Market firms as supply builds; spread on Build America Bonds seen tighter over Treasuries

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, May 18 - The municipals market continued to firm on Monday with a stronger trading volume, said market insiders.

Trading was strong or at least "steady, to a touch better," a trader said.

Even so, the market will be focused on primary offerings, the trader noted.

"It seems like it's going to be a pretty busy week from a new-issue perspective, especially for a holiday-shortened week," the trader said.

"There's a lot of sorts of different kind of credits."

For most of the new issues, "everything looks cool," but there are some that will have to pay a premium for their geography, he said.

"Compton is a challenging credit in this market," he said of the California city, adding that Birmingham Waterworks in Alabama will have to make its case in the midst of problems in surrounding Jefferson County.

Elsewhere, one market source said Build America Bonds have experienced some spread tightening, especially against Treasuries.

"Build America Bonds have definitely experienced some tightening of spreads from Treasuries," he noted.

"We kind of expected that to happen, because it is a new market and it's constantly evolving. We believe the tightening will continue as the weeks go on and as more of them are out there."

Pennsylvania deal ahead

Meanwhile, investors will have lots to choose from in the primary market during the course of the week. Tuesday's action will be headlined by the Commonwealth of Pennsylvania's $616.86 million competitive sale of series 2009 general obligation bonds.

The sale includes second bonds and first refunding bonds. The second bonds are due 2010 to 2029 and the first refunding bonds from 2009 to 2014.

Public Financial Management Inc. is the financial adviser for the sale, the proceeds of which will be used to fund capital improvements and protection for open space, farmlands and watershed areas.

Monday pricings

Moving to primary market action from Monday, the Michigan Strategic Fund had planned to issue $150 million in adjustable-rate revenue refunding bonds for Midland, Mich.-based Dow Chemical Co.

Banc of America Securities LLC intended to price the negotiated bonds on Monday.

Also on Monday, the City of Albuquerque was set to price $54.97 million in series 2009 G.O. general purpose bonds. Cilia Aglialoro, the city's treasurer, said the terms would be available Tuesday.

The bonds were sold competitively with RBC Capital Markets Corp. as the financial adviser.

The bonds are due 2010 to 2018.

Proceeds will be used to fund improvements to streets, parks, public safety, transit facilities and cultural facilities.

Wednesday provides bulk

The majority of the week's primary activity comes on Wednesday, led by a $790 million sale of series 2009J G.O. bonds from the City of New York.

Merrill Lynch & Co. Inc. will bring the bonds, which are due 2011 to 2036.

The offering includes $600 million in series 2009J-1 bonds and $190 million in series 2009J-2 bonds.

Proceeds will fund capital expenses.

Also coming on Wednesday is a $621.43 million offering of series 2009 G.O. bonds from the Commonwealth of Massachusetts.

The deal will be led by Fidelity Capital Markets Inc., and the sale includes series 2009B, 2009C and 2009D bonds.

The 2009B bonds are due 2010 to 2029 with term bonds due 2034 and 2038. The 2009C bonds are due 2010 to 2038, and the 2009D bonds are due 2010 to 2016.

Proceeds will be used for capital expenses.

Also coming up on Wednesday is a sale of G.O. refunding bonds from the State of Ohio. The state will bring $231.665 million of the bonds through lead managers Merrill Lynch and Fifth Third Securities Inc.

The deal includes $49.025 million in series 2009B higher education G.O. refunding bonds, $101.835 million in series 2009B common schools G.O. refunding bonds and $80.805 million in series 2009B infrastructure improvement G.O. refunding bonds.

Proceeds will be used to refund existing debt.

Birmingham to sell

Birmingham Waterworks in Alabama plans to issue $159 million in series A-B refunding bonds (A2/AA-/), according to a calendar of upcoming sales.

However, the bonds will have to fight an uphill battle against the reputation of the surrounding county.

Birmingham itself is in good shape, a trader said, but the problems are in Jefferson County, a trader said.

"They're going to have to pay a price for their location," he said.

The negotiated bonds are expected this week via Raymond James & Associates Inc.

The series A bonds will carry serial maturities from 2010 to 2028 with term bonds due 2029 and 2034.

The series B bonds will carry serial maturities from 2011 to 2019.

Proceeds will be used to maintain the city's water and sewage system.

Orlando sale ahead

Also coming up this week, the Orlando Utilities Commission in Florida will sell $125 million in utility system revenue refunding bonds (Aa1/AA/AA) Wednesday, according to a calendar of upcoming sales.

Morgan Stanley & Co. Inc. will act as underwriter for the negotiated bonds.

Wednesday's active day for pricings also includes a $100 million sale of utility system revenue refunding bonds from the Port St. Lucie, Fla., according to a calendar of upcoming sales.

RBC Capital Markets will act as underwriter for the negotiated issue.

The bonds will carry serial maturities from 2013 to 2035.

U of Michigan deal

On Tuesday, the University of Michigan is scheduled to price $105 million in series 2009 fixed-rate and commercial paper-rate general revenue bonds Tuesday, according to a calendar. A retail order period was conducted Monday.

The bonds (Aaa/VMIG 1/AAA/A-1+/) will be sold through senior manager Merrill Lynch.

Proceeds will be used to replace the C.S. Mott Women's and Children's Hospital, to renovate and expand the university's stadium and to renovate the North Quad Residential and Academic Complex.

The university is based in Ann Arbor, Mich.

Louisiana BABs added

In other news, the State of Louisiana plans to sell another $121.25 million in series 2009A-3 taxable gasoline and fuels second-lien revenue Build America Bonds, bringing the total sale size to $276.25 million, said a preliminary official statement.

Pricing is expected in May.

The bonds (Aa3/AA/) will be sold through senior manager Merrill Lynch.

The bonds are due May 1, 2043.

The state announced plans earlier to sell $155 million in series 2009A-3 taxable gasoline and fuels second-lien revenue Build America Bonds, which will be sold through Morgan Keegan & Co.

Proceeds will be used to construct highways and bridges.

Secondary market

Moving to the secondary market, traders said volume was heavier than usual and the market tone firmed despite a weaker Treasury market.

Looking to specific trading activity, the Clackamas County Hospital Facilities Authority in Oregon saw its Legacy Health System revenue bonds moving Monday. The 5.5% 2029 bonds were seen at 5.274% during afternoon trading. The 4.5% 2018 bonds were trading at 4.29%, and the 4% 2014 bonds were seen at 3.6%.

The City of Philadelphia's series 2009A wastewater revenue bonds were also in action Monday. The 4.5% 2022 bonds were seen at 4.371% after pricing Thursday at 4.62%, and the 4.375% 2021s were seen trading near par after pricing at 4.54%. The 5.25% 2036 bonds were seen at 5.05% after pricing at 5.33%. The 5.25% 2032 term bond was seen at 4.82% after pricing at 5.29%.

The Van Buren Public Schools of Michigan saw its series 2009 taxable school building Build America Bonds moving. The 6.58% 2039 bonds were seen at 6.038%. The 3.34% 2012 bonds were seen at 3.25%.

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