Municipals sink after gaining strength; New York City Transitional sells $650.2 million

By Sheri Kasprzak

New York, April 6 - Municipal yields got off to a strong start on Wednesday as institutional investors came out in force to buy up new issues, but weakening Treasuries took the wind out of the sails. Municipal yields closed out the session off by about 2 basis points to 3 bps, market insiders reported.

"It was looking pretty good earlier, but we're off by a good 2 to 3 [bps] now," said one trader reached in the late afternoon.

"Treasuries are getting knocked, so we're trailing them. I'd say institutional's in the market today, they're showing a lot of interest in the new stuff, and that seemed to help for a while, but yields went with the Treasuries."

The largest deal of the week priced for institutional on Wednesday following a two-day retail order period that didn't meet issuers' initial expectations, said market sources.

The New York City Transitional Finance Authority priced $650.2 million of series 2011 future tax secured subordinate bonds (Aa1/AAA/AAA), according to a term sheet. The authority intended to sell $500 million and had hoped to sell most of the bonds to retail investors.

In the end, said one trader, retail took less than half.

Alan Schankel, managing director with Janney Montgomery Scott LLC, reported that retail investors bought up about 40% of the offering.

NYC Transitional prices deal

The sale included series 2011E bonds and series 2011F bonds, but the exact breakdown of the tranches was not immediately available.

The 2011E bonds are due 2012 to 2025 with coupons from 2.5% to 5%. The 2011F bonds are due 2011 to 2023 with coupons from 2.5% to 4%.

Wells Fargo Securities LLC was the lead manager for the syndicate.

Proceeds will be used to redeem existing future tax secured bonds.

Philadelphia brings G.O.s

Also during the day, the City of Philadelphia sold $272.23 million of series 2011 general obligation bonds, according to a pricing sheet.

The bonds are due 2012 to 2026 with term bonds due in 2031, 2036 and 2041. Serial coupons range from 2% to 5.375%. The 2031 bonds have a 5.875% coupon priced at 98.764, and the 2036 bonds have a 6% coupon priced at 98.505. The 2041 bonds have a 6.5% coupon and were not reoffered.

Schankel said during Tuesday's retail order period that the 2031, 2036 and 2041 yields came in at 5.98%.

The bonds (A2/BBB/A-) were sold through J.P. Morgan Securities LLC.

Proceeds will be used to refund the city's series 1998 G.O. refunding bonds and its series 2001 G.O. bonds.

D.C. sells Howard bonds

In other pricing action, the District of Columbia priced $288.965 million of series 2011 revenue bonds for Howard University, according to a term sheet.

The offering included $224.23 million of series 2011A bonds and $64.735 million of series 2011B bonds.

The 2011A bonds are due 2020 to 2027 with term bonds due in 2032, 2037 and 2041. The serial coupons range from 5% to 6.25%. The 2032 bonds have a 6.25% coupon priced at 97.688. The 2037 bonds have a 6.5% coupon priced at 97.531, and the 2041 bonds have a 6.5% coupon priced at 96.78.

The 2011B bonds are due 2015 to 2020 with a term bond due in 2035. The serial coupons range from 4.313% to 5.991%, all priced at par. The 2035 bonds have a 7.625% coupon priced at par.

Merrill Lynch and Loop Capital Markets LLC were the senior managers.

Proceeds will be used to refund and advance refund some of the university's debt, including its series 1998 and 2006A-B bonds.

Tax-exempt death watch?

On the political side, Schankel said Wednesday that U.S. senators Ron Wyden and Dan Coats introduced legislation similar to a bill proposed in 2010 to eliminate tax exemption of municipal bond interest.

"Proposals would apply to new issues, not outstanding bonds," Schankel noted.

The proposal would eliminate AMT and establish three tax brackets with the top being 35%.

"Washington's immediate concern is keeping the government open, and beyond that election season is looming, but the success of BABs has established that there is a demand for taxable munis, so we do not expect this topic to go away," said Schankel.

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