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The Week Ahead

Primary Prepares For $7 Billion

With nearly $7 billion expected in the primary market this week, market participants said appetite for the flood of new issues is expected to be dictated by the pricing and structure of the deals.

Little — if any — consequence should be felt from the Federal Reserve’s rise in its discount rate last Thursday, municipal sources said.

Fred Yosca, managing director of trading and underwriting at BNY-Mellon Capital Markets in New York City, said underwriters will likely have to entice investors to get most of the deals done.

“With the supply and demand dynamics and the crossover ratios, they will have to sweeten the pot to bring investors in across the board,” he said.

Yosca added that retail demand seems “pretty stagnant” ahead of the beginning of March, which is typically not a big rollover month for reinvestment.

“Technicals are always sketchy this time of year, and after such an uneventful short week, there’s not a lot of compelling reasons to sink your money into munis,” he said.

An estimated $6.95 billion in new issuance is expected this week, according to Ipreo LLC and The Bond Buyer. Last week the market saw a revised $3.64 billion in new volume, according to Thomson Reuters.

Howard Mackey, president of the broker-dealer division at Rice Financial Products Co. in New York City, said he expects strong institutional demand to dominate the heavy calendar this week.

“With the increase in volume, depending on where on the curve the deals get sold, you could get some increase among cash-rich investors looking for paper,” he said. “There is a lot of demand and cash from institutional accounts and that will drive the pricing and the demand more than retail.”

“Specialty state paper is at the top of their list, and there is a big need for longer maturities,” Mackey said, adding that institutions are also keen on structures that offer premium bonds with 5¼% coupons priced to a call.

New taxable Build America Bond deals will also fare well this week, he said.

“BABs are priced to clear markets, and there’s quite enough cash to absorb the BABs because they tend to be preferable alternatives to comparable corporate bonds, and with the added liquidity, I think you will continue to see a fairly good appetite,” he said.

Meanwhile, both participants believe the municipal market will continue to be unfazed by the Fed's discount rate increase last week.

Yosca called the 25 basis point increase to 0.75% “more symbolic than anything else that the era of zero-percent money is not going to last. The borrowing levels are so low at the discount window, it’s not really affecting anything.”

“We didn’t see much reaction today in the marketplace,” Mackey said, “so I think the increase will not have a material effect on [municipal] rates in the short term. The more important factors will be the amount of cash in the hands of institutions.”

The New York City Transitional Finance Authority will dominate the primary market with a multifaceted sale of future tax-secured bonds totaling $900 million.

The deal has five subseries, the largest of which are Series F-1 and F-2, which are taxable subordinate bonds being issued as direct-pay BABs totaling $620 million. In addition, Series F-3 and F-4 are traditional taxable subordinate-lien bonds that total $130 million.

The $306.7 million Series F-1 and $68.1 million Series F-3 are being sold competitively tomorrow.

Series F-1 is the TFA’s first-ever competitive BAB sale. The $313.26 million series F2 and $61.80 million series F-4 will be privately placed by the authority with the New York State Division of Lottery.

Competitive pricing will largely determine the yields on the private placement, according to a city official.

Series F-1 and F-2 are tentatively structured to mature from 2018 to 2030, with term bonds in 2035 and 2040. Series F-3 and F-4 are tentatively structured to mature from 2012 to 2018.

The TFA’s outstanding future tax-secured subordinate bonds are rated Aa2 by Moody’s Investors Service, AAA by Standard & Poor’s, and AA-plus by Fitch Ratings.

In addition to the four series of fixed-rate bonds, the authority is also expected to issue $150 million of future tax-secured tax-exempt subordinate, adjustable-rate bonds as Subseries F-5 on or about the larger transaction’s March 3 closing date.

The TFA deal is the largest in a trio of New York deals.

New York State will appear in the competitive market on Thursday with $448.22 million of GOs structured as tax-exempt debt, traditional taxable debt, and BABs for transportation, environmental, and aviation projects.

Series A consists of $211.28 million of tax-exempt bonds maturing from 2011 to 2040. Series B is $51.31 million of taxable bonds maturing from 2011 to 2020.

Series C consists of $185.65 million of BABs maturing from 2021 to 2040. The bonds are rated Aa3 by Moody’s, AA by Standard & Poor’s, and AA-minus by Fitch, all with stable outlooks.

A $222.7 million sale of mental health services facilities improvement revenue refunding bonds is expected to be issued by the Dormitory Authority of the State of New York.

Led by senior book-running manager Ramirez & Co., the deal is planned for pricing tomorrow, after a retail order period today.

The bonds are expected to be rated AA-minus by Standard & Poor’s and A-plus by Fitch. Details about the structure were not available by press time.

Maryland will bring a two-pronged GO sale to the competitive market on Wednesday. A total of $400 million of taxable GO BABs is expected to mature from 2019 to 2025, while $200 million of tax-exempt refunding GO debt is expected to mature from 2018 to 2022.

All three rating agencies give Maryland’s GO debt natural triple-As based on its strong economy, debt oversight, and financial operations.

Turning to the Southeast, Miami-Dade County will sell $600 million of water and sewer system revenue bonds, beginning with a retail order period today before tomorrow’s pricing by senior book-runner Raymond James & Associates Inc.

The deal — the first of five annual offerings to finance 83% of a five-year, recently revised $4.2 billion capital improvement program — is comprised of all fixed-rate, tax-exempt debt and is tentatively structured to mature from 2011 to 2030, with term bonds in 2035 and 2039.

Moody’s rates the debt A1 and maintains a stable outlook, while Standard & Poor’s affirmed its A-plus rating and a stable outlook.

Fitch recently downgraded its rating to A from A-plus with a stable outlook deal after the county increased the size of its capital plan to $4.2 billion for the 2010 to 2015 period, up from its $2.9 billion forecast a year ago for the 2009 to 2014 period.

The plan was upsized to accommodate several new local, state, and federal project requirements imposed on Florida’s largest county, most of which are regulatory in nature and related to the wastewater system. The considerable amount of long-term debt issued to finance the projects played a role in Fitch’s downgrade, but leverage ratios should remain in line with the current A category, according to the report.

Richland, Wash.-based public power provider Energy Northwest is preparing $470.6 million of both electric revenue and revenue refunding bonds that consist of six series, including both tax-exempt and taxable BABs.

The largest series is $279.6 million of tax-exempt debt backed by the revenue of Project 3. Some $76.1 million of new money is structured as taxable BABs and backed by revenue from the Columbia generating station.

The remaining four series are tax-exempt debt totaling $114.8 million aimed at retiring several series of outstanding debt, some of which dates back to 1993, according to the preliminary official statement.

Goldman, Sachs & Co. will price the bonds on Wednesday, following a retail order period for the tax-exempt bonds tomorrow.

The bonds are rated natural Aaa by Moody’s. Standard & Poor’s and Fitch both maintain AA ratings on the debt.

The Indianapolis Local Public Improvement Bond Bank will issue $466.6 million of GOs for Marion County Health and Hospital Corp. priced by Citi tomorrow.

Approximately $91 million of Series 2010 B-1 tax-exempt bonds will mature from 2013 to 2022, while $375.6 million of Series 2010 B-2 taxable direct-pay BABs will mature in 2030 and 2040, according to a Citi underwriter on Friday.

The bonds are expected to be rated Aa2 by Moody’s, AA-plus by Standard & Poor’s, and AA by Fitch, and $429.3 million of the proceeds will be used to finance the replacement and relocation of Wishard Memorial Hospital.

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