Municipals flat as wary investors stay away after Detroit bankruptcy; Harris County notes set

By Sheri Kasprzak

New York, July 22 - Municipals experience a sluggish session on Monday as investors, wary over Detroit's bankruptcy filing, stayed away, market sources said.

"Mondays are typically pretty quiet, but this is really slow," said a trader in the afternoon.

"Detroit has definitely kept some investors out, but I think it's a temporary headline effect and the dust will settle soon enough. When something like this happens, there's always some initial panic."

On Friday, the city filed the largest Chapter 9 bankruptcy protection case in U.S. history.

Deficit as big as $380 million

Kevyn Orr, a bankruptcy expert, was brought in by the city in March. He submitted a proposal to Detroit creditors to avoid bankruptcy. He was unable to convince creditors to take what amounted to almost pennies on the dollar for their investments or pension promises, said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC.

"We expect that the city services will remain unchanged during the bankruptcy proceedings and it is very likely that this could drag out over a number of years based on the limited number of Chapter 9 experiences the municipal market has witnessed," Kozlik wrote Monday.

"Detroit has been grappling with several negative factors for many years, including the fact that the city population was as high as 1.8 million in the 1950s and is now near 700,000. The city's budget deficit is significant and could be as much as $380 million and its total long-term obligations are about $19 billion. Detroit has about $650 million of outstanding general obligation bonds.

Harris County notes planned

Coming up on Tuesday, Harris County, Texas, will offer $295 million of series 2013 tax anticipation notes competitively (/SP-1+/F1+).

The notes are due Feb. 28, 2014, and proceeds from the offering will be used to finance capital requirements for the county ahead of the collection of certain taxes.

Also ahead this week, the South Carolina Public Service Authority will head to the market with $1,748,000,000 of series 2013 revenue bonds (Aa3/AA-/AA-) through Goldman, Sachs & Co., Barclays and Morgan Stanley & Co. LLC.

The offering will be conducted in four tranches.

Proceeds will be used to fund a portion of the authority's ongoing capital improvement program and to refinance a portion of outstanding debt.

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