Municipal yields close out week flat; new money defaults total just 24 deals as of end of May

By Sheri Kasprzak

New York, June 10 - Municipal yields ended the week unchanged, despite a boost in Treasuries, as the market waits to see how investors will respond to the summer's expected deluge of offerings, said traders.

With little trading activity to move the market in any direction, one trader said everyone's waiting to see what the week ahead will bring.

"It's a very supply-sensitive time right now," he noted.

"A lot depends on how much demand there is and what's coming down the pipeline. There's a lot coming, but we're waiting to see how investors, especially retail, respond to that."

Meanwhile, the sky might not really be falling in the municipals market.

J.R. Rieger, senior vice president of fixed income indexes for Standard & Poor's, released a report Friday noting that new monetary defaults in the muni market through the end of May totaled 24 deals representing just under $400 million.

"When compared to the same period in 2010, there were 45 bond deals in default representing over $1.4 billion in debt," Rieger wrote.

"The facts simply don't support the dire default forecasts of hundreds of billions of dollars of bonds defaulting."

Muni insiders have come out to defend the market after securities analyst Meredith Whitney asserted that 2011 would feature massive defaults in the muni industry.

Supply/demand imbalance

Rieger also touched on the supply/demand imbalance in the muni market and noted that eyes are on how the market absorbs new issuance.

So far this month, Rieger said the S&P National AMT-Free Municipal Bond index has seen a positive total return of 0.46% and a yearly positive total return of 4.93%.

Houston brings bonds

In the primary market, the City of Houston priced $426.41 million of series 2011D first-lien combined utility system revenue bonds, said a pricing sheet.

The bonds (Aa2/AA/) were sold through Bank of America Merrill Lynch.

The bonds are due 2016 to 2031 with term bonds due in 2033, 2035, 2036 and 2040. The serial coupons range from 3% to 5%. The 2033 bonds have a 5% coupon priced at 103.27. The 2035 bonds have a 4.5% coupon priced at 97.393, and the 2036 bonds have a 5% coupon priced at 102.027. The 2040 bonds have a 5% coupon priced at 101.616.

Proceeds will be used to extend, construct, improve and repair the city's utility systems and to refund its series B commercial paper notes.

OhioHealth bonds price

Elsewhere, Franklin County, Ohio, sold $313.785 million of series 2011 hospital facilities revenue and refunding bonds for OhioHealth Corp., said a pricing sheet.

The offering included $130.045 million of series 2011A revenue bonds, $61.205 million of series 2011B refunding bonds, $61.24 million of series 2011C refunding bonds and $61.295 million of series 2011D refunding bonds.

The bonds were sold through Barclays Capital Inc.

The 2011A bonds are due 2012 to 2027 with term bonds due in 2036 and 2041. The serial coupons range from 2% to 5%. The 2036 bonds have a 5% coupon priced at 99.142. The 2041 bonds have a 5% coupon priced at 98.61. The 2011B bonds are due Nov. 15, 2033, and have a 2% coupon priced at 101.707. The 2011C bonds are due Nov. 15, 2033, but the pricing terms were not available. The 2011D bonds are due Nov. 15, 2033, and have a 4% coupon priced at 107.892.

Proceeds will be used to finance or refinance the construction, acquisition, equipment and improvement of existing health-care system facilities and to refund OhioHealth's series 2006 bonds.

Santa Clara USD sells G.O.s

In other pricing news, the Santa Clara Unified School District of California priced $194.69 million of series 2011 general obligation bonds, said a pricing sheet.

The offering included $91.14 million of election of 2004 series 2011A tax-exempt bonds, $25 million of election of 2004 series 2011B taxable bonds and $78.55 million of election of 2010 series 2011 G.O. bonds.

The election of 2004 series 2011A bonds are due 2012 to 2019 and 2028 to 2036 with 3% to 5% coupons. The election of 2004 series 2011B bonds are due 2020 to 2027 with 4.15% to 5.3% coupons, all priced at par. The election of 2010 series 2011 G.O. bonds are due 2012 to 2036 with 3% to 5% coupons.

The bonds were sold competitively, but calls to the issuer for the winning bidder were not returned by press time Friday.

Proceeds will be used to fund improvements to real property for school construction.

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