Muni yields close flat with firmer tone; market prepares for Illinois' $3.7 billion G.O. sale

By Sheri Kasprzak

New York, Feb. 18 - Munis were mostly flat with a firmer tone, market insiders reported on Friday, amid light trading action. Subdued supply will be helped by the coming week's sale of $3.7 billion of series 2011 general obligation bonds from Illinois.

"It feels firmer, but there's not a great deal of movement," said one trader reached during the session.

"It's that typical Friday feeling where not a lot is moving, but I'd call it firmer nonetheless."

Meanwhile, the market awaits Illinois' sale, which was pushed back from Thursday so Gov. Pat Quinn could unveil his budget proposal, including a plan to sell $8 billion of tax-free debt in the near future to pay off bills.

The taxable sale could bring in investors that had previously been interested in Build America Bonds, market insiders speculated earlier in the week.

Tax-free offerings, however, will continue to be scarce, reported Alan Schankel, managing director with Janney Montgomery Scott LLC.

The Illinois sale, Schankel said, will mark one of the largest sales to date with California, one of the most prolific borrowers in the market, absent from the new-issue market for the first half of 2011.

Illinois deal ahead

The Illinois offering will headline the otherwise lethargic primary calendar for the week ahead.

Morgan Stanley & Co. Inc., Goldman Sachs & Co. and Loop Capital Markets LLC are the joint bookrunners for the deal with Mesirow Financial Inc. and William Blair & Co. as the co-senior managers.

The bonds are due 2014 to 2019.

Proceeds will fund the state's pension requirements and school capital needs.

Louisville bonds to price

Also coming up, the Louisville and Jefferson County Metropolitan District of Kentucky is slated to sell $226.34 million of series 2011A sewer and drainage system subordinated bond anticipation notes on Wednesday.

The bonds (MIG 1/SP-1+/F1+) will be sold competitively with First American Municipals Inc. as the financial adviser.

The notes are due March 1, 2012, and the district intends to pay and retire its series 2010A sewer and drainage system subordinated BANs, which were used to refund its series 1999A sewer and drainage system revenue bonds.

North Texas brings bonds

On Thursday, the North Texas Higher Education Authority sold $210.2 million of series 2011-1 taxable Libor floating-rate student loan bonds, said an official statement.

The bonds (/AAA/AAA) are due April 1, 2040 and bear interest at Libor plus 110 basis points.

Bank of America Merrill Lynch and Deutsche Bank Securities were the senior managers.

Proceeds will be used to finance student loans.

Based in Arlington, the authority provides low-cost student loans to citizens of the cities of Arlington and Denton.

Louisiana G.O. sale planned

Looking ahead, the State of Louisiana is scheduled to go ahead with the sale of $300 million of series 2011A G.O. bonds on March 1, said a preliminary official statement.

The bonds (Aa2//AA) will be sold on a competitive basis with Government Finance Associates Inc. as the financial adviser.

The bonds are due 2011 to 2030.

Proceeds will be deposited into the state's Comprehensive Capital Outlay Escrow Fund for general government; veterans' affairs; elected officials; economic development; culture, recreation and tourism; corrections and public safety; hospitals; education; legislative; and non-state entities expenses.

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