Municipals soften yet again; Puerto Rico finalizes, upsizes $2.73 billion sale of G.O. bonds

By Sheri Kasprzak

New York, March 7 - Municipals once again felt the pressure of increased supply, traders reported. The middle of the curve was dealt the biggest blow, said one trader, with yields off by anywhere from 5 basis points to 6 bps.

"We're starting to feel some pressure, definitely," said the trader when asked about the impact of this week's incredibly high supply on yields.

"Absorption has been really good, but I think we're getting to the point now where the market is getting overloaded. Things are pricing well, but secondary does seem to be suffering."

Puerto Rico brings G.O.s

The Commonwealth of Puerto Rico completed its $2,733,460,000 of series 2012 general obligation public improvement refunding bonds, said a pricing sheet. The offering was substantially upsized from $1.4 billion following a retail order period that was cut short due to demand.

The deal included $2,318,190,000 of series 2012A bonds and $415.27 million of series 2012B bonds.

The 2012A bonds are due 2020 to 2033 with term bonds due in 2035, 2037, 2039 and 2041. The serial coupons range from 4% to 5.75%. The 2035 bonds have a 5% coupon and priced at par. The 2037 bonds have a 5.125% coupon and priced at 98.254. The 2039 bonds have a 5.5% coupon and priced at 101.952, and the 2041 bonds have a 5% coupon and priced at 95.272.

The 2012B bonds are due 2013 to 2020 with a term bond due in 2033. The serial coupons range from 2.25% to 4.4%, all priced at par. The 2033 bonds have a 5.3% coupon and priced at 99.365.

The 2012A bonds were sold through senior managers Barclays Capital Inc. and J.P. Morgan Securities LLC. The series 2012B bonds were sold through UBS FS Puerto Rico.

During Tuesday's retail order period, the 25-year maturity priced to yield 5.3%, said Alan Schankel, managing director with Janney Montgomery Scott LLC.

"Although initially scheduled to run until 4 p.m., the retail order period was cut off at 1:30, presumably due to strong demand," he noted.

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

Maryland taps institutions

In other major offerings during the session, the State of Maryland priced $737.34 million of series 2012 state and local facilities loan G.O. bonds (Aaa/AAA/AAA), said a pricing sheet.

The deal included $57,085,000 of series 2012A tax-exempt bonds, $543,915,000 of series 2012B tax-exempt bonds and $136.34 million of series 2012C tax-exempt refunding bonds.

The 2012A bonds are due 2015 to 2027 with 1.25% to 5% coupons. The 2012B bonds are due 2015 to 2027 with coupons from 3% to 5%. The 2012C bonds are due 2016, 2018, 2021 and 2022 and all have 4% coupons. The 2016 bonds priced at 114.845, the 2018 bonds priced at 117.948, the 2021 bonds priced at 117.72, and the 2022 bonds priced at 117.466.

The series 2012A bonds were priced on a negotiated basis with Bank of America Merrill Lynch as the senior manager.

The 2012B and 2012C bonds were sold competitively with Bank of America Merrill Lynch winning both.

The offering was aimed toward institutional investors, said a market insider familiar with the deal.

"There was some retail interest, but institutional was the real focus," he said.

"It was a tough sale, unfortunately. It got done, but it was done at a price, and they weren't able to get what they were hoping for."

The deal was downsized from $921.59 million.

Proceeds will be used to make a deposit to the state's state and local facilities loan account to be expended as projects arise.

According to a source with the Maryland state treasurer's office, the state expects to conduct another bond sale in August, but the full details have not been determined at this time.

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