Billions in sales expected during coming week; municipals finish out week with firmer tone

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, Aug. 14 - The coming week is building up to be another busy one, with several billion-dollar municipal offerings in the pipeline.

The largest sale of the week comes out of the Regents of the University of California, which will sell $1.37 billion in general revenue and Build America Bonds Wednesday.

The State of Illinois is also set to sell $1.25 billion in series 2009 general obligation certificates competitively on Thursday.

The Dormitory Authority of the State of New York plans to bring to market Tuesday $1.24 billion in series 2009 state personal income tax revenue general purpose bonds - an offering at least one market source has his doubts about.

The sale comes as income tax revenue is declining precipitously.

"It's based on income tax, and they're getting less income," said one market insider earlier in the week. "I think it's going to be a tough sell."

There are worries that a deal such as Dasny's based on shrinking personal income tax revenues will become a watershed of risk aversion.

"I don't think that we're at that point yet," said Tom Kozlik, municipal credit analyst for Janney Montgomery Scott LLC.

Dasny's sale includes $395 million in series 2009D bonds, $135 million in series 2009E federally taxable bonds and $710 million in series 2009F federally taxable Build America Bonds.

M.R. Beal & Co. and Morgan Stanley & Co. Inc. will bring the 2009D and 2009E bonds to market, while Merrill Lynch & Co. Inc. will sell the 2009F bonds.

Proceeds will fund capital projects at the State University of New York and the City University of New York.

Munis unchanged

Elsewhere, municipals were seen basically unchanged but with a firmer tone, a trader noted.

"Things seemed to have settled down a little bit," she said, comparing Friday's market tone to Thursday's shaky session.

"We're seeing a few things moving, but it's been mostly quiet."

Even though the municipal market may have been slow Friday, investors were still seeking an outlet for their money.

"People want to put money to work," Kozlik said.

It is apparent in the equity market movements on Friday, he said, that "people are just dying to put it somewhere. ... A lot of it is in Treasuries."

People are also thinking differently about how to invest, Kozlik said.

The hegemony of equities over the investment space is slipping, he said.

"There is a fundamental shift in the way that people are thinking," he said.

Further, as more consideration is paid to municipal bonds, people must examine where, sector-by-sector, the money should be placed.

State G.O. bonds and water and sewer bonds may be the proper level of risk, compared to more vulnerable smaller issuers, he said.

"[Some believe] things are going to get bad," he said, and used Philadelphia as a worst-case scenario.

The city is considering its Plan C if Harrisburg does not balance its budget or allow the city to skip things like pension plan payments.

The city may have to cut 3,000 jobs and eliminate the commerce department, the managing director and the city planning department, he said, but he emphasized that those measures are a worst-case scenario.

"We're going to have to wait and see," he said.

Some have suggested that troubles in many states may force investors to re-examine their eager buying habits.

Secondary firms

Moving to the secondary market, traders said the tone of the market firmed up, even though the market remained unchanged.

Among the light trading action was the Indiana Finance Authority's recently priced Parkview Health System Obligated Group bonds. The 5.875% 2029 bonds were seen at 5.856%. The 5.5% 2024 bonds were seen at 5.6%, and the 4% 2016s were seen trading near par.

The Birmingham Special Care Facilities Financing Authority in Alabama saw its Children's Hospital bonds moving as well. The 5% 2021s were seen at 4.76%.

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