Municipals climb on day despite mixed Treasuries; California drought could cause downgrades

By Sheri Kasprzak

New York, Oct. 8 – Municipals shrugged off a mixed Treasuries market on Wednesday, with prices largely climbing, traders said.

Long maturities were particularly stronger, with yields falling by 4 basis points.

Meanwhile, shorter Treasuries were higher, with yields falling about 7 bps. Intermediate and longer Treasuries were, however, little moved.

Municipals were still focused on new issues, with some higher-grade names pulling in investor interest, a trader said in the afternoon.

Grand River Dam sells debt

Heading up that pricing action was a $311.73 million offering of series 2014 revenue bonds from the Grand River Dam Authority of Oklahoma.

The bonds (A1/A+/A) were sold through J.P. Morgan Securities LLC and Barclays.

The deal included $226,885,000 of series 2014A revenue bonds and $84,845,000 of series 2014B taxable bonds.

The 2014A bonds are due 2018 to 2034 with a term bond due in 2039. The serial coupons range from 3% to 5%. The 2039 bonds have a 3.60% coupon that priced at 98.391 and a 5% coupon that priced at 114.514.

The 2014B bonds are due 2018 to 2029 with term bonds due in 2034 and 2039. The serial coupons range from 1.804% to 3.961% and all priced at par. The 2034 bonds have a 4.365% coupon, and the 2039 bonds have a 4.545% coupon. Both priced at par.

Proceeds will be used to fund additions, repairs and improvements to the dam system.

Banner Health trades higher

A day after pricing, the Arizona Health Facilities Authority’s bonds issued for Banner Health were seen trading higher and very actively in secondary.

The 5% 2044s, which priced Tuesday at 3.58%, were seen trading at 3.52% at the end of the session Wednesday. The bonds traded in a range of 3.5% to 3.625%.

The bonds (/AA-/AA-) were sold through senior managers Morgan Stanley & Co. LLC and BofA Merrill Lynch.

Also actively traded during the session Tuesday were series 2014UU school construction bonds from the New Jersey Economic Development Authority.

Although the 3.625% 2032s ended the day unchanged at Tuesday’s 3.78% level, the bonds were seen trading higher during the afternoon. The bonds traded in a range of 3.441% to 3.78%.

The bonds were offered through JPMorgan.

Drought impacts California

California’s current drought conditions could negatively impact some cities, particularly those that are pressured for alternative water sources, including cities like Fresno and Sacramento, said a Fitch Ratings report.

“While Fresno faces over-pumped groundwater and is most vulnerable to a drought-related downgrade, Sacramento is realizing the cost of heavy reliance on vulnerable surface water flows and tardy adoption of basic water conservation technology like water meters,” senior director Kathy Masterson and director Andrew Ward said in the report released Wednesday.

The new isn’t bad for everyone.

“Decades of previous planning have given cities like San Diego, Los Angeles and Northern California’s East Bay Municipal Utility District more certainty regarding their water supplies,” the directors wrote.

“Those just beginning to make infrastructure investments, like Sacramento and Fresno, may need to enforce strict conservation policies to prevent near-term water shortages. While the steep cost of necessary investments for supply redundancy or supply hardening may be undesirable to ratepayers, it can prevent water restrictions and significant rate impacts in the future.”

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