Munis weaken yet again as investors pull back; Ohio plans to bring $1.36 billion of bonds

By Sheri Kasprzak

New York, March 16 - Municipals continued to weaken even as the week closed down and Treasuries stabilized, market sources reported.

"It's interesting because even though supply was very light today, yields are still off probably by 3 to 5 basis points [across the curve]," one trader said on Friday.

"I suspect that it's really due to the expected supply for next week. Investors seem to be pulling back. It's tough to tell exactly what's making them pull back, but demand has dried up substantially over the past couple of weeks."

Month-to-date issuance has been slightly more than $19 billion, according to Municipal Market Advisors data.

Ohio preps $1.36 billion

Looking ahead, the State of Ohio is expected to bring to market $1.36 billion of general fund-backed bonds, said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC. The offerings are part of a $1.74 billion two-year capital plan proposed by Gov. John Kasich.

According to a report from Kozlik, the governor decided to propose the capital plan and the bond offerings because there are many capital projects within the state that must be completed before the state's next budget cycle.

Knoxville utility bonds price

Earlier in the week, the City of Knoxville, Tenn., came to market with $90,535,000 of series 2012 utility systems revenue refunding bonds for the Knoxville Utilities Board, said Mark Walker, chief financial officer for the board.

The deal includes $36,815,000 of series 2012AA electric system revenue refunding bonds, $26.6 million of series 2012Q gas revenue refunding bonds, $10.05 million of series 2012X water system revenue refunding bonds and $17.07 million of series 2012A wastewater system revenue refunding bonds.

The bonds (Aa2/AA+/) were sold competitively. Prager & Co. Inc. won the bid for the electric and wastewater bonds. Robert W. Baird & Co. Inc. won the bid for the gas bonds, and BMO Capital Markets LLC won the water system bonds.

"We have the flexibility to sell the bonds competitively or negotiated," Walker said in an interview Friday. "Our practice is to do competitive."

Proceeds will be used to refinance existing debt.

"The debt service savings was $15.4 million, and net present value savings was $12.3 million," he said. "That was very good, considering it was $95 million in total debt we were refunding."

In fact, the board came away with bigger savings than predicted.

"It was much greater than we expected," he said. "When we first went to our board, we had communicated around $7 million in net present value savings, and we got about $5 million greater than that."

The board, Walker said, is in the market fairly often, generally selling between $50 million and $75 million of debt per year. The last time the board came to market was November, when it sold $25 million of bonds, Walker noted.

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