Municipals unchanged to firmer; Foothill/Eastern Transportation to sell $2.26 billion bonds

By Sheri Kasprzak

New York, Nov. 22 - Municipals were flat to slightly firmer on Friday as high-grade municipals appealed to investors in secondary, traders said in the afternoon.

Yields were flat to a basis point or so better, said a trader.

With the Thanksgiving holiday ahead, new issue action is expected to be light, insiders reported.

Foothill deal set

Looking to upcoming offerings, the Foothill/Eastern Transportation Corridor of California announced its plans to price $2,259,586,376.20 of series 2013 toll road revenue refunding bonds.

The offering includes $1,354,075,000 of series 2013A current interest bonds, $173,797,848.45 of series 2013A convertible capital appreciation bonds, $155,318,527.75 of series 2013A capital appreciation bonds, $125 million of series 2013B-1 bonds, $125 million of series 2013B-2 bonds, $125 million of series 2013B-3 bonds and $201,395,000 of series 2013C junior lien current interest bonds, said a preliminary official statement.

The bonds (Ba1/BBB-/BBB-) will be sold on a negotiated basis with Barclays and Goldman Sachs & Co. as the joint bookrunners. The co-managers are Citigroup Global Markets Inc., Wells Fargo Securities LLC, BofA Merrill Lynch, Jefferies & Co., Cabrera Capital Markets LLC, Morgan Stanley & Co. LLC, De La Rosa & Co. and Piper Jaffray & Co.

The maturities have not been set.

Proceeds will be used to refund the agency's series 1999 revenue bonds.

Fitch says California must resist restoring spending

Moving to ratings agency news, Fitch Ratings released a report Friday stating that in order for California to continue to benefit from its economic and revenue rebound, it must resist restoring spending levels.

The state's rebound plan, combined with three consecutive balanced budgets, have been beneficial, but continued progress will demand that the state prioritize paying off past borrowing for operations, the Fitch report said.

"Although California's fiscal situation has improved significantly, we also believe it remains a long way from fully recovering from the effects of the two fiscal crises experienced in the past decade," senior directors Doug Offerman and Rob Rowan wrote.

The state Legislative Analyst's Office published its state fiscal outlook this week, which projects continued budgetary surpluses through fiscal 2019.

"LAO's favorable outlook is the product of ongoing economic growth, recent temporary tax increases and consistent state actions to maintain spending austerity at a time of rising revenues," Offerman and Rowan wrote.

"Notwithstanding recent budgetary discipline, the state historically has had difficulty restraining spending growth during periods of strong fiscal performance, setting the state for more severe fiscal weakness in the inevitable recession that follows."

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