Munis end mixed following slump for Treasuries; New York Urban Development sells $753 million

By Sheri Kasprzak

New York, Sept. 10 - Municipals were mixed on Tuesday following a sour session for Treasuries, a well-received primary slate and continued pressure on the secondary side, insiders reported.

Pricing levels for new issues were reportedly done at concessions to secondary.

Puerto Rico's financial woes continued to add pressure to the secondary market. High-grade names were the least-affected by the secondary pressure, with high-grade names firming, a trader noted during the session.

Puerto Rico erodes

Despite Monday's market improvements, Puerto Rico paper continues to erode, said Alan Schankel, managing director with Janney Montgomery Scott LLC.

"Out of the gates Monday, an institution traded more than $40 million various issues with one eye-opening trade of $12 million Puerto Rico Public Building Guaranteed (Baa3/BBB-/BBB-) 6.125% of 2023 at a 10.02% yield and then a re-trade within 40 minutes a point higher at a 9.38% yield," Schankel wrote Tuesday.

"Although yields of Puerto Rico trades were higher than last week's level, the 10% trade ranks as an outlier compared to block trades of PREPA 5% of 2023 at 7.30% and in the longer maturity range, PRASA (Ba1/BB+/BBB-) 5.25% of 2042 at 8.60%."

Schankel warned that although there was a dramatic sell-off of Puerto Rico names, it belies the strong fiscal measures being taken by the commonwealth's new administration.

"The island economy is struggling, and it remains to be seen if revenue projections will be fully realized, but the measures taken to narrow the FY14 budget gap exceed any steps taken by states or local mainland municipal government," Schankel wrote.

"Those steps include more than $1 billion of new tax revenue and pension reforms that illustrate the commonwealth's political will to make difficult but necessary decisions. Revenues have also been increased to support public corporations, including a tripling of the petroleum tax revenue component underlying the Highway and Transportation Authority and a 60% increase for ratepayers of the Aqueduct and Sewer Authority."

New York Urban Development prices

Heading up the primary activity on Tuesday, the New York State Urban Development Corp. was one of the few names with larger deals hitting the market. The corporation sold $753,415,000 of series 2013C state personal income tax revenue bonds.

The bonds were sold competitively. Goldman Sachs & Co. won a portion of the bonds maturing inside of 10 years at a 2.446162% all-in true interest cost, and BofA Merrill Lynch took part of the bonds maturing 11 years and out at a 4.43869% all-in TIC, said Abigail Leib, press officer for the corporation.

The bonds are due 2015 to 2033 with 5% coupons and 0.38% to 4.58% yields.

Proceeds will be used to reimburse the state for the costs of a multiyear highway and bridge capital program, to make grants to reimburse municipalities and other project sponsors throughout the state for qualifying capital expenditures for highway, bridge and multimodal projects and to fund other transportation projects.

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