Muni yields drop 3 bps to 5 bps even as supply flood hits the market; MIT brings century bonds

By Sheri Kasprzak

New York, May 12 - Municipals continued to rally on Thursday even after a flood of supply arrived, traders reported. Meanwhile, the Massachusetts Institute of Technology came to market with a rare offering - century bonds.

"We're down about 3 to 5 [basis points] across the curve," said one trader reached during the session.

"There's good demand. We're seeing more supply, but I think there was lots of demand earlier when there was no supply. Now that there's something to offer, it's being absorbed pretty quickly."

Alan Schankel, managing director of Janney Montgomery Scott LLC, said Thursday that supply will continue to increase into June and July, which are the two strongest investment months of the year.

"MMA notes almost $50 billion of maturing bonds in June, well above the $15 billion average monthly new issuance in 2011," Schankel said.

"The total amount of maturing muni debt in 2011 is expected to be in the $250 billion range, so with new issue volume on a $200 billion pace, the year could end with fewer bonds outstanding year-over-year. Even if the new supply pace accelerates, as we expect, there should be enough reinvestment demand to absorb supply."

MIT century bonds 'rare'

The Massachusetts Institute of Technology came to market a day early with $750 million of series 2011B taxable bonds, upsized from $500 million, said a source familiar with the deal.

The bonds (Aaa/AAA/) were sold through Barclays Capital Inc.

The bonds are due July 1, 2111 and have a 5.6% coupon priced at 99.581. The bonds priced late Wednesday. Pricing had been expected for Thursday.

Century bonds, said the sellside source, are fairly uncommon, but MIT has issued 100-year bonds before.

"I think Yale [University] did century bonds a while back," he said.

"It's not unheard of, but it is pretty uncommon. You see it sometimes from universities. Interest rates are down, and the long end has done really well. It doesn't get much longer than this."

Proceeds will be used to support current or future capital plans and to refinance debt.

The institute is located in Cambridge, Mass.

Puerto Rico bank brings notes

Another major offering on Thursday came from the Government Development Bank of Puerto Rico, which priced $650 million of series 2011 senior taxable notes, upsized from $500 million, said a term sheet.

The bonds (A3) were sold through Bank of America Merrill Lynch.

The sale included $250 million of bonds due in 2014 and $400 million of bonds due in 2016. The 2014 bonds have a 3.67% coupon, and the 2016 bonds have a 4.704% coupon. Both priced at par.

Proceeds will be used to increase the bank's investment portfolio, make loans to and purchase obligations of the commonwealth and its public operations, instrumentalities and municipalities and to redeem outstanding notes.

Florida Ports sells bonds

Also during the session, the Florida Ports Financing Commission priced $267.945 million of series 2011 state transportation trust fund refunding revenue bonds in two offerings, said pricing sheets.

The commission sold $152.32 million of series 2011 state transportation trust fund refunding revenue bonds to refund its series 1996 bonds and $115.625 million of series 2011 state transportation trust fund refunding revenue bonds to refund its series 1999 bonds.

The 1996 refunding bonds include $10.65 million of series 2011A non-AMT bonds and $141.67 million of series 2011B AMT bonds.

The 1999 refunding bonds include $66.3 million of series 2011A non-AMT bonds and $49.325 million of series 2011B AMT bonds.

The bonds (Aa3/AA+/AA) were sold through Citigroup Global Markets Inc.

The 2011A series 1996 refunding bonds are due 2013 to 2027 with coupons from 2% to 4.625%. The 2011B 1996 refunding bonds are due 2012 to 2023 with a 2027 term bond. The serial coupons range from 2% to 5%. The 2027 bonds have a 5.125% coupon priced at 98.02.

The 2011A series 1999 refunding bonds are due 2013 to 2029 with 3% to 5% coupons. The 2011B series 1999 refunding bonds are due 2011 to 2023 with a term bond due in 2029. The serial coupons range from 2% to 5%. The 2029 bonds have a 5.375% coupon priced at 98.445.

Carle Foundation bonds sold

The Illinois Finance Authority sold $234.735 million of series 2011A revenue bonds for the Carle Foundation, said a pricing sheet.

The offering included $159.735 million of uninsured bonds and $75 million of bonds insured by Assured Guaranty Corp.

The uninsured bonds are due 2016 to 2021 with term bonds due 2024, 2026, 2031, 2034 and 2041. The serial coupons range from 4% to 5%. The 2024 bonds have a 5% coupon priced at par. The 2026 bonds have a 5.375% coupon priced at 99.63, and the 2028 bonds have a 5.375% coupon priced at 97.965. The 2031 bonds have a split maturity with a 5.625% coupon priced at 97.456 and a 5.75% coupon priced at 98.929. The 2034 bonds have a split maturity with a 5.75% coupon priced at 96.877 and a 5.875% coupon priced at 98.433. The 2041 bonds have a 6% coupon priced at 97.94.

The insured bonds are due Aug. 15, 2041 and have a 6% coupon priced at 99.573.

Barclays Capital Inc. and Goldman Sachs & Co. were the senior managers for the bonds (/A+/AA-).

Proceeds will be used to reimburse the foundation for the costs of constructing, equipping, acquiring and renovating its health-care facilities as well as to refinance existing debt.

The Chicago-based authority provides funding to educational, health-care and nonprofit organizations. Based in Urbana, Ill., the Carle Foundation operates the Carle Foundation Hospital and the Carle Clinic Association.

Miami-Dade postpones sale

In other news, Miami-Dade County in Florida put off its planned $350.93 million sale of series 2011 general obligation and G.O. refunding bonds, which had been slated for pricing on Tuesday, because of a Federal Transit Administration inquiry, said Janney's Schankel. The FTA is apparently checking claims that state transit system employees did not properly report fare collections.

The inquiry, Schankel said, could negatively impact the interest cost for the transaction.

The county had intended to sell $196.985 million of series 2011A Building Better Communities Program G.O. bonds, $38.055 million of series 2011B parks program G.O. refunding bonds and $115.89 million of series 2011C seaport G.O. refunding bonds.

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