Municipals end weaker as Puerto Rico gets slapped with downgrade; new issues come to market

By Sheri Kasprzak

New York, July 1 – Municipals edged down slightly on Tuesday, following but outperforming Treasuries, as the market turned its attention to Puerto Rico. The commonwealth continued to struggle after legislation was proposed that would allow public corporations to restructure debt and default.

With little supply pushing the market, the focus was on Puerto Rico debt. Moody’s Investors Service downgraded the commonwealth’s general obligation debt to B2 from Ba2, Puerto Rico Sales Tax Financing Corp.’s senior debt to Ba3 and its subordinated debt to B1.

“In what would likely be an otherwise slow holiday week, Puerto Rico retained center stage, as it has often in recent years,” wrote Alan Schankel, managing director with Janney Montgomery Scott LLC.

On Monday, Puerto Rico Electric Power Authority was the most-actively traded Puerto Rico issue, with blocks totaling more than $85 million in 2016 to 2040 maturities printing in the 43½ to 45 price range, Schankel said Tuesday. Puerto Rico G.O. issues, the second most active, were stronger in recent days with 8% 2035s from the March new issue seeing average trades of 9.19%, compared with 9.48% a week ago. Sales-Tax Financing Corp. (Cofina) 6.5% sales tax subordinate-lien bonds due 2044 were seen trading at an average yield of 7.66% on Monday, compared with 7.24% on June 10.

Muni yields were seen higher by about a basis point across the yield curve. Treasuries, meanwhile, were shoved down by improved stocks and weaker-than-expected data.

Alabama school bonds price

The bulk of the week’s slight new-issue calendar priced Tuesday ahead of the July 4th holiday.

Heading up the day’s busy primary calendar, the Alabama Public School and College Authority priced $554.52 million of series 2014B capital improvement refunding bonds.

The bonds (/AA/) were sold competitively.

The bonds are due 2019 to 2027 with 5% coupons.

Proceeds will be used to refund the authority’s series 2007 capital improvement bonds.

Dallas ISD upsizes deal

In other offerings, the Dallas Independent School District of Texas sold $357,395,000 of series 2014A unlimited tax refunding bonds, said a pricing sheet. The deal was upsized from $317.75 million.

The bonds were sold through J.P. Morgan Securities LLC and Mesirow Financial Inc.

The bonds are due 2015 to 2034 with 1% to 5% coupons, said a pricing sheet.

Proceeds will be used to refund the district’s series 2006 and 2008 unlimited tax school building bonds.

L.A. Water brings debt

Also during the session, the Los Angeles Department of Water and Power offered up $198.75 million of series 2014C power system revenue bonds.

The bonds (Aa3/AA-/AA-) were sold through Wells Fargo Securities LLC.

The bonds are due 2017 to 2029 with 4% to 5% coupons, according to a pricing sheet.

Proceeds will be used to refund the department’s series 2005A power system revenue bonds.

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