Munis shrug at weaker Treasuries as new deals feed demand; New York brings $330.08 million

By Sheri Kasprzak

New York, Dec. 6 - Municipals once again shrugged off weaker Treasuries and firmed up as the new issue supply heated up, fueling investor demand, market insiders reported.

Ten-year yields were the most improved, with yields seen down by more than 7 basis points. Seven- and five-year bonds were both seen firmer by about 5 bps. Thirty-year yields, however, were off slightly, gaining about 2 bps.

Demand was the driving force behind the improvement, said one trader reached during the session.

"The demand has been there for a while, and supply seems to be getting absorbed well," he said.

Leading the flood of new issues, the State of New York came to market with $330.075 million of series 2011 general obligation bonds on Tuesday, according to a term sheet.

The deal included $299.165 million of series 2011E tax-exempt bonds and $30.91 million of series 2011F taxable bonds.

The 2011E bonds are due 2012 to 2034 with term bonds due in 2037 and 2041. The serial coupons range from 2% to 5%. The 2037 bonds have a 4% coupon and priced at 97.627, and the 2041 bonds have a 4.25% coupon and priced at par.

The 2011F bonds are due 2012 to 2021 with 0.5% to 3% coupons.

J.P. Morgan wins tax-exempts

J.P. Morgan Securities LLC took the tax-exempt portion of the competitive sale with a 3.521160% true interest cost.

Robert W. Baird & Co. Inc. won the taxable portion of the offering with a 2.310668% TIC.

Proceeds from the sale will be used to finance capital projects, including clean air and water initiatives and transportation projects.

"I am extremely pleased with the results of this bond sale," Thomas P. DiNapoli, the state's comptroller, said in a statement released Tuesday afternoon.

"There was significant market interest demonstrated by the number of bidders, which translated into favorable pricing for the state."

In March 2011, the state sold $478.185 million of series 2011A tax-exempt bonds, which are due 2012 to 2032 and 2034 to 2036 with a term bond due in 2041. The serial coupons range from 3% to 5.25%. The 2041 bonds bear interest at 5% priced at 100.769. The state offered at the same time $21.865 million of series 2011B taxable bonds due from 2012 to 2021 with 1% to 4.05% coupons. The 2012 bonds were priced at 100.304, but the rest of the bonds were priced at par.

University of Houston prices

In other pricing news, the Board of Regents of the University of Houston System brought $286.81 million of series 2011 consolidated revenue and refunding bonds in two tranches, said a term sheet.

The bonds (Aa2/AA-/) were sold competitively. Richard Bonnin, spokesman for the board of regents, said Tuesday that the winning bidder and the TIC for the offering will be released Wednesday.

The deal included $265.5 million of series 2011A tax-exempt bonds and $21.31 million of series 2011B taxable bonds.

The 2011A bonds are due 2013 to 2036 with term bonds due in 2039 and 2043. The serial coupons range from 2% to 5%. The 2039 bonds have a 5% coupon and priced at 107.184, and the 2043 bonds have a 5% coupon and priced at 106.79.

The 2011B bonds are due 2013 to 2028 with term bonds due in 2030, 2032 and 2037. The serial coupons range from 2.75% to 4.5%. The 2030 bonds have a 4.65% coupon and priced at 99.873. The 2032 bonds have a 4.75% coupon and priced at 99.866. The 2037 bonds have a 4.85% coupon and priced at 99.85.

Proceeds will be used to refund the university system's series 2002A-B consolidated revenue bonds and commercial paper.

Bonnin said the university is not explicitly required to sell its debt competitively.

"The university believes in the competitive bidding process for its transactions," Bonnin said in an interview Tuesday.

The decision to refund the university's series 2002A-B bonds was made during a routine review of the university's portfolio, said Bonnin.

"We continually review our debt portfolio to optimize refunding opportunities to lower the cost of capital," he said.

Partners Health to sell

In upcoming offerings, the Partners Health Care System Inc. is set to come to market with two offerings - one a tax-exempt deal being sold through the Massachusetts Development Finance Agency and the other a taxable deal the corporation intends to conduct on its own.

The agency will offer up $330 million of series 2012L revenue bonds on behalf of Partners, and the corporation will sell $250 million of series 2011 taxable bonds. Both bonds are rated Aa2 by Moody's and AA by both Standard & Poor's and Fitch. The taxable bonds will be sold through senior managers JPMorgan and Barclays Capital Inc.

Partners' decision to conduct the deals in this manner is linked to its name recognition, Deborah Sloan, the corporation's deputy treasurer, said in an interview Tuesday.

"We are able to issue taxable [debt] directly," she said.

"We are unable to issue tax-exempt bonds directly, and that's the key distinction. We could have sold the taxable through the agency, but we chose to access the market directly."

Bonds feature bullet maturity

One unusual aspect of the taxable offering, Sloan noted, is that the bonds are structured with a 10-year bullet maturity. The bonds are due July 1, 2021. This makes the bonds more akin to corporate debt. Indeed, the proceeds from the taxable portion will be utilized for general corporate purposes.

Proceeds from the tax-exempt bonds, which will be sold through a syndicate led by JPMorgan, will be used to construct a 379,000-square-foot hospital in Charlestown, Mass., to house a 132-bed replacement for the Spaulding Rehabilitation Hospital, the installation of a system-wide revenue management system and acute care documentation management system, the construction of a 360,000-square-foot building at the Brigham & Women's Hospital's main campus in Boston to house research and clinical space for the hospital's neuroscience and musculoskeletal programs, to construct a 400-space parking garage beneath Brigham's Boston campus, to acquire a building in Boston to house research and administrative offices and to renovate and equip various other facilities operated by Partners Health.

Pricing for the taxable bonds is tentatively scheduled for Dec. 13, said Sloan.

Kelsey Abruzzese, spokeswoman for the Massachusetts Development Finance Agency, said Tuesday that issuers generally choose not to issue taxable debt through the agency because of the fees involved.

The agency's bonds are due 2014 to 2026 with term bonds due in 2031, 2036 and 2041.

Empire State deal ahead

Also coming up, the Empire State Development Corp. announced Tuesday that it plans to price $709.295 million of series 2011 state personal income tax revenue bonds on Dec. 13.

The deal includes $551.9 million of series 2011A bonds and $157.395 million of series 2011B taxable bonds, said a preliminary official statement.

The bonds will be sold competitively with Public Financial Management Inc. as the financial adviser.

"The corporation is not required to sell its debt competitively; however, the state does plan to sell a certain portion of its bonds on a competitive basis," Peter Heilbrunn, senior debt manager for the corporation, said Tuesday.

"Other than selling the bonds on a competitive basis, the corporation is not gearing the offering in any particular way. Regarding the pricing of the bonds, we do not have any predictions on what that will be."

The 2011A bonds are due 2012 to 2041, and the 2011B bonds are due 2012 to 2021.

Among the projects being funded with the bond proceeds are agricultural, market, correctional and court facilities, the Empire Opportunity Fund, housing, the Luther Forest Technology Campus infrastructure, military and naval, New York State Department of Environmental Protection, Restore New York, state police, State University of New York and other projects, as well as equipment purchases, said Heilbrunn.

The corporation last priced state personal income tax revenue bonds in December of 2010. The corporation offered up $367.295 million of the PITs, which are due from 2011 and 2015 to 2020. The 2011 bonds have a 2% coupon and priced at 100.47. The other coupons range from 2% to 5%. The 2020 bonds have a split maturity with a 3.5% coupon priced at 102.692, a 4% coupon priced at 106.617 and a 5% coupon priced at 114.593.

California to buy green bonds

In other municipals news Tuesday, the State of California penned a deal to buy $400 million of World Bank green bonds, said Tom Dresslar, spokesman for the state treasurer's office.

The bonds, which are due Dec. 16, 2013, will yield 0.51% for the state, said Dresslar, a yield equal to roughly double Monday's two-year U.S. Treasury yield of 0.26%.

Proceeds will be used to finance renewable energy and other non-nuclear projects around the globe to fight climate change under the World Bank's program.

The bonds, Dresslar said, were purchased by the state's Pooled Money Investment Account.

"[California Treasurer Bill] Lockyer's office manages the PMIA, which invests in taxpayer money to help manage the state's cash flow and solidify the financial strength of local governments and schools," Dresslar said.

"The PMIA portfolio totaled $65 billion at the end of November."

The state completed a similar deal in April 2009, when it became the first U.S. buyer of the bonds following a $300 million investment. Those bonds, Dresslar said, are due April 24, 2012.

"These bonds are a great investment for California and its taxpayers," Lockyer said in a statement.

"We're earning an excellent return, strengthening our portfolio and backing our policies with money in the fight against global warming."

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