Munis hold steady amid light trading; Illinois prepares $1.8 billion G.O. refunding offering

By Sheri Kasprzak

New York, April 30 - Municipals closed out the month of April with fairly subdued trading activity, market insiders said Monday.

"Trading is extremely quiet today, but I think we'll get some direction tomorrow when the Illinois bonds price," one trader said.

"It's a tone-setting kind of deal. But other than that, there aren't many big offerings coming."

Illinois will offer $1.8 billion of series May of 2012 general obligation refunding bonds (A2/A+/A). The deal will price Tuesday through senior managers Jefferies & Co. and BMO Capital Markets.

Proceeds from the bonds, which are due 2013 to 2026, will be used to refund existing G.O. debt.

New offerings for the week will total about $7.3 billion, according to Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC. The Illinois deal will be the biggest offering of the week.

Louisiana offering ahead

The State of Louisiana will bring $515,105,000 of series 2012-1 gasoline and fuels tax revenue refunding bonds.

The bonds (Aa1//AA-) will be sold through senior manager Citigroup Global Markets Inc. and are due 2013 to 2032.

Proceeds will be used to current refund the state's series 2002A revenue bonds and advance refund its series 2005A and 2006A revenue bonds.

Demand for munis to get boost

In the broader market, demand for municipals will continue to see a boost in the coming months from maturing and redeemed bonds, said Alan Schankel, managing director with Janney.

"Excluding current refundings, the amount available for reinvestment, including coupon payments, will rise from $16.4 billion, the lowest total month of the year, to $40 billion in July, the high for 2012," Schankel said.

Meanwhile, Schankel said that according to default data, there has been no major elevation in distress.

Ratings agencies, particularly Moody's and Fitch, have done more downgrades than upgrades in the past three years. "We believe this trend is likely to continue but moderate in coming months," Schankel said.

"U.S. Census Bureau reports through the fourth quarter of last year indicate that overall state tax revenues, primarily from income and sales tax, have returned to pre-recession levels. At the local government levels, revenue, primarily in the form of property taxes, is more challenged since weak real estate markets and ongoing property value reassessments have flattened out overall revenues, with no immediate upturn in sight."

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