Municipals close firmer; Puerto Rico Aqueduct sells $2.1 billion bonds in oversubscribed deal

By Sheri Kasprzak

New York, Feb. 16 - Municipals were firmer yet again on Thursday, this time beating the odds as Treasuries weakened. New issue activity remained strong and pricing was considered solid, according to traders reached during the session.

Yields across the curve were seen firmer by 1 to 3 basis points in the afternoon, according to one trader.

"New issues are coming [to market] strong, and that's where a lot of the strength in the market is coming from today," said the trader.

"We're seeing more trading as well. The demand is still really good, and there's a lot of attention on the recent offerings [in secondary]."

Puerto Rico sells $2.1 billion

Leading the primary market Thursday, the Puerto Rico Aqueduct and Sewer Authority priced $2.1 billion of series 2012 senior lien revenue bonds, said a pricing sheet. The deal was substantially upsized from its $1.25 billion size.

It was hardly surprising to one sellsider that the offering was oversubscribed by nearly twice the anticipated amount.

"The returns on Puerto Rico bonds are much, much higher than other issuers," he said.

"Investors are really reaching for yield when they can find it. It's pretty typical, in fact, for Puerto Rico bonds to be substantially oversubscribed."

The offering included $1.8 billion of series 2012A bonds and $295.25 million of series 2012B bonds.

The 2012A bonds are due 2015 to 2030 with term bonds due in 2033, 2037, 2042 and 2047. The serial coupons range from 4% to 5.5%. The 2033 bonds have a 5% coupon and priced at 98.446. The 2037 bonds have a split maturity with a 5.125% coupon priced at 96.755 and a 5.75% coupon priced at 103.78. The 2042 bonds have a 5.25% coupon and priced at 97.474. The 2047 bonds have a 6% coupon and priced at 105.508.

The 2012B bonds are due 2014, 2016, 2018, 2020, 2023 and 2027. The coupon is 3.35% for the 2014 bonds, 3.92% for the 2016 bonds, 4.45% for the 2018 bonds, 4.9% for the 2020 bonds, 5% for the 2023 bonds and 5.35% for the 2027 bonds. The bonds all priced at par.

The bonds (Baa2/BBB-/BBB-) were sold through senior manager Bank of America Merrill Lynch.

Proceeds will be used to finance the authority's five-year capital improvement program.

Virginia prices

In other pricing action during the session, the Commonwealth of Virginia sold $95.49 million of series 2012A general obligation refunding bonds, said a pricing sheet.

The bonds (Aaa//AAA) are due 2013 to 2025 with 2% to 5% coupons.

"The commonwealth's general obligation refunding bonds were awarded to J.P. Morgan [Securities LLC] with a winning TIC of 1.57874%," said Evelyn Whitley, the debt manager for the Virginia treasurer's office.

Proceeds will be used to refund the commonwealth's series 2002, 2003A, 2004A and 2005A G.O. bonds.

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