of eight bidders, with an offer of 4.03 percent, said Sheryl Stitt, the authority's spokeswoman.

Proceeds from the sale will finance completion of a new chemistry building that's to open in the fourth quarter, renovations to the historic Firestone Library and other projects, said Cass Cliatt, a university spokeswoman.

Thirty-year, tax-exempt Princeton bonds traded Thursday at various prices to yield 4.14 percent to 4.4 percent, Municipal Securities Rulemaking Board data show.