Municipals find a weak spot on the long end; Indianapolis Bond Bank prices $568.72 million

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, July 29 - Municipals weakened a bit on the long end of the yield curve, market insiders said Wednesday, but the primary market took off with billions in offerings brought to market.

On the short end, municipal bonds were seen trading left and right, according to Grigsby & Associates senior vice president Anthony Shields.

"There's a buyer driving the short end of the market," Shields said.

He could only speculate which firm was behind the wheel.

On Tuesday, a high-grade name due 2011 would trade at 0.6%, Shields said. However, on Wednesday, the same name due 2013 would trade at 0.9%.

"There's got to be one buyer," he said, who is "moving out the curve a little bit."

Outside of 2012 maturities, traders were seeing yields under 1%.

"That's CD rates," he noted.

Maturities inside of three years in high-grade names are at "really crazy levels," he said, mentioning Tennessee and Mecklenburg County in North Carolina.

"It's all through the roof," he said.

Even California tightened significantly to the curve, he said.

"I'm not sure it's warranted," he added.

The buying is more of a "relief rally," but there are still major inherent problems, he said.

In the days ahead, there is "a lot of interesting stuff on the calendar," he said.

Houston is scheduled to price $420 million series 2009A airport system senior-lien revenue and refunding bond (Aa3/AA-/) Thursday.

Indianapolis sells $568.72 million

Moving to the primary market, the Indianapolis Local Public Improvement Bond Bank priced $568.715 million series 2009A waterworks insured and uninsured bonds (A3/AA-/A-) to yield 5.77% and 5.97% at the long end, according to a market source.

The insured bonds carry a coupon of 5½% to yield 5.77% at final maturity in 2038, while the uninsured bonds carry a coupon of 5.75% to yield 5.97% at final maturity, which is also in 2038.

Morgan Stanley & Co. Inc. acted as lead underwriter for the negotiated bonds.

Proceeds from the sale will be used to refund the bond bank's series 2004A, 2005G and 2005H bonds as well as make a deposit to a reserve fund.

"That's almost 6% for a decent AA credit," Shields said.

"There's weakness out there on the long end," he said, and issuers must "price it to interest."

Still, "that was the big deal of the day," he added.

Texas WDB brings bonds

In other primary activity, the Texas Water Development Board sold $257.42 million in series 2009A state revolving fund subordinate-lien revenue and revenue refunding bonds, said a sellside source familiar with the deal.

The bonds (Aaa/AAA/AAA) were sold Tuesday through lead manager Merrill Lynch & Co. Inc. and Jefferies & Co.

The sale included $224.61 million in series 2009A-1 revenue bonds and $32.81 million in series 2009A-2 refunding bonds.

The 2009A-1 bonds are due 2011 to 2029 with coupons from 3% to 5% and yields from 0.9% to 4.5%. The 2009A-2 bonds are due 2010 to 2017 with coupons from 3% to 5% and yields from 0.9% to 2.81%.

Proceeds will be used to reimburse the state revolving fund for its purchase of political subdivision bonds as well as to refund existing bonds.

Massachusetts Water bonds price

Elsewhere, the Massachusetts Water Pollution Abatement Trust sold $250 million in series 2009 state revolving fund bonds Wednesday, said preliminary pricing data released by a sellside source.

The details of the sale were still being determined at press time Wednesday.

The bonds (Aaa/AAA/AAA) are due 2011 to 2029. Coupons range from 3% to 5%.

J.P. Morgan Securities Inc. was the senior manager for the negotiated deal.

Proceeds will be used to refund existing debt and fund a swap termination agreement.

Charlotte bumps new bonds

Charlotte, N.C., priced $93.765 million water and sewer system refunding revenue bonds (Aa1/AAA/AAA) at a 4.35905% true interest cost, according to a market source.

The TIC was better than expected, the source said, adding that the underwriters "bumped the scale" throughout the maturities.

Wachovia Securities LLC acted as underwriter for the negotiated bonds.

The bonds carry serial maturities from 2011 to 2031 with term bonds due 2034 and 2035.

Proceeds will be used to refund existing debt.

Dasny brings Pratt bonds

Also, the Dormitory Authority of the State of New York priced a $50.88 million series 2009C insured revenue bond (Aa2) for Pratt Institute, according to a source familiar with the deal.

The final numbers were not available, but the long maturity will yield "around 5¼%," the source said.

George K. Baum & Co. was mandated to act as lead underwriter, while Ramirez & Co. Inc. and Roosevelt & Cross Inc. were co-managers.

Proceeds will be used to construct, acquire and equip an educational condominium complex in Brooklyn, N.Y.

Indiana Finance deal ahead

Moving to upcoming deals, the Indiana Finance Authority is set to sell $270 million in series 2009A hospital revenue bonds for the Parkview Health System Obligated Group, said a preliminary official statement.

The bonds (A1/A+/) will be sold on a negotiated basis with Merrill Lynch as the lead manager.

The maturities have not been set.

Proceeds will be used to refund the health system's series 2005 bonds as well as to pay fees associated with the termination of a swap agreement.

The health system is based in Fort Wayne, Ind.

Secondary market falters

Moving to the secondary market, a trader said the market was somewhat weaker, especially on the long end of the yield curve, but relatively unmoved on the shorter end.

In specific trades, the Palestine Independent School District of Texas saw its recently priced school building bonds moving. The 3% 2015 bonds were seen at 2.562%, and the 4% 2022 bonds were seen trading Wednesday afternoon at par. The 5% 2034s were trading near par.

Also traded were King County, Wash.'s recently priced sewer revenue bonds. The 5% 2035 bonds were seen at 5.274%.

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