Municipals improve amid lighter trading, underperform Treasuries; Los Angeles offers up notes

By Sheri Kasprzak

New York, June 26 – Municipals improved again on Thursday, following strong Treasuries, market insiders reported.

Municipal yields were firmer by 1 basis point to 2 bps, but Treasuries outperformed. Secondary activity was reportedly lighter than Wednesday, according to a trader.

Treasuries were stronger as the Treasury Department auctioned off seven-year notes. The five-year Treasury note yield fell by 3.5 bps to close at 1.65%, the 10-year note yield fell by 3 bps to 2.53%, and the 30-year bond yield dropped by 2.5 bps to 3.355%.

Los Angeles brings notes

Heading up the day’s primary action, the week’s largest deal hit the market. The City of Los Angeles priced $1,369,200,000 of series 2014 tax and revenue anticipation notes.

The notes (MIG 1/SP-1+/F1+) were sold through Ramirez & Co. Inc.

The notes are due June 25, 2015, have a 1.5% coupon and priced at 101.33 to yield 0.11%, according to a term sheet.

Proceeds will be used to finance capital projects for the city.

Sacramento Sanitation prices

In other primary activity during the session, the Sacramento County Sanitation Districts Financing Authority of California sold $378.51 million of series 2014A revenue bonds.

The bonds (Aa3/AA/AA-) were sold through senior managers Wells Fargo Securities LLC and BofA Merrill Lynch.

The bonds are due 2016 to 2035 with a term bond due in 2044, said a pricing sheet. The serial coupons range from 3% to 5% with 0.35% to 3.76% yields. The 2044 bonds have a 4% coupon that priced at par and a 5% coupon that priced at 111.649 to yield 3.59%.

Proceeds will be used to construct, plan, design and implement expansions to the sanitary system and to refund existing debt.

Puerto Rico debt plan talked

Elsewhere in the muni market, Puerto Rico Gov. Alejandro Garcia Padilla proposed legislation that would allow public corporations, like its electric power authority and others, to restructure debt through a process of negotiation with creditors or under the Puerto Rico court system.

Government G.O. bonds, Government Development Bank bonds and Puerto Rico Sales Tax Corp. bonds would be exempt from this restructuring plan.

“Over the past year or so, the administration has emphasized that public corporations must become free-standing, ending dependence on the government and the [Government Development Bank] for financial support,” wrote Alan Schankel, managing director with Janney Montgomery Scott LLC.

“A case can be made that isolating the problems of an issuer such as [Puerto Rico Electric Power Authority] from the Treasury strengthens the central government, but the proposal to facilitate debt restructuring raises concerns about what a next step might be should, for example, Treasury revenues fall short of projections and the government is unable to gain market access to finance any resulting deficit.”

In trading on Wednesday, the Puerto Rico 8% G.O. bonds due 2035 fell to 9.31% from the 9.59% average Tuesday.

On Thursday, Fitch Ratings cut Puerto Rico Electric Power Authority’s power revenue bonds to CC from BB, citing Fitch’s view that default by the authority is likely given the restructuring legislation proposed by Gov. Padilla.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.