Municipals gain ground as investors return to market; Dasny sells $660.27 million revenue debt

By Sheri Kasprzak

New York, July 16 - Municipals firmed on Tuesday as Treasuries improved and investors were seen back in the market again, traders said.

Trading action was better throughout the session with the all-important retail buyers seen flocking back to municipals.

"We were in a lull for a while, which could be due to investor apathy for sure, but there are other factors," said a trader.

"Volatility is keeping some investors away, but there are a lot of buyers seeking yield. It's the perfect time to get in the market."

Dasny brings debt

Heading up the day's muni new-issue activity, the Dormitory Authority of the State of New York sold $660.27 million of series 2013 state personal income tax revenue bonds, said a pricing sheet.

The offering includes $615.66 million of series 2013A tax-exempt bonds and $44.61 million of series 2013B taxable bonds.

The 2013A bonds are due 2015 to 2037 with term bonds due in 2039 and 2043. The serial bonds have 5% coupons with 0.45% to 4.27% yields. The 2039 bonds have a 5% coupon priced at 104.955 to yield 4.36% and the 2043 bonds have a 5% coupon priced at 104.398 to yield 4.43%.

The 2013B bonds are due

The bonds (//AA) were sold competitively.

Proceeds will be used to finance or reimburse all or a portion of the costs of capital projects for the State University of New York for educational facilities, SUNY Upstate Community College facilities and City University of New York for senior college and community college facilities, as well as to finance certain required state matching contribution to the water pollution control revolving fund.

State pension ratios down

According to Fitch Ratings, funded ratios for most major U.S. statewide pension plans continue to decline, but the rate of decline is slowing.

"Factors contributing to the ongoing erosion include absorption of market value losses from the 2008-2009 recession and the lower investment return assumptions implemented by many plans," said the report.

The burden of states' debt and unfunded pensions range widely, the report said, with the median burden of debt and unfunded pensions measuring 7% of personal income but ranging from 1.8% to 24.8%.

"Pensions remain a growing pressure for numerous states' budgets," said Douglas Offerman, senior director in Fitch's states group.

"Nearly all states are pursuing reform and remain well-positioned to address these burdens. While the positive effects of reform for most are decades away, a proactive approach to managing pension challenges is a credit positive."

Investment performance in 2012 was relatively flat for most plans and well below their investment return assumptions which adds downward pressure on actuarial funded ratios, said the report.

"Investment performance has been stronger more recently," said the report.

"Plans with a June 30 valuation date can expect to record gains well above their investment return assumptions when they report 2013 valuations. More than one-half of major statewide plans lowered their investment return assumptions since the downturn, a positive step. Fitch believes that investment return assumptions at 8% or higher are unrealistic."

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