Muni yields firm along with Treasuries; New Jersey Health Care brings Meridian Health bonds

By Sheri Kasprzak

New York, Dec. 8 - Thanks to a healthy supply-demand dynamic and a stronger Treasuries market, municipals continued their weeklong rally Thursday, said traders reached during the day.

Fifteen-year bonds were the most improved, with yields down by more than 8 basis points. Seven-year yields were down almost 6 bps, and 20- and 30-year yields were both down about 1 bp.

The week's firming trend has been thanks in large part to healthy investor demand fueled by the most recent banquet of new offerings, said one trader reached during the session.

"We've had a good amount of demand, but that's been true for a while," he said.

Alan Schankel, managing director with Janney Montgomery Scott LLC, said Thursday that the 10-year benchmark triple-A yield hit 2% for the first time since late September.

New Jersey health bonds price

Leading a more subdued primary market, the New Jersey Health Care Facilities Financing Authority sold $200.595 million of series 2011 refunding bonds for the Meridian Health System Obligated Group, said a pricing sheet.

The bonds (/A-/A) were sold on a negotiated basis.

The bonds are due 2012 to 2027 with 2% to 5% coupons.

Yields on the Meridian Health bonds ended with a 4.54% yield in 2027, about 10 bps lower than initial pricing, Schankel said of the bonds on Thursday.

Proceeds will be used to refund Meridian Health System's existing series 1994, 1997, 1999 and 2001 bonds.

Puerto Rico deal well received

Meanwhile, the Puerto Rico Public Finance Corp.'s recently priced $400 million of series 2011B commonwealth appropriation bonds (Baa2/BBB-/) were finalized with a price of par for the 5.5% term bond due in 2031, said Schankel, about 8 bps lower than its initial pricing levels.

The bonds were sold Wednesday through Barclays Capital Inc. and are due 2024 to 2026 plus the term bond due in 2031. The serial bonds all have 6% coupons.

Proceeds from the sale will be used to refund the corporation's series 2004A commonwealth appropriation bonds.

Water, sewer sector stable

In broader muni news, Fitch Ratings said Thursday that even though economic, capital and political pressures pose a concern to many issuers, the U.S. municipal water and sewer sector is stable.

According to a Fitch report released Thursday, the sector remains strong overall and should be able to sustain its stability through 2012 even though negative ratings actions have been prevalent in the past few years.

"Most systems exhibit more than sufficient financial flexibility," Doug Scott, managing director at Fitch, said in the report.

"However, timely rate recovery will be important to ensure full cost recovery and preserve financial margins."

The agency's assessment for the sector's performance in 2012 is contingent upon five elements, including water and sewer systems' sound fundamentals, positive financial results, moderate debt profiles, limited cost escalation and a relatively stable regulatory environment.

Bucks County prices

Several water and sewer offerings have come down the pipeline. On Thursday, Bucks County, Pa., priced $105.124 million of water and sewer revenue bonds through Boenning & Scattergood.

The deal included $89.229 million of series 2011A bonds and $15.895 million of series 2011B bonds.

The 2011A bonds are due 2014 to 2026 with term bonds due in 2029, 2033, 2037 and 2041. The serial coupons range from 3% to 5%. The term bonds all have 5% coupons. The 2029 bonds priced at 107.961, the 2033 bonds priced at 105.197, the 2037 bonds priced at 103.968, and the 2041 bonds priced at 103.401.

The 2011B bonds are due 2013 to 2022 with term bonds due in 2025, 2028 and 2031. The serial coupons range from 1% to 5%. The 2025 bonds have a 3.5% coupon and priced at 97.835. The 2028 bonds have a 5% coupon and priced at 108.559. The 2031 bonds have a 4.1% coupon and priced at 97.994.

Proceeds will be used to finance capital improvements to the county's water and sewer system.

The City of Detroit recently announced plans to hit the market with $493.375 million of series 2011 water supply system revenue bonds through lead managers Siebert Brandford Shank & Co. LLC and J.P. Morgan Securities LLC.

The proceeds from the bonds, which will be sold in two tranches, will be used to fund capital improvements to the city's water supply system and terminate the entire existing interest rate swap portfolio of the water system.

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