Municipals improve but underperform Treasuries; Tobacco Settlement heads up new issue calendar

By Sheri Kasprzak

New York, Aug. 1 – Municipals closed out the week on a positive note Friday, pushed by better Treasuries, insiders said.

The new-issue calendar for the week ahead will be somewhat heavier, led by a $593,655,000 offering from the Tobacco Settlement Financing Corp. of Rhode Island.

Yields, meanwhile, were lower by 2 basis points to 5 bps across the curve with shorter bond yields falling the most.

Treasuries rallied following a weaker-than-expected nonfarm payroll report.

Tobacco Settlement deal set

Heading up the new-issue calendar for the week ahead will be a two-tranche deal from Rhode Island’s Tobacco Settlement Financing Corp.

The corporation plans to price $336,065,000 of series 2014A bonds and $257.59 million of series 2014B bonds (/A/BBB+) through Citigroup Global Markets Inc. and BofA Merrill Lynch.

Proceeds from the deal will be used to make a payment of no less than $20 million to the state, refund the corporation’s series 2002A bonds and fund the purchase at the open market purchase price of some maturities of the corporation’s series 2007 bonds.

Pricing is scheduled for Tuesday.

S&P cuts Prepa debt

Moving to ratings news, Standard & Poor’s dropped its rating on Puerto Rico Electric Power Authority to CCC from B-. The agency said that the authority is unlikely to meet its financial commitment on obligations.

The authority missed the payment of a $146 million line of credit in January. The authority extended the repayment date to July 31 and announced that it extended the deadline again to Aug. 14, the maturity date of a separate $525 million line of credit.

Looking to trading action, Puerto Rico’s 8% of 2035 have had an average yield of about 9.08% over the past two weeks after trading as high as 9.81%, market insiders said.

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