Gloomy news weakens munis by as much as 10 bps; New York City Transitional brings $875 million

By Sheri Kasprzak

New York, Jan. 12 - Long municipal yields were shoved up by as much as 10 basis points on Wednesday, mostly on news that bankruptcies in the public finance sector might become more prevalent, market insiders said.

"It's a shame that it's being so widely reported that municipals are in a crisis," said one trader.

"I don't think that's really the case, but the news that it is has really given us some headaches [today]. Out long, we're off by about 10 basis points. Shorter bonds are probably off 5 [bps] or so."

In fact, the widespread panic over potential muni defaults elicited a response from the muni desk at DWS Investments. Philip Condon, head of municipal bond portfolio management for DWS; Carol L. Flynn, head of municipal bond research at DWS; Ashton P. Goodfield, head of municipal trading at DWS; and Anthony Parish, fixed-income product specialist at DWS, agreed in the report released Wednesday that there will be defaults, but not on the scale widely reported in the media.

"The consensus is also emerging against those who, like Meredith Whitney, also predict the budget problems will inevitably lead to a wave of municipal defaults," wrote the municipal professionals at DWS.

"We disagree with the magnitude of Whitney's default numbers and stress the need to differentiate among different types of municipal deals. We will see some defaults this year. However, we believe they will remain a miniscule portion of the bonds trading in the muni market."

The DWS team did, however, advise cautious investing in the marketplace. Investors, according to them, should favor credit research, diversification and a bias toward high-quality bonds.

NYC bonds price

Meanwhile, the primary market cranked up despite worries that a snowstorm in the Northeast would postpone offerings. Even though the New Jersey Educational Development Authority did put off its planned $1.6 billion sale of bonds until Thursday, many large offerings came to market Wednesday.

The New York City Transitional Finance Authority priced $875 million of series 2011C future tax secured subordinated bonds on Wednesday, said a pricing sheet.

The bonds were sold through senior manager Barclays Capital Inc.

The bonds are due 2012 to 2033 with term bonds due 2035 and 2039. The serial coupons range from 2.5% to 5.5%. The 2035 bonds have a 5.25% coupon and a 5.5% coupon, and the 2039 bonds have a 5% coupon. The full pricing details were not available Wednesday night.

Proceeds will be used to finance general capital expenditures.

Wisconsin sells G.O. bonds

In the competitive market, two major deals priced, led by the State of Wisconsin, which came to market with $428.74 million of series 2011A general obligation bonds, said a pricing sheet.

The bonds were sold competitively with J.P. Morgan Securities LLC winning the bid.

The bonds are due 2012 to 2031 with 2% to 5.25% coupons.

Proceeds will be used to construct, develop, expand, extend, enlarge or improve land, water property, highways, buildings, equipment or facilities for public use.

Seattle brings revenue bonds

Also in Wednesday's competitive market, the City of Seattle priced $306.315 million of series 2011 municipal light and power improvement revenue bonds, according to a term sheet.

The deal included $296.315 million of series 2011A improvement and refunding bonds and $10 million of series 2011B taxable new clean renewable energy revenue bonds.

Citigroup Global Markets Inc. won the series 2011A bonds, and Robert W. Baird & Co. Inc. won the series 2011B bonds. Seattle-Northwest Securities Inc. was the financial adviser.

The 2011A bonds are due 2011 to 2026 and 2028 to 2033 with a term bond due in 2036. The serial coupons range from 1% to 5.5%. The 2036 bonds have a 5.25% coupon but were not reoffered.

The 2011B bonds are due Feb. 1, 2027 and have a 5.75% coupon priced at par.

Proceeds will be used to finance capacity and efficiency improvements at the city's Boundary Hydroelectric Project and to refund existing debt, subject to market conditions.

Arizona drives deal

In other pricing news, the Arizona Transportation Board sold $158.585 million of series 2011 tax-exempt grant anticipation notes, said a pricing sheet.

The bonds (Aa2) were sold through Bank of America Merrill Lynch.

The notes are due 2016 to 2026 with 4% to 5.25% coupons.

Proceeds will be used to fund various highway projects throughout the state.

Upland prices bonds

The City of Upland, Calif., priced $124.605 million of series 2011 certificates of participation for the San Antonio Community Hospital, said a pricing sheet.

The bonds (A3/A/) were sold on a negotiated basis with Bank of America Merrill Lynch and Morgan Stanley & Co. Inc. as the senior managers.

The bonds are due 2012 to 2021 with term bonds due 2026, 2032 and 2041. The serial coupons range from 3% to 5.75%. The 2026 bonds have a 6% coupon priced at 98.065, and the 2032 bonds have a 6.375% coupon priced at 97.184. The 2041 bonds have a 6.5% coupon priced at 96.797.

Proceeds will be used to construct, equip, acquire and renovate hospital facilities as well as prepay existing debt.

ABAG bonds price

Elsewhere, the ABAG Finance Authority for Nonprofit Corporations sold $77.71 million of series 2011A revenue bonds for Sharp Healthcare Wednesday, said a pricing sheet.

The bonds (A2/A/) were sold through Citigroup and are due from 2014 to 2024 with a term bond due 2030. The serial coupons range from 3.5% to 5.25%. The 2030 bonds have a 6% coupon priced at 98.587.

Proceeds will be used to redeem all of the corporation's outstanding series 2001A bonds and prepay a portion of the principal on its series 1998 obligations.

Based in Oakland, Calif., the authority assists California nonprofit organizations in the Bay Area with gaining access to tax-exempt funding. Sharp Healthcare is based in San Diego.

NYC water sale ahead

Looking to upcoming sales, the New York City Municipal Water Finance Authority is gearing up to sell $450 million of series 2011EE water and sewer system second general resolution revenue bonds, said a preliminary official statement.

The bonds (Aa2/AA+/AA+) will be sold through senior manager Jefferies & Co. The co-senior managers include Barclays, Morgan Keegan & Co. Inc., M.R. Beal & Co. Inc. and Ramirez & Co. Inc.

Proceeds will be used to finance improvements to the city's water and sewer system and to repay commercial paper notes.

The authority provides financing for the upgrade and operation of the city's water and sewer system.

Grossmont deal planned

Also ahead, the Grossmont Healthcare District of California is set to bring to market $136.86 million of election of 2006, series 2011 G.O. bonds, said a preliminary official statement. The sale is expected for Jan. 19.

The bonds (Aa2) will be sold on a negotiated basis with Goldman Sachs & Co. as the lead manager.

The bonds are due 2016 to 2031 with term bonds due 2034 and 2040.

Proceeds, along with funds contributed by Sharp Healthcare, will be used to continue capital projects, including the completion of hospital tower renovations, a central energy plant, a diagnostic and treatment center and a health occupations training center.

The district, based in La Mesa, operates health-care facilities in East County, Calif.

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