Munis widen following Detroit bankruptcy filing; $9 billion of deals forecast for week ahead

By Cristal Cody

Tupelo, Miss., July 19 - Municipals widened on Friday as the market absorbed news of the City of Detroit's Chapter 9 bankruptcy filing, the largest in U.S. history, late the previous day, traders said.

Market activity for the most part, though, was quiet headed into the weekend.

"Not a lot of trades going on today," a trader said. "It started with the filing and was a very quiet day. Being a Friday, everyone just took a breath."

Munis eased about 5 basis points to 10 bps with the worst performance seen in 10-year bonds and out, the trader said.

The Detroit filing could impact the roughly $9 billion of new muni issuance expected in the week ahead, particularly retail investors, sources said.

"It's going to encourage some investors to be more conservative," one source said.

A number of sizable deals are on the docket, including South Carolina Public Service Authority's offering of $1,748,000,000 of revenue obligation bonds (Aa3/AA-/AA-), sources said.

The authority intends to price $811 million of series 2013A tax-exempt bonds, $399 million of series 2013B tax-exempt refunding bonds, $212 million of series 2013C taxable bonds and $326 million of series 2013D taxable Libor index bonds.

Goldman Sachs & Co. is the bookrunner for the series A and B bonds. Barclays is the bookrunner for the series C bonds, and Morgan Stanley & Co. LLC is the bookrunner for the series D bonds.

Proceeds will be used to fund a portion of the authority's ongoing capital improvement program and to refinance a portion of outstanding debt.

The outcome of Detroit's bankruptcy regarding how pension claims for city workers and bondholder claims are handled also could have a major impact on the muni market, sources said.

"If the courts decide that pensions have a more legitimate claim than bondholders, the muni bond market will face significant pressure," Confluence Investment Management strategists said in a note on Friday. "Until the dust settles, this event will cast a shadow over the muni market."

Florida prices $206.04 million

Details of the State of Florida's $206.035 million offering of Department of Transportation turnpike revenue refunding bonds emerged on Friday.

J.P. Morgan Securities Inc. was the winning bidder in the competitive offering with a 1.55% true interest cost, a source with the state said on Friday.

The series 2013 bonds (Aa3/AA-/AA-) have serial maturities from July 1, 2014 through July 1, 2022 and priced with 2% to 5% coupons to yield 0.19% to 2.7%.

Proceeds will be used to refund all or a portion of the outstanding State of Florida Department of Transportation series 2003A turnpike revenue refunding bonds.

JEA to sell $192.79 million

In new offerings on tap, Florida's JEA expects to bring $192,785,000 of water and sewer system revenue bonds (Aa2/AA/AA), according to a preliminary offering statement.

The deal includes $95,955,000 of series 2013A revenue bonds due 2014 through 2027, $29,715,000 of series 2013B revenue bonds due 2014 through 2022 and $67,115,000 of series 2013A subordinated revenue bonds due 2014 though 2027.

JPMorgan is the lead manager for the negotiated offering.

Co-managers include BofA Merrill Lynch, Barclays, BMO Capital Markets Corp., Citigroup Global Markets Inc., Goldman Sachs & Co., Jefferies & Co., Loop Capital Markets LLC, Morgan Stanley & Co. LLC, Piper Jaffray & Co., Raymond James/Morgan Keegan, RBC Capital Markets and Wells Fargo Securities LLC.

The agency for the city of Jacksonville, Fla., plans to use the proceeds to refund some outstanding water and sewer system revenue bonds.

NYU Hospitals Center preps deal

Also coming up, NYU Hospitals Center intends to price $350 million of series 2013A taxable bonds (A3/A-/A-), according to a preliminary offering memorandum.

BofA Merrill Lynch and JPMorgan are the lead managers of the negotiated sale. Morgan Stanley and Wells Fargo are co-managers.

The Manhattan teaching hospital plans to use the proceeds to pay for construction, renovation and equipment costs, to repay outstanding lines of credit and for working capital and other corporate purposes.

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