Munis keep softening as bid-wanteds evaporate; Cleveland brings $235.15 million airport bonds

By Sheri Kasprzak

New York, Feb. 9 - Municipal yields just couldn't pull out of a recent downward slide, and yields in the middle of the curve were slightly softer yet again Thursday, said market insiders.

"Bid-wanteds are kind of scarce, and they have been for most of the week," said one trader asked about the softer tone.

"There's plenty of interest in the new stuff, but secondary seems to be a harder sale for some reason."

Treasuries have also played a big role in the market's lackluster performance throughout the week.

"Weaker Treasuries are definitely a factor as well," said the trader.

"Without some positivity in Treasuries, we don't have enough momentum in secondary to really help us out any."

The primary market continues to dominate the action, but supply is still not up to the monthly average.

That could change in the week ahead, when the Puerto Rico Aqueduct and Sewer Authority will bring a two-tranche deal totaling about $1 billion, market insiders have reported.

Cleveland leads primary

Heading up the new-issue activity on Thursday was the City of Cleveland's $235.15 million offering of series 2012A airport system revenue bonds sold through Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC.

The bonds (Baa1//A-) are due 2025 to 2031 with 5% coupons across the board.

The deal was downsized from its planned $240.61 million, but given the city's ratings, it wasn't surprising to one sellsider.

"Demand has been really strong, but investors are looking for highly rated names," he said.

"Airport bonds have been a really tough sector over the past couple of years. It doesn't surprise me really that they had to settle for what they could get. The pricing was pretty much what you would expect given the fact that they are airport bonds."

Proceeds will be used to refund the city's outstanding series 2000A airport system revenue bonds.

The city last sold airport revenue bonds in November. In that offering, the city priced $74.39 million of series 2011A airport system revenue bonds. Those bonds had 3% to 5% coupons.

In April 2011, Fitch Ratings downgraded the city's airport debt to A- from A. The agency cited the airport's multiyear enplanement declines, down 17% between 2007 and 2010, and an uncertain recovery outlook. The airport also faces an above-average debt burden with an escalating debt service amortization profile, Fitch noted.

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