Municipals steady ahead of $4 billion supply; North Las Vegas 'nearing insolvency,' Fitch says

By Sheri Kasprzak

New York, May 5 - Municipal yields remained steady on Monday ahead of about $4 billion of new offerings, market insiders said.

With little primary action and relatively slow trading activity, there was little to move the market, said a trader. The 30-year bond yield closed the day at 3.61%, and the 10-year bond yield finished at 2.32%.

Meanwhile, Treasuries were weaker on ISM non-manufacturing data. The 30-year Treasury bond yield rose by 3.5 basis points to close at 3.405%, and the 10-year note yield rose by 1.5 bps to 2.608%.

North Las Vegas faces trouble

In ratings news, Fitch Ratings released a report Monday stating that North Las Vegas faces many of the same four factors common to bankruptcies, factors that impacted Harrisburg, Stockton and Detroit.

"Flawed financial decisions, rigid and escalating cost structures, revenue raising limitations and weak economic conditions - playing out over many years - contributed to all three recent bankruptcies and may indicate risk for similarly distressed cities like North Las Vegas," said the report from directors Matthew Reilly, Shannon Groff and Barbara Ruth Rosenberg.

Fitch rates the city B with a negative outlook.

"North Las Vegas, while not in default is nearing insolvency, and Fitch's rating indicates that material default risk is present," they wrote.

"The city's dire fiscal picture stems from a steep drop in revenues due to the severity of the recession coupled with multiyear contracted compensation increases. The city also faces a structural budget deficit, one-time expenses and restrictions on certain revenue-raising measures."

Illinois highway deal set

Looking to the week's offerings, volume will remain relatively light with about $4 billion of new deals on tap. One of the larger deals of the week comes from the Illinois State Toll Highway Authority, which plans to price $450 million of toll highway senior revenue bonds through Citigroup Global Markets Inc. and Barclays.

The bonds (Aa3//AA-) are due 2026 to 2034 with a term bond due in 2039.

Proceeds will be used to finance capital improvements as part of the authority's $12.1 billion, 15-year capital improvement plan.

The authority sold $378.72 million of senior revenue bonds back in late January. Those bonds are due 2019 to 2022 with 4.5% to 5% coupons and yields from 1.73% to 2.77%.

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