The municipal market can expect $5.22 billion in new issuance this week, with issuers in Los Angeles and Utah leading the way with deals in excess of $600 million.
Despite the sizeable offerings, issuance is expected to decline slightly from last week’s revised $5.7 billion, according to Ipreo LLC and The Bond Buyer.
Slated for this week is $3.95 billion of negotiated deals, versus a revised $4.61 billion last week. Also scheduled are $1.27 billion of competitive deals, up from a revised $1.1 billion last week.
“In general, these numbers are more than we’ve seen in other weeks this year,” said Mark DeMitry, senior portfolio manager at OppenheimerFunds. “With that being said, the big deals that happened last week were very well-subscribed by the market. This is great because we haven’t seen this much supply.”
DeMitry added that he expects the demand to carry over to this week.
“There is a full calendar this week from what we’ve seen. And given the tone of market and positive mutual fund flows, I think it will continue to be a good week for munis,” he said. “In general, investors have an appetite for bonds.”
The biggest issue this week comes in the negotiated market, with Morgan Stanley selling $675.18 million of revenue bonds for the Los Angeles Department of Water and Power. Rated Aa3 by Moody’s Investors Service and AA-minus by Standard & Poor’s and Fitch Ratings, the deal is expected to be priced for retail on Tuesday and institutional investors on Thursday. The Series 2011A bonds have maturities ranging 2012 to 2022.
“The L.A. Department of Water and Power is a big issuer that investors are comfortable with,” said John Donaldson, director of fixed income at Haverford Trust, adding that the deal should go well as long as the pricing is right.
Utah is issuing $634.81 million of general obligation bonds that will be priced for retail on Tuesday and institutional investors on Wednesday. The bonds, handled by JPMorgan, are rated triple-A and have maturities ranging from 2012 to 2026.
“There is no reason the Utah deal should not go well,” Donaldson said. “They are a high-quality borrower that doesn’t come to market often.”
John Hallacy, head of municipal research at Bank of America Merrill Lynch, said that while the rating agencies affirmed their high marks and stable outlooks for the bonds, Utah’s debt burden is above average.
“The state has conservative debt and fiscal management policies in place,” he said. “The state has built solid reserve-fund balances, which it has been able to utilize in recent years to offset structural budget deficits.”
The Empire State also will be in the market with three sizeable offerings, with the New York City Municipal Water Finance Authority, the New York State Thruway Authority, and the New York State Environmental Facilities Corp. issuing $504 million, $440 million, and $200 million, respectively.
The water authority bonds are rated AA-plus by Standard & Poor’s and Fitch and will be sold on Wednesday by Morgan Olmstead Kennedy Gardner. The term bonds have maturities in 2026, 2029, 2031 and 2033.
The Thruway Authority debt is rated AA by Standard & Poor’s and Fitch and will be sold Tuesday by Citi. The EFC bonds are rated AAA by Standard & Poor’s and Fitch and will be priced Tuesday by Bank of America Merrill Lynch.
“We have seen investors come back to the municipal market, confidence is rebounding, and people are less wary than they were earlier this year,” said Kathy Jones, fixed-income strategist at Charles Schwab. The higher levels of new issuance seen in the past several weeks, up from depressed levels earlier in the year, “is clearly an indication that people are still willing to go to market,” she said.
