Munis fail to gain ground as supply pressure mounts; Ohio brings $287.69 million of G.O. bonds

By Sheri Kasprzak

New York, June 12 - Municipals were unchanged to slightly weaker on Tuesday as new issues started coming to market, said traders.

Secondary action was very light, said one trader, and supply began to put some pressure on yields. Yields, particularly in the middle of the yield curve, were seen down 1 basis point to 3 bps. The remainder of the market was mostly unchanged.

The largest deal of the week is expected to price for institutional investors on Wednesday. The Michigan Finance Authority plans to sell $2,968,595,000 of series 2012 unemployment obligation assessment revenue bonds.

The offering will be conducted in three tranches.

Citigroup Global Markets Inc. is the lead manager for the 2012A-B bonds, and Bank of America Merrill Lynch is the co-lead manager for the 2012A-B bonds. Citigroup is the underwriter for the 2012C bonds.

Proceeds will be used to refund existing debt and to make a deposit into the authority's liquidity reserve fund.

Ohio brings G.O. bonds

Meanwhile, the State of Ohio came to market Tuesday with $287,685,000 of series 2012 general obligation bonds.

The deal included $138.64 million of series 2012C common schools refunding bonds, $103,345,000 of series 2012C higher education refunding bonds, $15,385,000 of series 2012C infrastructure improvement refunding bonds, $15.14 million of series 2012A conservation projects refunding bonds and $15,175,000 of series R natural resources refunding bonds.

The 2012C common schools bonds are due 2016 to 2023 with 5% coupons. The 2012C higher education bonds are due 2017 to 2024 with 5% coupons. The 2012C infrastructure bonds are due 2022 to 2023 with 5% coupons. The 2012A conservation bonds are due 2015 to 2018 with 5% coupons. The full details of the series R bonds were unavailable Tuesday.

State saves $40.34 million

The bonds (Aa1/AA+/AA+) were sold competitively. The winning bidder for the common schools bonds was Bank of America Merrill Lynch with a 1.843% true interest cost, said Kurt Kauffman with the state's Office of Budget and Management. Bank of America Merrill Lynch also won the higher education bonds with a 2.237% TIC and the infrastructure improvement bonds with a 2.435% TIC. J.P. Morgan Securities LLC won the bid for the conservation bonds with a 1.231% TIC. FTN Financial won the bid for the natural resources bonds with a 1.369% TIC.

"We are not required to sell debt competitively but chose competitive in this case because we had five G.O. credits and a fairly static set of refunding candidates that were clear strong saving candidates as shown by our NPV savings number," Kauffman said.

The state achieved a net present value savings of $40.34 million, or 12.68% of the refunded bonds, Kauffman said.

Proceeds will be used to refund the state's series 2004A-B common schools G.O. bonds, series 2004A and 2005A higher education G.O. bonds, series 2004D infrastructure improvement G.O. bonds and series 2004A conservation projects G.O. bonds.

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