Municipal yields firm; California's $2 billion deal will feed demand for California paper

By Sheri Kasprzak

New York, Feb. 28 - Municipal yields were firmer as the primary market cranked up and secondary activity also picked up, traders reported.

"Yields are firming up," said one trader.

"The stuff that's pricing is coming at pretty good levels, and it's getting absorbed very quickly."

The deal of the week - a $2 billion sale of series 2012 various purpose general obligation refunding bonds from the State of California - received some significant retail response on Tuesday during the first of two retail order periods, said Tom Dresslar, spokesman for the California treasurer's office.

"Retail investors today placed about $765 million of orders in the state's $1.99 billion general obligation bond sale that will be completed Wednesday," Dresslar said.

"The $765 million equals 38.4% of the total offering."

The state will conduct another retail order period on Wednesday before opening the deal up to institutional investors.

"The retail demand has been pretty hefty, so we're pleased with the results so far," Dresslar said.

"We look forward to doing some more retail business tomorrow and completing a deal on Wednesday that provides taxpayers some much-needed savings on our debt payments."

Initial yields 1.28% to 4.09%

During the retail order period Tuesday, yields for the longest maturity, at 26 years, came in at 4.09%, said Dresslar.

Yields on the 20-year bonds came in at 3.7%, and the yields for 10-year bonds came in at 2.7%. The five-year bonds were priced to yield 1.28% during the retail order period.

Alan Schankel, managing director with Janney Montgomery Scott LLC, said Tuesday that the offering will dominate the primary action during the week, which is expected to be $8 billion overall. The California sale, he said, is important because there has been a lack of California offerings in the market.

"This is noteworthy because a reported dearth of California paper has generated pent-up demand from California investors seeking a state tax exemption," he said Tuesday.

"As background noise, Stockton, Calif., announced on Friday it plans to skip debt service payments on several outstanding bond issues through the June 30 end of the fiscal year, preserving cash and perhaps adding pressure to negotiations it plans to pursue if its [bankruptcy] plan is approved by the city council today [Tuesday]."

The bonds (A1/A-/A-) are being sold through a syndicate led by Barclays Capital Inc., J.P. Morgan Securities LLC and Wells Fargo Securities LLC.

Proceeds will current refund existing G.O. debt for debt service savings.

DeKalb County brings TANs

In pricing action during the session, DeKalb County, Ga., came to market with $157 million of series 2012 tax anticipation notes, said a pricing sheet. This is the first time in 12 years the county has priced tax anticipation notes, Joel Gottlieb, the county's chief financial officer, said in an interview Tuesday.

The notes (MIG 1) were sold competitively with Bank of America Merrill Lynch winning the bid. The deal attracted 10 bidders, Gottlieb said.

The notes are due Dec. 28, 2012, bear interest at 1% and priced at 100.614. The true interest cost came in at 0.234366%.

"We had reserves built up and had been doing inter-fund borrowing," Gottlieb told Prospect News.

"We decided that based on our ratings, we would go back to issuing TANs rather than continuing to do inter-fund borrowing."

In the county's 2000 TANs sale, it sold $24.5 million of 4.5% notes, which were due Dec. 29, 2000 and were priced to yield 4.05%.

Proceeds will be used to fund current expenses ahead of the collection of certain taxes.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.