Municipals close out flat to slightly weaker; Puerto Rico upsizes G.O. sale to $358.98 million

By Sheri Kasprzak

New York, Feb. 9 - Municipal yields were mostly unchanged on Wednesday amid heavy primary action, with some weakness seen in the middle of the yield curve, market insiders reported.

"I'd call it flat," said one trader.

"If there's any weakness, it's somewhere in the middle [of the yield curve], and it's no more than a basis point or two. It's been fairly quiet [in trading] because there's been a surge of activity in primary."

Meanwhile, municipal market analysts have come out of the woodwork to defend the market's creditworthiness. Remo Di Re, senior municipal bond credit strategist with RBC Wealth Management, released a report Wednesday that if defaults do occur in the coming year, they'll likely be limited to the local level.

"Is municipal Armageddon on the horizon?" Di Re asked in the report.

"Many pundits proclaimed almost two years ago that when the City of Vallejo, Calif., filed for Chapter 9 bankruptcy protection, it was the beginning of a wave of municipal Chapter 9 filings. Two years later, Vallejo is preparing to exit what has been a very costly bankruptcy, and no other major city has filed for Chapter 9."

Di Re pointed out that one of the largest defaults since Vallejo was the filing of Chapter 11 protection by the Las Vegas Monorail, which issued municipal bonds to construct the project.

"While we have cautioned our investors that the risk for increased defaults exists due to the current economic climate and what has been a very slow recovery (which has caused a drag on overall tax revenue collections), we believe defaults - if they do occur - will be isolated to the local government level."

Puerto Rico ups bond sale

Heading up a heavier-than-usual primary calendar, the Commonwealth of Puerto Rico headlined with its significantly upsized $358.975 million of series 2011A public improvement general obligation refunding bonds. The deal was originally announced for $85 million.

The bonds (A3/BBB-/BBB+) were sold through Barclays Capital Inc. and Jefferies & Co., said a pricing sheet.

The bonds are due 2024 to 2025, 2027 to 2028 and 2033 to 2034 with term bonds due in 2040. The coupons range from 5.25% to 6.5%.

Proceeds will be used to refund existing debt and repay some Government Development Bank lines of credit.

South Carolina brings debt

In other sales on Wednesday, the State of South Carolina came to market with $335.95 million of series 2011 G.O. bonds, said pricing sheets.

The state sold $192.275 million of series 2011A school facilities refunding bonds and $123.59 million of series 2011A capital improvement refunding bonds. It also sold $20.085 million of series 2011A state institution refunding bonds for the University of South Carolina.

The state is also expected to price $66.225 million of series 2011B state institution bonds for Clemson University, $15 million of series 2011C state institution bonds for Midlands Technical College, $18.95 million of series 2011D state institution bonds for the University of South Carolina and $26 million of series 2011E state institution bonds for the University of South Carolina.

The 2011A school facilities refunding bonds are due 2012 to 2017 and have 2% to 5% coupons. The 2011A capital improvement bonds are due 2012 to 2018 with 2% to 5% coupons. The 2011A University of South Carolina bonds are due 2012 to 2022 with 2% to 5% coupons.

The bonds (Aaa/AA+/AAA) were sold competitively with Public Resources Advisory Group as the financial adviser.

The state intends to use the proceeds to finance capital improvements to higher educational facilities and refund existing debt.

San Joaquin drives sale

Also on Wednesday, the San Joaquin County Transportation Authority of California sold $212.175 million of series 2011A Measure K sales tax revenue bonds, said a pricing sheet.

The bonds (Aa3/AA/) were sold through J.P. Morgan Securities LLC.

The bonds are due 2016 to 2031 with term bonds due in 2036 and 2041. The serial coupons range from 3% to 5.75%. The 2036 bonds have a 6% coupon priced at 103.031, and the 2041 bonds have a 5.5% coupon priced at 96.445.

Proceeds will be used to finance transportation projects, defease the authority's series 2008 commercial paper notes and fund debt service requirements.

Based in Stockton, the authority provides transportation plans for a seven-city region within the county as well as funds necessary repairs and upgrades to the system.

U of Pennsylvania brings bonds

Elsewhere, the Pennsylvania Higher Educational Facilities Authority brought $150 million of series 2011 revenue bonds for the University of Pennsylvania on Wednesday, said a term sheet.

The bonds (Aa2) were sold through Morgan Stanley & Co. Inc.

The bonds are due 2016, 2018 and 2020 to 2031 with a term bond due in 2041. The serial coupons range from 4% to 5%. The 2041 bonds have a 5% coupon priced at 97.255.

Proceeds will be used to finance various capital projects, including research, academic and student residence facilities.

The university is located in Philadelphia.

Bellevue school bonds ahead

Looking to upcoming sales, the Bellevue School District No. 405 of Bellevue, Wash., said Wednesday that it plans to bring to market $200 million of series 2011 unlimited tax G.O. bonds on Tuesday.

The bonds (Aaa/AA+/) will be sold competitively with Seattle-Northwest Securities Corp. as the financial adviser, said a preliminary official statement.

The bonds are due 2012 and 2015 to 2030.

Proceeds will be used to rebuild three elementary schools, modernize Bellevue High School, modernize the academic facility portion of Sammamish High School, modernize up to four middle schools and make other capital improvements throughout the district.

Howard sale set

Also on Tuesday, Howard County of Maryland is scheduled to bring $158.07 million of series 2011 G.O. bonds, said a preliminary official statement.

The sale includes $109.23 million of series 2011A consolidated public improvement bonds and $48.84 million of series 2011A metropolitan district bonds.

The bonds (Aaa/AAA/AAA) will be sold competitively with Public Financial Management as the financial adviser.

The 2011A consolidated public improvement bonds are due 2012 to 2031, and the 2011A metropolitan district bonds are due 2012 to 2041.

Proceeds will be used to fund capital expenditures.

The county seat is Ellicott City, Md.

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