Municipals mostly flat as tone turns mixed; Texas Transportation prices $918.2 million

By Sheri Kasprzak

New York, Dec. 5 - Municipal yields were mostly unchanged on Wednesday after the tone took a more mixed tone, market sources said.

"We're not really moving by that much, but there's a sense of weakness in some maturities," said one trader.

"Dealers are moving inventory, and that could be where some of the weak spots are coming in. Other spots show some gains. But like I said, there's not a lot of movement."

Meanwhile, municipals will likely continue to be impacted by the losses experienced during Hurricane Sandy, said James Klotz, president of FMS Bonds Inc.

"With damages of approximately $62 billion, parts of New York, New Jersey, Connecticut and other states and municipalities face an enormous challenge cleaning up, rebuilding and working toward ameliorating the effects of future storms," Klotz said Wednesday.

"How will these efforts be funded? A proposal known as the Hurricane Sandy Recovery bond program is currently being circulated to lawmakers. Under the proposal, state and local governments, as well as private companies and nonprofit groups, would have increased access to tax-exempt financing."

Not a new idea

The concept, while beneficial, Klotz said, is not new.

"It's an old idea for a new need," he said.

"Similar programs were enacted by Congress following Hurricane Katrina and the 9/11 terrorist attacks."

The timing, however, couldn't be worse, he noted.

"On the surface, the approach should be a no-brainer," he said.

"The storm was not only deadly and destructive, it was also far-reaching, contributing to a decrease in U.S. consumer spending in October and November, according to the Commerce Department. Already facing lackluster growth in the country and tight state and local finances, the hurricane couldn't have come at a worse time ... We all know there is a heated debate in Washington over how to circumnavigate this potential peril. One of the targets in various proposals to reduce spending and increase revenue is the municipal bond tax exemption, which some legislators see as simply a tax break for the wealthy," Klotz said.

"We have seen proposals that would eliminate the tax-exemption on all new issues of munis. Others would abolish the exemption for new private-activity bonds. The president last year floated the idea of placing a 28% cap on the benefit to taxpayers of tax-free interest."

Klotz said he's not thrilled with those proposals because they're missing the fact that muni bonds finance trillions of dollars in public infrastructure, and have for almost a century.

"Eliminating the tax exemption would raise borrowing costs for state and local governments by an estimated 200 to 300 basis points, while the administration's proposal to cap the benefit of tax-exemption would raise borrowing costs by about 50 to 100 bps," Klotz said.

Texas Transportation prices

Heading up the day's primary activity, the Texas Transportation Commission came to market with $918,205,000 of series 2012 highway improvement general obligation bonds, according to a pricing sheet.

The bonds (Aaa/AA+/AAA) were sold through Wells Fargo Securities LLC and Bank of America Merrill Lynch.

The deal included $818,635,000 of series 2012A tax-exempt G.O. bonds and $99.57 million of series 2012B taxable G.O. bonds.

The 2012A bonds are due 2019 to 2033 with term bonds due in 2036 and 2042. The serial bonds have 5% coupons. The 2036 bonds have a 5% coupon priced at 120.599, and the 2042 bonds have a 5% coupon priced at 119.501.

The 2012B bonds are due 2014 to 2019 with 0.3% to 1.5% coupons, all priced at par.

Proceeds will be used to finance or reimburse the commission for the costs of highway improvements.

New York water bonds price

In other primary action, the New York Municipal Water Finance Authority sold $440.51 million of series 2013BB water and sewer system second general resolution revenue bonds, according to a pricing sheet.

The bonds were sold through Raymond James/Morgan Keegan.

The bonds are due June 15, 2047. The bonds have a 3.25% coupon priced at 98.974, a 4% coupon priced at 107.421 and a 5% coupon priced at 118.22.

Proceeds will be used to refund existing commercial paper notes and make a deposit to a construction fund.

Beloit district sells debt

Also during the day, the Beloit School District of Wisconsin priced $57,785,000 of series 2012 G.O. bonds, according to a pricing sheet.

The bonds were sold competitively. Bank of America Merrill Lynch won the bid with a 2.6% true interest cost, said Janelle Marotz, director of business services.

The bonds are due 2013 to 2032 with 2% to 3% coupons.

"We saved over $750,000 in interest cost with the Aa3 bond rating," said Marotz Wednesday.

Proceeds will be used to construct additions to and make repairs to elementary schools in the district.

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