Municipal yields firm as primary action explodes; Illinois brings downsized $455 million

By Sheri Kasprzak

New York, June 16 - Municipal yields got a break on Wednesday after getting pummeled earlier in the week. Yields were either unmoved or slightly improved during the session, one trader reported.

"It's stabilized somewhat today," said the trader.

"We might have some spotty gains, but it's mostly unchanged. It is very quiet [in the secondary] because everyone is looking at primary right now. It's saturated right now [in primary], and yields are just not as attractive as they need to be."

Leading that explosion of primary action was a slightly downsized offering of $455.08 million in series of June 2010 junior obligation sales tax revenue bonds from the State of Illinois. The state had intended to bring $492 million of the bonds, but the buyers just weren't there, said one sellsider observing the sale.

"Retail is largely absent these days," the sellsider said.

Asked if the state's recent downgrades by Moody's Investors Service and Fitch Ratings had impacted the deal, the source said, "Absolutely."

In an earlier interview, the sellsider said that the downgrade would repel already-jittery retail investors.

The bonds (/A+/AA+) were sold through Cabrera Capital Markets LLC.

The bonds are due 2011 to 2021 with coupons from 3% to 5%.

Proceeds will be used to construct, reconstruct, modernize and extend state infrastructure projects; develop and improve educational, scientific, technical and vocational programs and facilities, as well as expand health and human services; protect, preserve, restore and conserve the state's natural resources; and provide incentives for the expansion of businesses into the state.

Houston brings TRANs

In other primary action, the City of Houston sold $230 million in series 2010 tax and revenue anticipation notes, according to a pricing sheet.

The notes (/SP-1+/F1+) were sold competitively. Wells Fargo Bank, NA won the bid with a 0.38343% true interest cost.

The notes are due June 30, 2011 and have a 2% coupon priced at 101.61.

Proceeds will be used to fund general operating expenses ahead of the collection of taxes and revenues.

Orlando-Orange bonds price

Also, the Orlando-Orange County Expressway Authority on Wednesday priced $250 million in series 2010B refunding revenue bonds through Bank of America Merrill Lynch, according to a pricing sheet.

The bonds (/A/A) are due 2012 to 2029 with coupons from 2.5% to 5%. The yields were not immediately available.

Proceeds will be used to refund the authority's series 1998, 2008B-1 and 2008B-2 bonds.

The Orlando-based authority operates and maintains the city and county's expressway system.

Massachusetts school bonds sold

Heading up to New England, the Massachusetts School Building Authority priced $151 million in series 2010A subordinated dedicated sales tax bonds Wednesday, according to a term sheet.

The bonds (Aa2/AA/AA) were sold through Barclays Capital Inc. and Jefferies & Co.

The bonds are due June 15, 2027 and have a 5.468% coupon priced at par.

Proceeds will be used to fund grants to cities, towns and school districts for school construction and renovation projects.

The Boston-based authority provides funding for local school projects.

Puerto Rico deal ahead

On the horizon, the Puerto Rico Sales Tax Financing Corp. is set to price $1.572 billion in revenue bonds (A1/A+/), according to a preliminary official statement.

The offering includes $1.4 billion in series 2010C sales tax first subordinate revenue bonds, $80 million in series 2010D sales tax first subordinate Build America Bonds and $92 million in series 2010E sales tax first subordinate recovery zone economic development bonds.

The 2010C bonds will be sold through senior managers Citigroup Global Markets Inc., Bank of America Merrill Lynch, J.P. Morgan Securities Inc. and Wells Fargo Securities Inc. The 2010D and 2010E bonds will be sold through senior managers Santander Securities Inc., Popular Securities and UBS Financial Services Inc. of Puerto Rico.

Proceeds from the bonds will be used to redeem existing refunded bonds and to repay outstanding obligations.

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