Municipals better day after Congress passes debt ceiling bill; Battery Park City bonds price

By Sheri Kasprzak

New York, Oct. 17 - Municipals finally caught a break on Thursday after a two-week slump, market insiders reported.

A Congressional plan to fund the government through Jan. 15 and extend the debt limit until Feb. 7 passed on Wednesday, giving the Treasuries market a boost but leaving municipals flat at the time. On Thursday, the market did turn around as secondary activity picked up and as Treasuries continued their rally into a second session.

Municipals saw yields fall by 3 basis points to 5 bps with 10-year yields improving the most, said a trader late in the day.

The market seemed to respond to much-improved Treasuries. The 10-year note yield fell by 7 bps, and the 30-year bond yield fell by 6 bps. Intermediate- and long-term Treasuries have seen the most improvement over the past two sessions thanks to the bill.

Battery Park bonds price

Amid the substantial primary action Thursday, the Battery Park City Authority of New York hit the market with $362,785,000 of series 2013 senior revenue bonds.

The bonds (Aaa//AAA) were sold through Citigroup Global Markets Inc. and Ramirez & Co. Inc.

The offering included $356,085,000 of series 2013A tax-exempt bonds and $6.7 million of series 2013B taxable bonds, said pricing sheets.

The 2013A bonds are due 2014 to 2031 with 2% to 5% coupons and 0.17% to 4.05% yields. The 2013B bonds are due 2014 to 2015 with 2% coupons and yields from 0.30% to 0.50%.

Proceeds will be used to finance capital improvements to Battery Park City and to refund existing debt.

Fitch: Puerto Rico bonds stable

Despite some volatility in Puerto Rico debt recently, short- and medium-term notes issued by the commonwealth remain stable, said a report released by Fitch Ratings on Thursday.

"Stability in ratings has been helped by sufficient overcollateralization at the rate subaccount level within the fund and prudent portfolio management," said the report from Yuriy Layvand, a director with Fitch.

"We expect ratings will remain stable given the tight deleveraging triggers in place to protect noteholders from further collateral erosion but are mindful that excess volatility in pricing could hurt the rest of the portfolio and depress fund net asset values further."

Puerto Rico bonds sold off starting in late August, something that has already put stress on the broader muni market.

"Bond prices on top PR debt fell to below $0.65 on the dollar, and yields spiked closer to 9% as of Oct. 15, 2013, according to the Municipal Securities Rulemaking Board," Layvand said in the report.

"Total assets managed by the major PR mutual funds lost $6 billion toward the second week of October from the $13 billion they managed in May 2013. Recent price pressure has caused severe NAV erosion for the PR funds and, at times, forced asset sales. Funds have benefited to the extent they held U.S. agency mortgages and non-PR municipal bonds for liquidity but took big haircuts when needing to sell PR bonds."

Earlier this week, the commonwealth held a webcast to address growing concerns that it could be facing default and bankruptcy. Those rumors were put to rest by the address, which noted that fiscal first-quarter revenues were better than expected at $1.69 billion, up $88 million over the first quarter of fiscal 2013, exceeding estimates by $10.4 million.

The fiscal year 2014 general fund budget projects revenue growth of $1.74 billion, largely from new tax measures.

The commonwealth also announced that it intends to issue $500 million to $1.2 billion of debt for the remainder of the calendar year.

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