Municipals post modest gains; downgrades outpace upgrades during first quarter, Fitch says

By Sheri Kasprzak

New York, April 18 - Municipal yields were firmer by 1 basis point to 2 bps on Thursday as the bulk of the week's larger offerings hit the market, traders reported.

With the last of the big deals pricing, investors were still more interested in the primary market than secondary.

"Trading is pretty light," a trader said.

"Still, we're holding our own. Yields are down by maybe a basis point or two. There's not a lot of movement, but the tone is firmer."

Illinois sells highway debt

In primary action Thursday, the Illinois State Toll Highway Authority came to market with $500 million of series 2013A toll highway senior revenue bonds, said a pricing sheet.

The bonds (Aa3/AA-/AA-) were sold through J.P. Morgan Securities LLC and Loop Capital Markets LLC.

The bonds are due 2027 to 2035 with a term bond due in 2038. The serial bonds have 5% coupons. The 2038 bonds have a 5% coupon and priced at 111.903.

One market source said that yields were bumped in spots.

Proceeds will be used to pay for a portion of the state's 15-year, $12.1 billion capital improvement plan.

Pennsylvania bonds price

Another highway offering hit the market Thursday. The Pennsylvania Turnpike Commission brought $129.17 million of series 2013A motor license fund enhanced turnpike subordinated special revenue bonds, said a pricing sheet.

The deal included $89.18 million of series 2013A special revenue bonds and $39.99 million of series 2013A-1 subordinated bonds.

The 2013A bonds are due 2019 to 2033 with term bonds due in 2036, 2038 and 2043. The serial coupons range from 3% to 5%, and the term bonds have 5% coupons. The 2036 bonds priced at 112.221, the 2038 bonds priced at 111.875, and the 2043 bonds priced at 111.015.

The 2013A-1 bonds are due 2019 to 2026 with term bonds due in 2028 and 2043. The serial coupons range from 3.125% to 5%. The 2028 bonds have a 5% coupon and priced at 115.665, and the 2043 bonds have a 5% coupon and priced at 108.149.

The bonds (A1/A-/AA) were sold through Piper Jaffray & Co.

The series 2013A-1 30-year bonds priced with a 5% coupon to yield 3.97%, said Alan Schankel, managing director with Janney Montgomery Scott LLC, which was a co-manager for the deal. The series 2013A bonds' 30-year maturity priced with a 5% coupon to yield 3.63%, Schankel said.

Proceeds will be used to make payments to the Pennsylvania Department of Transportation to fulfill a portion of its commitments under Pennsylvania's Act 44 transportation statute, which funds transit capital projects and provides transit operating subsidies.

Downgrades outnumber upgrades

Looking to ratings action, Fitch Ratings reported Thursday that U.S. public finance downgrades outpaced upgrades during the first quarter of 2013 for the 17th consecutive quarter.

"Negative actions are expected to remain elevated, as negative rating outlooks exceeded positive rating outlooks (3.3:1) in 1Q'13," wrote Sarah Repucci, senior director with Fitch.

"However, a vast majority of rating actions (83%) during the first quarter were affirmations, with no change in rating outlook or rating watch status. Furthermore, 91% of ratings had a stable rating outlook at the end of the first quarter."

Repucci noted that downgrades still account for only a small percentage of total public finance rating actions. Fitch downgraded 57 credits, or 6.9% of all rating actions, with $23.9 billion in par value. During the first quarter of 2013, Fitch upgraded 31 credits, or 3.8% of all rating actions, with $6.1 billion in par value.

For the fourth quarter of 2012, Fitch downgraded 41 credits and upgraded 15 credits.

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