Muni yields end flat to firmer; legislative sessions bring battles over taxes, budget gaps

By Sheri Kasprzak

New York, Jan. 3 - Municipal yields kicked off the first session of the New Year on a rather subdued note. Yields were seen flat to slightly firmer as the market got back down to business amid light activity.

"There's a hint of firmness out there in spots," said one trader reached during the afternoon.

"Supply is pretty thin. That seems to be giving us a chance to settle down a bit. Things are just quiet in general. I don't know if folks are still off or what, but trading is light."

The trader noted that the market was stuffed with new offerings late in the year, and a lull in supply might be just what the market needs to adjust to that glut of deals.

The week's visible supply is very light, said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott. He noted that just $1.5 billion of new offerings are expected during the first week of the New Year.

"Many new legislative sessions begin the week, and center stage in Washington and most state capitals will be battles over taxes, spending and budget gaps," Kozlik noted.

"At the state level, California faces an estimated $28 billion deficit, while Illinois is looking at plugging a $13 billion budget gap. These holes make Pennsylvania's $5 billion void seem almost manageable.

"Look for Pennsylvania to reduce the state government's vehicle fleet, seek reductions in fraud and fiscal abuse among state agencies and consider selling off state liquor stores. On the table might also be methods for the commonwealth and its municipalities to earn income through taxes or fees on natural gas drillers. However, governor-elect Tom Corbett, who takes office on Jan. 18, has spoken against taxing energy companies' business."

Massachusetts sale ahead

Heading up the week in primary action is an offering from the Massachusetts Development Finance Agency, which plans to sell $420.075 million of series 2011K revenue bonds for the Partners Healthcare System.

The offering is comprised of $50 million of series 2011K-1 bonds, $50 million of series 2011K-2 bonds, $48.94 million of series 2011K-3 bonds, $73.495 million of series 2011K-4 bonds, $66.855 million of series 2011K-5 bonds and $130.785 million of series 2011K-6 bonds.

Wells Fargo Securities LLC is the lead manager for the 2011K-1 bonds, and Barclays Capital Inc. is the lead manager for the 2011K-2 bonds. J.P. Morgan Securities LLC is a manager for the 2011K-3, 2011K-4, 2011K-5 and 2011K-6 bonds. Bank of America Merrill Lynch is an underwriter for the 2011K-4, 2011K-5 and 2011K-6 bonds.

The 2011K-1 and 2011K-2 bonds are due July 1, 2046, and the 2011K-3 bonds are due July 1, 2038. The 2011K-4 and 2011K-5 bonds are due July 1, 2035. The 2011K-6 bonds are due 2014 to 2021 with a term bond due in 2041.

Proceeds will be used to construct a 500,000-square-foot building on the hospital's main campus; renovate and relocate a radiation oncology department, emergency services department, rooms and a new central receiving dock; construct a rehabilitation hospital; and make other renovations and repairs to Partners facilities.

The health-care system is based in Boston.

Maine bond bank sale planned

Also ahead during the week, the Maine Municipal Bond Bank plans to price $77.38 million of series 2011A bonds (/AAA/AAA) through Wells Fargo and Morgan Keegan & Co. Inc.

The bonds are due 2011 to 2031, and proceeds will be used to purchase municipal bonds from four governmental units.

King County deal afoot

Looking ahead, King County in Washington is scheduled to sell $175 million of series 2011 sewer revenue bonds on Jan. 10, said a preliminary official statement.

The bonds (Aa2/AA+/) will be sold competitively with Seattle-Northwest Securities Corp. as the financial adviser.

The bonds are due 2014 to 2041.

Proceeds will be used to finance improvements to the county's sewer system.

The county seat is Seattle.

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