Muni yields mostly unchanged; Illinois Build America Bonds headline week's primary activity

By Sheri Kasprzak

New York, July 12 - Municipal yields were seen largely unchanged to kick off the week, but the tone remained firm, said one trader.

"There's not a whole lot trading. Yields are, I'd call them, flat," he said.

"It's been pretty quiet. Buyers are, I think, waiting for the [Treasury] auction to see what will happen to Treasuries."

More broadly, tax-free yields have reached their lowest levels in more than 50 years, said Alan Schenkel, managing director at Janney Montgomery Scott LLC's fixed-income desk.

"It remains to be seen if this trend continues, but we suspect that municipal credit concerns have diminished as individual investors continue to see tax-free income and the strong credit track record of general obligation and essential-purpose municipal bonds," Schenkel said.

"The technical aspects of the market, particularly supply and demand, are favorable for continuation of the trend."

Another trend expected to continue is the recycling of proceeds from maturing bonds, reinvestments, redemptions and coupon payments. Schenkel said that this has been already extremely popular throughout June and July and will likely continue throughout the rest of this month.

In June, about $60 billion in reinvestment dollars were recorded, and so far this July, there has been about $50 billion.

Illinois sale ahead

The week's primary calendar will be relatively light, led by a $900 million offering of series 2010-5 G.O. Build America Bonds from the troubled State of Illinois.

"Some Illinois issuers who are exposed to the state's 'family tree' have been downgraded or are on negative outlook as the State of Illinois sets to market its $900 million of taxable Build America Bonds this week," wrote Tom Kozlik, municipal credit analyst with Janney Montgomery.

"There is potential for issuers who rely on government aid and are located in states experiencing significant budget gaps or delays to experience credit deterioration. ..."

Even though the state itself might be in trouble, some state issuers might be getting unfairly slammed by the ratings agencies, Kozlik noted.

The Regional Transportation Authority of Illinois, which does depend upon state aid payments, is expected to come to market during the week of July 19 with a $140 million offering of series 2010C G.O. working cash notes (Aa3/AA/AA-). The state is already behind on about $323 million in state aid payments to the authority, Kozlik noted.

The notes are being issued to meet cash flow deficits in an effort to avoid a potential catastrophe from these late payments. This strategy, Kozlik said, should be considered a credit positive because it will allow the authority to meet its current expenses.

The authority's notes are due July 1, 2012 and will be sold through Bank of America Merrill Lynch.

Meanwhile, the state will sell its Build America Bonds (A1/A+/A-) through Citigroup Global Markets Inc. on Wednesday.

The state intends to use the proceeds from that sale to fund transportation and capital projects throughout the state.

Kentucky bonds to price

Coming up on Tuesday, the Kentucky Housing Corp. is set to sell its previously announced $116 million in series 2010 housing revenue bonds, said a sales calendar.

The offering is comprised of $40 million in series 2010B non-AMT bonds, $10 million in series 2010C non-AMT bonds, $46 million in series 2010D AMT bonds and $20 million in series 2010E non-AMT bonds.

The bonds will be sold on a negotiated basis with Bank of America Merrill Lynch and Citigroup as the senior managers.

The 2010B bonds are due 2011 to 2022 with term bonds due 2024 and 2027. The 2010C bonds are due 2027 with a term bond due 2033. The 2010D bonds are due 2015 to 2021 with a term bond due 2034. The 2010E bonds are due 2025, 2030 and 2035.

Proceeds will be used to fund mortgage loans and refund the corporation's series 2000 bonds.

Maryland deal to come

On Wednesday, the Maryland Transportation Authority is expected to sell $299.175 million in series 2010 transportation facilities revenue bonds, said a calendar of upcoming sales.

The deal includes $12.015 million in series 2010A tax-exempt bonds and $287.16 million in series 2010B Build America Bonds.

The bonds (Aa3/AA-/AA-) will be sold on a negotiated basis with Citigroup and Goldman, Sachs & Co. as the lead managers.

The 2010A bonds are due 2015 to 2017, and the 2010B bonds are due 2017 to 2020 with term bonds due 2030 and 2041.

The authority intends to use the proceeds to construct, acquire, repair and expand a variety of projects including the Potomac River Bridge, the Chesapeake Bay Bridge, the Baltimore Harbor Tunnel, the John F. Kennedy Memorial Highway, the Baltimore Harbor Outer Bridge, the Fort McHenry Tunnel and the Intercounty Connector.

Miami-Dade plans deal

Looking to other upcoming deals, Miami-Dade County in Florida is expected to price $523.475 million in series 2010B aviation revenue bonds, said a preliminary official statement.

The bonds (//A) will be sold through senior manager J.P. Morgan Securities Inc. The co-managers are Goldman Sachs, M.R. Beal & Co., Morgan Keegan & Co. Inc., Rice Financial Products Co., Barclays Capital Inc., Estrada Hinojosa & Co. Inc., Jackson Securities, Loop Capital Markets LLC, Morgan Stanley & Co. Inc., Ramirez & Co. Inc., RBC Capital Markets Corp., Siebert Brandford Shank & Co. LLC and Wells Fargo Securities LLC.

Pricing is expected for July 21.

The proceeds will be used to fund improvements to Miami International Airport.

Franklin IDA to price

Also coming up, the Franklin County Industrial Development Authority of Vermont is expected to price $130 million in series 2010 G.O. bonds on Wednesday, said a sales calendar.

The bonds will be sold on a negotiated basis with RBC Capital Markets as the senior manager.

Proceeds will be used to fund industrial development projects.

The authority is based in Montpelier, Vt.

King County sets sale

Looking a little farther out, King County in Washington announced plans in a notice of sale to price $336.035 million in series 2010 sewer revenue and refunding bonds July 19.

The bonds (/AA+/) will be sold on a competitive basis with Seattle Northwest Securities Inc. as the financial adviser.

Proceeds will be used to finance improvements to the county's sewer system as well as to refund existing sewer revenue bonds.

The county seat is Seattle.

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