Municipals little moved ahead of $5.1 billion calendar; Fitch: Detroit LTGO deal unsurprising

By Sheri Kasprzak

New York, July 14 – Municipals yields were mostly unchanged Monday with a firmer tone seen out long, market insiders said.

As Puerto Rico debt sold off, some investors fled to quality assets, boosting higher-rated names, said a trader during the day.

Meanwhile, Treasuries took a dip after the stock market rallied. The10-year note yield rose by 2.5 basis points to end at 2.543%, the five-year note yield rose by 3 bps to 1.669%, and the 30-year bond yield climbed by 2 bps to 3.363%.

Puerto Rico yields at 8.13%

Moving back to Puerto Rican bonds, yields are at 8.13%, right where they began last week, as measured by the S&P Municipal Bond Puerto Rico index, said Kevin Horan, director of fixed-income indexes with S&P Dow Jones Indices.

“Performance of this index year-to-date has returned 0.43% after being as high as 10.65% on May 30. Performance for the month, the index is down 5.2%,” Horan said Monday.

“The yield of the broader S&P Municipal Bond index also remained unchanged on the week at a 2.67% [reading], though, unlike Puerto Rico, the broad index is returning 5.59% year-to-date.”

Detroit makes LTGO settlement

Moving to other news, Detroit announced plans to pay its investors 34 cents on the dollar for limited tax general obligation bonds. The bankrupt city owes limited tax G.O. bond investors $164 million.

The city is working to pay $2.5 billion toward its $9.9 billion of unsecured debt.

The news didn’t come as a surprise to Fitch Ratings.

“Detroit’s settlement with its limited tax general obligation bondholders is in line with Fitch Ratings’ expectations,” said a statement from Fitch managing director Amy Laskey and senior director Rob Rowan.

The settlement, however, does exceed earlier offers of 10% to 20%.

“A previous settlement agreement provides for [unlimited tax G.O.] bondholder recovery of 74 cents on the dollar and includes a clause requiring LTGO bondholders (and other classes of impaired unsecured creditors) to receive lower recovery,” the Fitch analysts said in the statement.

“The city has $164 million of LTGOs without a lien on state aid and $379 million of LTGOs with a state aid lien. A court will begin hearing the plan of confirmation on Aug. 14. Detroit’s treatment of LTGO and other bondholders strains the boundaries of what most creditors would have expected to be entitled to in a bankruptcy.”

Fitch expects situations like Detroit’s to continue to be rare, according to the statement.

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