Deals continue to get pushed to the backburner in wake of Sandy; Michigan G.O.s delayed

By Sheri Kasprzak

New York, Nov. 1 - The effects of Hurricane Sandy were still being felt throughout the East Coast Thursday, and those effects rippled into the municipals market, sources reported.

As trading desks struggled with absences due to mass power outages and commuting difficulties, trading action remained light.

Despite the fact that many offerings were being postponed due to the hurricane, a few will likely come to market Friday.

Alan Schankel, managing director with Janney Montgomery Scott LLC, said the State of Connecticut conducted a retail order period for $180 million of its planned $400 million offering of general obligation bonds. The deal will open to institutional investors Friday. The deal includes a $220 million taxable portion in addition to the tax-exempt piece being offered to retail.

The sale will be conducted through Morgan Stanley & Co. LLC, and proceeds from the offering will be used to finance capital expenditures for the state.

Michigan delays deal

The State of Michigan was also among the issuers pushing back planned bond offerings. The state had been slated to price $96.32 million of series 2012 tax-exempt G.O. environmental program refunding bonds on Wednesday. The bonds are now scheduled to price Nov. 15, according to a supplement the state added to its preliminary official statement Thursday.

The bonds (Aa2/AA-/AA-), which are due 2013 to 2020, will be sold competitively.

The state plans to use the proceeds to refund existing debt.

Ratios move higher

The lack of activity and the strength of Treasuries had an impact on the municipals/Treasuries ratio, said Schankel.

"Benchmark tax-free yields were unchanged, although M/T ratios moved higher, reflecting Treasury strength," he said Thursday.

"New Jersey, perhaps the state most impacted by the storm, postponed a $2.6 billion short-term note issue, with timing now uncertain."

Hurricane will test liquidity

Meanwhile, Moody's Investors Service noted this week that the hurricane will likely test municipalities' liquidity, particularly if state and federal aid to communities is delayed.

"Many cities and towns will use reserves to finance immediate cash needs, reducing fund balances," Schankel said.

"Although insurance may cover property damage sustained by hospitals, decreases in patient volumes and associated revenues will not be easily recovered. Revenue bond issuers such as New York's Metropolitan Transportation Authority face the extensive expense of cleanup and repair, while revenues from fares and tolls dropped sharply due to the storm."

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