Municipals rise on stronger Treasuries; Puerto Rico Aqueduct readies $750 million offering

By Sheri Kasprzak

New York, Aug. 11 – Municipals saw yields on top-rated bonds fall as much as 5 basis points as Treasuries got a boost from the Chinese yuan’s devaluation, market insiders said.

Muni yields fell as much as 5 bps, but Treasuries got a real nudge as the Chinese yuan’s devaluation led investors to turn to safe havens.

The 10-year and five-year Treasury note yields fell by 9 basis points.

Puerto Rico Aqueduct deal set

Looking out on the horizon, the Puerto Rico Aqueduct and Sewer Authority announced plans to come to market with $750 million of series 2015A senior-lien revenue bonds.

The bonds will be sold on a negotiated basis with BofA Merrill Lynch and J.P. Morgan Securities LLC as the lead managers. The co-managers are Popular Securities and Santander Securities.

Proceeds will be used to finance capital projects under the authority’s five-year capital improvement plan.

PRASA won’t be restructured

The offering comes as the Commonwealth of Puerto Rico is experiencing one of its toughest fiscal crises.

“The fact that PRASA is going to market with this transaction at the same time the commonwealth is developing a comprehensive fiscal adjustment plan, which is expected to include the pursuit of temporary adjustments to the terms of the accumulated debt load of the commonwealth and related debt issuers, reflects the individual financial circumstances of the various debt issuers across the commonwealth,” said Melba Acosta-Febo, the president of the Puerto Rico Government Development Bank.

“Based on PRASA’s internal cash flow projections, assuming it revises its rates as forecasted – which would be required unless a recurrent source of revenue becomes available that will meet certain revenue coverage – and provided the agency is able to access the market on reasonable terms and for sufficient amounts to cover its capital needs while executing its five-year projection plan, the GDB currently does not contemplate PRASA necessitating a restructuring of its debt.”

News of the upcoming offering didn’t seem to impact trading of Puerto Rico debt, and market insiders shrugged at the deal.

The commonwealth’s 2012A G.O. bonds, which have been actively traded recently, saw some trading activity Tuesday with the 5% 2041 bonds ending the day at 58.709, a 9.212% yield to maturity, after trading between 61.5 and 57.881.

MEAG sells bonds

Among the larger offerings priced Tuesday, the Municipal Electric Authority of Georgia came to market with $254,425,000 of series 2015A Plant Vogtle bonds.

The deal included $185.18 million of series 2015A Plant Vogtle Project J bonds and $69,245,000 of series 2015A Plant Vogtle Project P bonds.

The Project J bonds are due in 2060 and have a 5% coupon that priced at 103.282 and a 5.5% coupon that priced at 109.265. The Project P bonds are due in 2060 and have a 5% coupon that priced at 100.686 and a 5.5% coupon that priced at 106.547.

The bonds were sold through Wells Fargo Securities LLC and U.S. Bancorp Investments Inc.

Proceeds will be used to finance the Project J and P entities’ ownership interest.

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