Munis close unchanged; activity remains nearly nonexistent; only $370 million of deals ahead

By Sheri Kasprzak

New York, July 2 - Municipal yields were mostly unchanged on Monday with very light trading activity, market insiders said.

"It's almost like the holiday has already started," said one trader. "Very, very quiet."

Only $370 million of new issues are expected to price this week, said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC, and some of those bonds might be postponed.

"This week is difficult for municipal market issuance with the Fourth of July holiday falling on Wednesday," Kozlik wrote Monday. "The day off makes it tricky because the timing makes it hard for underwriters to market issues, take and then finalize orders. That is one of the reasons the last few weeks of issuance have been on the high side as issuers rushed to sell bonds. ... The two largest competitive offerings that make up about $345 million of competitive volume are rate-sensitive and might wait until next week."

Few Stockton holders affected

Elsewhere in municipals news, the bulk of the holders of bonds issued by the City of Stockton, Calif., will not be affected by the city's decision last week to file for Chapter 9 bankruptcy, said Jay Abrams, chief municipal credit analyst with FMS Bonds, Inc.

"The city plans to stop paying on the seven bond issues that depend on general fund revenues," Abrams wrote Monday.

"These issues total more than $300 million. However, six of the outstanding general fund-supported issues have bond insurance, so investors can expect to receive principal and interest on a timely basis as the bankruptcy process unfolds."

Assured Guaranty, Ambac and National Public Finance Guarantee Corp. all have exposure to Stockton debt.

Enterprise bonds being paid

Even though the city was unable to reach an agreement with some of its creditors, the city will continue to pay enterprise bonds backed by water and sewer revenues as well as debt secured by special assessments and taxes, said Abrams.

"Such land-secured debt is backed by levies on property, directly benefiting from infrastructure improvements made with bond proceeds," Abrams wrote.

"Under Chapter 9, both types of securities are considered special revenue debt, whose pledges and liens remain in place despite the bankruptcy filing. Neither type of debt is paid from general funds of the city but relies on the taxes and revenues dedicated to each bond issue."

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