Municipals see improved activity but end weaker; $10 billion new offerings expected for week

By Sheri Kasprzak

New York, Dec. 2 - Secondary activity picked up in the afternoon Monday after a quiet start to the municipals market after the Thanksgiving holiday, but yields rose by 3 basis points to 5 bps along with a weaker Treasuries market. Long bonds in particular, one market source noted, were notably weaker.

In comparison, the 10-year Treasury note yield rose by 5.5 bps to close out the day at 2.801%, and the five-year note yield climbed by 5 bps to 1.418%. The 30-year bond yield rose by 4.5 bps to 3.859%.

Treasury prices rose on the session following the release of November manufacturing data from the Institute for Supply Management.

New-issue action is expected to increase substantially this week, with about $10 billion of new offerings expected to hit the market.

Foothill/Eastern deal set

Heading up the substantial primary calendar is a $2,259,586,376.20 offering from the Foothill/Eastern Transportation Corridor of California.

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 current interest bonds, $125 million of series 2013B-2 current interest bonds, $125 million of series 2013B-3 current interest bonds and $201,395,000 of series 2013C junior lien current interest bonds.

The bonds (Ba1/BBB-/BBB-) will be sold through Barclays and Goldman Sachs & Co.

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

"Like many toll roads, Foothill Eastern was impacted by a slowdown in vehicle traffic during and following the recession," said Alan Schankel, managing director with Janney Montgomery Scott LLC.

"Through 2007, traffic and tolls met or slightly exceeded projections from a 1999 study, but traffic fell by 18% from 2007 to 2013. Toll increases somewhat mitigated revenue declines, but lower-than-expected revenues imperiled financial stability, necessitating restructuring."

New York tobacco bonds ahead

Another major offering for the week comes from New York's Tobacco Settlement Financing Corp. The corporation is set to sell $1,230,620,000 of series 2013 asset-backed revenue bonds through Citigroup Global Markets Inc., Barclays and Ramirez & Co. Inc.

The deal includes $662,545,000 of series 2013A bonds and $568,075,000 of series 2013B bonds.

Proceeds from the offering will be used to refund all of the corporation's series 2003A-1C and series 2003B-1C asset-backed revenue bonds.

"Unlike most state tobacco issues, New York's enjoy security of an appropriation pledge pursuant to a contract with the state," Schankel said Monday.

"If tobacco settlement revenues are insufficient for debt service, New York will make up the difference, subject to legislative appropriation."

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