DWS muni team takes aim at misconceptions; munis end flat to weaker; South Carolina preps sale

By Sheri Kasprzak

New York, Feb. 7 - Municipals have struggled with a surprising amount of volatility lately, mostly caused by panic over potential defaults and bankruptcies. However, the municipals desk at DWS Investments said the worry is mostly unwarranted.

Philip Condon, head of municipal bond portfolio management; Carol Flynn, head of municipal bond research; Ashton Goodfield, head of municipal trading; and Anthony Parish, fixed-income product specialist, of DWS released a report Monday to reiterate their view that most states and local governments are taking the appropriate measures to combat the current economic slide.

"While the popular perception may be that municipal finances are deteriorating, evidence shows exactly the opposite - they are generally improving," the members of the municipals department wrote.

"State and local governments are aggressively cutting spending and raising taxes, as in the case of Illinois and others, to address their budget gaps. State tax revenues look like they're going to rise for the fourth straight quarter when the numbers for 2010's final quarter come out."

Budget, bond problems differ

The muni desk noted that municipal budget problems and municipal bond problems are not the same. They noted that municipal debt service payments are relatively small compared to other expenditures, and the payments often come from dedicated revenue streams.

"Additionally, state and local governments typically issue long-term, self-amortizing debt that is paid down yearly, rather than needing to be rolled over when a single large issue matures," they noted.

Meanwhile, munis rounded out Monday largely unmoved with a touch of weakness in the market amid light trading activity.

"There's not much trading going on," said one trader.

"We're really having trouble finding any sort of momentum to push us. We might be off by just a bit on the long end."

South Carolina plans sale

Moving to the week's primary action, the State of South Carolina will headline with its planned $468.93 million sale of series 2011 general obligation bonds on Wednesday.

The offering includes $197.235 million of series 2011A G.O. state school facilities refunding bonds; $126.295 million of series 2011A G.O. state capital improvement refunding bonds; $19.225 million of series 2011A state institution refunding bonds for the University of South Carolina; $66.225 million of series 2011B state institution bonds for Clemson University; $15 million of series 2011C state institution bonds for Midlands Technical College; $18.95 million of series 2011D state institution bonds for the University of South Carolina and $26 million of series 2011E state institution bonds for the University of South Carolina.

The bonds (Aaa/AA+/AAA) will be sold competitively with Public Resources Advisory Group as the financial adviser.

Proceeds from the sale will be used to finance capital improvements for the higher educational facilities as well as to refund existing debt.

San Joaquin drives deal

Also ahead on Wednesday, the San Joaquin County Transportation Authority of California is slated to bring $211.785 million of series 2011A Measure K sales tax revenue bonds, said a sales calendar.

The bonds (Aa3/AA/) will be sold through senior manager J.P. Morgan Securities LLC.

The bonds are due 2014 to 2031 with term bonds due in 2036 and 2041.

Proceeds will be used to finance transportation projects, defease the authority's series 2008 commercial paper notes and fund debt service requirements.

The authority is based in Stockton, Calif.

U of Penn sets offering

In other deals scheduled for Wednesday, the Pennsylvania Higher Educational Facilities Authority plans to offer up $150 million of series 2011 revenue bonds for the University of Pennsylvania, said a sales calendar.

The bonds (Aa2) will be sold on a negotiated basis with Morgan Stanley & Co. Inc. as the senior manager.

The proceeds from the offering will be used to finance various capital projects, including research, academic and student residence facilities.

The university is located in Philadelphia.

Memphis flies bonds

Coming up on Thursday, the Memphis-Shelby County Airport Authority of Tennessee is scheduled to price $111 million of series 2011 refunding revenue bonds through Morgan Stanley.

The offering is comprised of $96 million of series 2011A AMT bonds and $15 million of series 2011B non-AMT bonds.

Proceeds will be used to refund the airport's series 1999D and 2001A bonds.

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