Alabama officials perplexed over debt-deal fizzle

By Michael Connor

MIAMI, June 12 (Reuters) - Alabama finance officials are puzzling over why no bidders showed up for a debt offering by the Alabama Public School and College Authority, forcing organizers to scuttle the deal.

Well known in the market, with about $2.3 billion of debt outstanding, the AA-rated authority on Thursday unexpectedly canceled a $285 million competitive offering of refunding bonds because no bids were received.

A nearly $40 million offering of new money bonds was also canceled by the authority, which has filed a lawsuit against JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) in a dispute over financial derivatives.

The authority's financial advisors and state officials are searching for explanations but so far attribute the fizzled deal to general market conditions, according to Bill Newton, Alabama's acting finance director.

"The bond market has been kind of strange for a number of weeks," Newton said.

The $2.7 trillion tax-free market rallied for most of 2009, a trend that was a boon to issuers because interest rates on munis fell as market prices increased.

But the rally has reversed in recent weeks despite common forecasts of more price gains because of investors reinvesting interest payments and redemptions of current holdings paid out in June and July.

An uptick in new supply, including a Puerto Rico offering over $4 billion this week, has also weighed on the market, according to traders and portfolio managers.