Municipals firm along with Treasuries; King County, Wash., brings $67.71 million of new debt

By Sheri Kasprzak

New York, March 12 - As Treasuries improved on Monday, municipals shook off a weeklong slump and yields firmed slightly, according to traders.

"Yields are definitely better by 1 to 2 basis points across the curve," said one trader reached in the afternoon.

"Treasuries were stronger today, and we seemed to follow along with that, but I do think that the supply/demand dynamic will shift enough this week to help us. We're not seeing nearly as much as we did last week, and I think supply pressure will be less of an issue [this week]."

Issuers are expected to price about $6 billion of new bonds this week, substantially lower than the $9 billion of new issues priced last week.

The major offering of the week comes from the New York State Thruway Authority, which is slated to price $779.32 million of highway and bridge trust fund bonds through Bank of America Merrill Lynch and Loop Capital Markets LLC.

The bonds, which are due 2013 to 2032, will be used to reimburse the state for certain transportation project costs and to refund the authority's series 2002C and 2003A-B bonds.

The State of Illinois also has a significant offering in the pipeline for the week. On Tuesday, the state intends to sell $500 million of series 2012 general obligation bonds through Ramirez & Co. Inc. and U.S. Bancorp Investments Inc.

Those bonds are due 2013 to 2037, and the proceeds will be used to finance capital projects.

Harrisburg to skip payment

Meanwhile, Harrisburg, Pa., said late last week that it will not make a payment on zero-coupon G.O. bonds backed by Ambac. The payment is due Thursday. Municipal credit analyst Tom Kozlik and managing director Alan Schankel, both with Janney Montgomery Scott LLC, said they expect Ambac to make the payment.

"Although this was not expected, upon reflection, it is understandable that the receiver, following in the steps of Stockton, Calif., has chosen to conserve cash and rely on the insurer," Kozlik and Schankel wrote in a report released Monday.

"Harrisburg's appointed receiver released a note Friday highlighting that his priority was to 'ensure that vital and necessary services such as police and fire are maintained,' thus bond payments were being skipped to ensure sufficient cash to support city services."

Ambac, the fallback for the debt, was last rated Caa2/BB, said Kozlik and Schankel, and has not had any rating for a year since its parent company is going through bankruptcy.

King County brings debt

Heading up the light primary action on Monday, King County, Wash., priced $67.71 million of limited tax G.O. bonds.

The bonds were sold competitively with J.P. Morgan Securities LLC winning the bid, said Nigel Lewis, the county debt manager. The true interest cost came in at 1.69%, he said.

The bonds (Aa1//AA+) are due 2013 to 2022 with 3% to 5% coupons.

"The proceeds will be used to retire outstanding BANs that provided interim financing for a major county technology upgrade," Lewis said in an interview. "So technically it is a refunding, but not one driven by savings."

The county will use the proceeds to refund its series 2011B limited tax G.O. bond anticipation notes, which were used to upgrade the county's budget, finance, human resources, payroll and employee benefits systems.

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