Municipals remain mostly flat in very light activity; Chicago water deal could see high yields

By Sheri Kasprzak

New York, Sept. 9 – Municipals were lightly traded amid low new-issue supply on Tuesday, market sources said. Munis mostly ignored somewhat weaker Treasuries, traders said.

Secondary action remained light during the session, said a trader, with attention focused on a few deals coming up this week.

The leader of the new-issue calendar is the City of Chicago’s planned $372,205,000 water revenue bond offering.

Some market insiders noted during the session that the offering (A3/AA-/AA) could fetch higher-than-average yields, mostly based on the Moody’s Investors Service rating.

One sellside source said Tuesday that the city has had some significant problems in the past, particularly with its pension plans. Despite decent ratings from Standard & Poor’s and Fitch Ratings, the Moody’s rating indicates a more troubled credit.

Alan Schankel, managing director with Janney Montgomery Scott LLC, touched on this notion in a statement Tuesday.

“Moody’s low rating, compared to other agencies, reflects the emphasis Moody’s places on the city’s severely underfunded pension plans,” he wrote.

“The system’s financial metrics are relatively strong, with debt service coverage at 2.3x in fiscal year 2013 supported by a regime of significant rate increases.”

The offering is scheduled to price during the week through PNC Capital Markets LLC.

The bonds are due 2015 to 2034 with term bonds due in 2039 and 2044.

Proceeds will finance capital improvements and upgrades to the city’s water system.

A $300,715,000 offering of wastewater bonds from the city is slated to price next week.

Indianapolis airport bonds set

Looking ahead, the Indianapolis Local Public Improvement Bond Bank announced its plans to price $163.97 million of series 2014D AMT refunding bonds (A1/A/A).

The bonds will be sold through BofA Merrill Lynch and PNC.

The bonds are due 2016 to 2034, and proceeds from the offering will be used to refund existing airport debt.

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