Munis close out strong week unchanged; Partners Health, Empire State Development gear up

By Sheri Kasprzak

New York, Dec. 9 - After a spectacular week for the muni market, yields remained largely unmoved to close out the week, traders reported.

"There's not a lot going on," said one trader.

"Secondary is still fairly active, but compared to the activity we had earlier in the week, we seem to be taking a bit of a break. I'd call it flat."

Meanwhile, the amount of outstanding municipal bonds is roughly $3.7 trillion, said Alan Schankel, managing director with Janney Montgomery Scott LLC, in a report released Friday.

"The Fed made an upward revision of $840 million (retroactive back to 2004) to the amount of munis held by households, with a pen stroke, increasing individual holdings of municipal bonds to 51% of total outstandings," Schankel wrote.

"If mutual funds and similar products are included, the amount of individual holdings jumps to $2.8 billion, or 75% of outstanding munis. No other major asset class has such high percentages of individual ownership."

Partners set to bring debt

Looking to the deals coming up in the next week, the Partners Health Care System Inc. will sell two deals on Tuesday, according to Deborah Sloan, deputy treasurer for the corporation. One of the offerings is a $330 million sale of series 2012L tax-exempt revenue bonds being offered through the Massachusetts Development Finance Agency, and the other is a $250 million taxable deal the corporation intends to conduct on its own.

Both bonds are rated Aa2 by Moody's and AA by both Standard & Poor's and Fitch. The taxable bonds will be sold through senior managers J.P. Morgan Securities LLC and Barclays Capital Inc.

Partners' decision to conduct the deals in this manner is linked to its name recognition, Sloan said in a recent interview.

"We are able to issue taxable [debt] directly," she said.

"We are unable to issue tax-exempt bonds directly, and that's the key distinction. We could have sold the taxable through the agency, but we chose to access the market directly."

The corporation most recently came to market in January 2010, selling $330.78 million of series 2010J-1 bonds with 3% to 5.25% coupons and $168.63 million of series 2010J-2 bonds with 4.25% to 5% coupons. Those bonds were issued through the agency.

One thing that makes the taxable bonds interesting, Sloan said, is that they're structured with a 10-year bullet maturity. The bonds are due July 1, 2021, making them more like corporate bonds. In fact, the proceeds will be used for general corporate purposes.

Proceeds from the tax-exempt bonds will be used for various capital projects.

Kelsey Abruzzese, spokeswoman for the Massachusetts Development Finance Agency, said earlier in the week that issuers generally choose not to issue taxable debt through the agency because of the fees involved.

The agency's bonds are due 2014 to 2026 with term bonds due in 2031, 2036 and 2041.

Empire State deal ahead

Also coming up on Tuesday, the Empire State Development Corp. is scheduled to price $709.295 million of series 2011 state personal income tax revenue bonds.

The deal includes $551.9 million of series 2011A bonds and $157.395 million of series 2011B taxable bonds, said a preliminary official statement.

The bonds will be sold competitively with Public Financial Management Inc. as the financial adviser.

"The corporation is not required to sell its debt competitively; however, the state does plan to sell a certain portion of its bonds on a competitive basis," Peter Heilbrunn, senior debt manager for the corporation, said in an interview conducted during the week.

"Other than selling the bonds on a competitive basis, the corporation is not gearing the offering in any particular way. Regarding the pricing of the bonds, we do not have any predictions on what that will be."

The 2011A bonds are due 2012 to 2041, and the 2011B bonds are due 2012 to 2021.

Among the projects being funded with the bond proceeds are agricultural and market, correctional and court facilities, the Empire Opportunity Fund, housing, the Luther Forest Technology Campus infrastructure, military and naval, New York State Department of Environmental Protection, Restore New York, state police, State University of New York and other projects, as well as equipment purchases, said Heilbrunn.

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