Yields climb 2 to 3 bps; Empire State Urban Development brings $1.11 billion of revenue bonds

By Sheri Kasprzak

New York, Dec. 2 - Municipal yields continued to climb on Thursday following Wednesday's Treasury sell-off and while investor interest was dominated by a decent amount of primary activity, said market insiders.

"Yields are still up another 2, 3 basis points," said one trader. "We're basically picking up where we left off yesterday after Treasuries hit a snag."

Forward supply, said Alan Schankel, managing director with Janney Montgomery Scott LLC, is still heavy and putting some pressure on yields.

"A strong rally in the earlier part of the week cleared much of the October new issue residue from traders' shelves, but forward supply remains heavy, with the 30-day visible at $17.2 billion, a bit shy of the 2010 high point," said Schankel.

"Tax-free mutual funds experienced a second week of heavy outflows for the week ending Nov. 24, but on the positive side of the supply-demand equation, we are heading into a season where reinvestment demand from interest and principal payments will accelerate."

Heading up Thursday's primary action, the Empire State Urban Development Corp. brought $1.109 billion of series 2010 state personal income tax revenue bonds to market, said a pricing sheet.

The bonds (//AA) were sold on a negotiated basis with Morgan Stanley & Co. Inc. as the lead manager for the 2010A bonds and Citigroup Global Markets Inc. as the senior manager for the 2010B bonds.

The offering included $367.295 million of series 2010A bonds and $742.125 million of series 2010B bonds.

The 2010A bonds are due 2011 and 2015 to 2020 with 2% to 5% coupons. The 2010B bonds are due 2011 to 2014 and 2020 to 2025 with a 2040 term bond. Serial coupons range from 1.56% to 5.51%, all priced at par. The 2040 bonds have a 5.838% coupon priced at par.

Proceeds will be used to finance capital improvements and equipment purchases for state agencies and the City University of New York.

Based in Albany, the corporation provides funding for economic development projects throughout the state.

PANYNJ details deal

Also during the day, the Port Authority of New York and New Jersey released the terms of its previously announced $796.28 million sale of series 2010 special project bonds in a pricing sheet on Thursday.

The bonds (Baa3//BB) priced Wednesday through Citigroup.

The bonds are due 2020, 2028, 2031, 2036 and 2042. The 2020 bonds have a 5% coupon priced at 99.031, and the 2028 bonds have a 6.5% coupon priced at 111.324. The 2031 bonds have a 5.5% coupon priced at 96.384, and the 2036 bonds have a 6% coupon priced at 99.088. The 2042 bonds have a 6% coupon priced at 97.910.

Proceeds will be used to expand the JFK International Air Terminal for Delta Airlines at John F. Kennedy International Airport.

Honolulu sells G.O. bonds

In the Aloha State, the City and County of Honolulu sold $339.515 million of series 2010 general obligation bonds on Thursday, said a pricing sheet. The deal was downsized from $459.785 million.

The sale included $151.685 million of series 2010A Build America Bonds and $187.83 million of series 2010B tax-exempt bonds. Another $120.27 million tranche of series 2010C tax-exempt bonds originally planned was scrapped Thursday.

The bonds (Aa1//AA+) were sold through Bank of America Merrill Lynch.

The 2010A bonds are due 2015 to 2035 with 2.776% to 6.478% coupons, all priced at par. The 2010B bonds are due 2015 to 2035 with coupons from 3.875% to 5%.

Proceeds will be used to refund $125 million of the city and county's commercial paper and advance refund its series 2003A, 2004A, 2005E and 2005F bonds.

Massachusetts Bay bonds price

In the Northeast, the Massachusetts Bay Transportation Authority priced $273.45 million of series 2010 senior sales tax bonds, said a pricing sheet.

The sale included $63.45 million of series 2010C tax-exempt bonds and $210 million of series 2010D Build America Bonds.

The 2010C bonds are due 2018 to 2020 with 5% coupons across the board. The 2010D bonds are due 2021, 2031 and 2040. The 2021 bonds have a 4.546% coupon priced at par, and the 2031 bonds have a 5.769% coupon priced at par. The 2040 bonds have a 5.869% coupon priced at par.

J.P. Morgan Securities LLC was the senior manager for the bonds (Aa2/AAA/).

Proceeds will be used to refund existing debt.

Located in Boston, the authority operates the Boston area's mass transit system.

N.J. Turnpike deal set

Looking to the coming week, the New Jersey Turnpike Authority is set to headline primary action with its $1.5 billion sale of series 2010A turnpike revenue Build America Bonds.

The bonds (A3/A+/A) will be sold through Goldman, Sachs & Co. and Citigroup.

Janney's Schankel said Thursday that Moody's revised its outlook on the issuer to negative over concerns about the authority siphoning revenues for purposes other than turnpike uses.

"Much of the toll road's revenue was earmarked to pay for New Jersey's $1.25 billion portion of the canceled Hudson River rail tunnel but will now be used for other transportation projects," said Schankel.

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