Municipals rally with Treasuries as stocks take a hit; Connecticut sells $175.2 million bonds

By Sheri Kasprzak

New York, Nov. 7 - Municipal yields dropped Wednesday as Treasuries rallied and stocks took a hit following Tuesday's election, market sources said.

"Treasuries are rallying and we're riding along with them," said one trader at midday. "Yields are better by a good 5 to 7 bps."

Another trader said several new issues were pricing well and getting a solid reception.

Meanwhile, the State of Connecticut hit the market with its previously delayed $175,215,000 of series 2012G tax-exempt general obligation bonds.

The bonds (Aa3/AA/AA) were sold through Morgan Stanley & Co. LLC.

The bonds are due 2013 and 2022 to 2032. The serial coupons range from 3% to 5%. The 2013 bonds have a 1.5% coupon priced at 101.143.

"The first new issues of the week received strong demand, with final pricing of $175 million of Connecticut G.O., co-managed by Janney, dropping yields lower in several maturities compared to preliminary levels," said Alan Schankel, managing director with Janney Montgomery Scott LLC.

Proceeds will be used to finance capital expenditures for the state.

Covanta sells five tranches

In other news Wednesday, Covanta Holding Corp. of Morristown, N.J., brought $334 million of series 2012 tax-exempt refunding bonds in five tranches, according to a pricing sheet.

The deal included $20 million of series 2012A bonds sold through the Massachusetts Development Finance Agency, $67 million of series 2012B Massachusetts Development bonds, $82 million of series 2012C Massachusetts Development bonds, $130 million of series 2012A bonds sold through the Niagara Area Development Corp. and $35 million of series 2012B Niagara bonds.

The 2012A Massachusetts bonds are due in 2027 and bear interest at 4.875%, and the 2012B bonds are due in 2042 and bear interest at 4.875%. The 2012C Massachusetts bonds are due in 2042 and bear interest at 5.25%.

The 2012A Niagara bonds are due in 2042 and have a 5.25% coupon. The 2012B Niagara bonds are due in 2024 and have a 4% coupon.

Bank of America Merrill Lynch was the underwriter.

Proceeds will be used to refinance existing tax-exempt project debt at its Haverhill, Niagara and Semass facilities, as well as to fund capital expenditures in Massachusetts.

Interest expense reduced

The offering will extend the weighted average life of refinanced debt from less than three years to more than 27 years and will also reduce the average interest rates by more than 50 basis points, according to a statement released by the company.

The deal will also release more than $30 million in cash from restricted funds, net of offering expenses, for immediate corporate use.

"We are capitalizing on favorable conditions in the debt markets, as well as the fact that debt investors were very receptive to the offering given our strong track record of consistent operations and steady cash flow generation," said Brad Helgeson, Covanta's vice president and treasurer.

"By replacing our secured project debt with unsecured corporate level debt, this transaction will enhance our financial flexibility and further simplify our capital structure going forward."

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