The Week Ahead

N.Y.C. TFA Plans $900M as Debt Crisis Dogs Market

The market can expect $3.25 billion in new volume this week, showing issuers still plan to borrow despite fears prompted by the endless debate about raising the federal debt limit. Issuance will be down from last week’s revised $4.6 billion.

And while the calendar appears relatively full, some market participants are wary. On Friday, sources said what does or does not happen in Washington over the weekend could play a big role in what happens this week.

“We really have to see what happens this weekend and how the debt-ceiling crisis affects the markets,” Jamie Iselin, head of muni fixed income at Neuberger Berman, said Friday. “It is possible the calendar could grow if things go well this weekend, but if it drags on and the markets become more unnerved, it won’t be surprising to see the calendar shrink.”

Michael Camarella, senior portfolio manager at OppenheimerFunds’ Rochester municipal group, said that while issuers may be cautious and possibly pushing deals back a week or two, “the market is predicting that some kind of resolution will come. The muni market is not tripping over itself like it’s heading to doomsday.”

Others aren’t so sure. “The debt ceiling is already having an impact and municipalities pull back when the environment is not particularly friendly for issuance,” said Charles Schwab strategist Kathy Jones.

Scheduled for sale are $1.82 billion of negotiated bonds, down from last week’s revised $3.65 billion. About $1.44 billion of competitive bonds are on the table, up from last week’s revised $949.8 million.

One of the biggest deals will come from the New York City Transitional Finance Authority — $900 million that will be offered in both the negotiated and competitive markets. The first issue will consist of $428.4 million of tax-exempt multi-modal fiscal 2003 Series B bonds, followed by $300 million of fiscal 2012 Series A bonds. Both series will be underwritten by JPMorgan.

Almost $172 million will come to the competitive market Wednesday. All the TFA bonds are expected to maintain AAA ratings from Standard & Poor’s and Fitch Ratings and a Aa1 from Moody’s Investors Service.

On Wednesday, triple-A Montgomery County, Md., will take bids for $580 million of general obligation bonds. It will issue $320 million Wednesday morning, followed by a $259 million offering.

The Michigan Finance Authority will issue $740 million of state aid revenue notes Wednesday. The Series 2011C debt will come in three parts: a $248.1 million issue, a $270.5 million sale, and a $221.4 million offering. The notes will be underwritten by Morgan Stanley.

The muni market already has felt the impact of the highly partisan debate in Washington over raising the federal debt limit and the potential for a default by the U.S. government. Last week’s Maryland GO deal saw underwriters boost yields and cut back the size of the offering. A refunding piece was pulled altogether.

“This is really a reflection of the overall market conditions, and issuers have pulled back and they are sitting back and trying to assess where they are,” Jones said.

“Part of the Maryland deal was held because refunding needs stability in the markets,” said Ashton Goodfield, managing director of DWS Investments. “Our general sense last week was that new issues rated single-A or triple-B were particularly well-received.”

Camarella noted the Maryland GO deal is seeing strong secondary activity. “There is strong appetite for this type of paper and secondary market is strong,” he said. “It’s almost as if potential downgrades are already priced in.”


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