The Week Ahead

Volume Of $7.79B Set to Go

The municipal market new-issuance machine should churn out slightly less volume for the primary this week. But it’s still operating at a relatively high capacity, as far as 2011 has gone.

Potential volume for the week should total $7.79 billion. That compares with $8.75 billion the primary market saw the week before, according to numbers supplied by Ipreo, The Bond Buyer, and Thomson Reuters.

That breaks down to a total this week of $5.79 billion scheduled for negotiated sale, versus a revised $7.27 billion last week. For competitive sale, bonds scheduled for this week total $2 billion, compared with $1.49 billion last week.

As has been typical for the year, the negotiated market carries the biggest deal. Goldman, Sachs & Co. is expected to price $1.23 billion of New York City Liberty Development Corp. multi-modal Liberty revenue refunding bonds for construction of 3 World Trade Center. The bonds are rated A-plus by Standard & Poor’s.

The deal is a short-term “re-escrow” of bond proceeds for Tower 3, according to representatives at Goldman. The money has been raised but is not being used, so it is being rolled back over into an escrow account.

Citi is expected to price $600 million of New York City Transitional Finance Authority future tax secured bonds. The bonds are rated Aa1 by Moody’s Investors Service, and AAA by S&P and Fitch Ratings. The deal is expected to reach the market Wednesday.

In addition, Morgan Stanley is expected to price $417.5 million of Iowa Student Loan Liquidity Corp. revenue bonds. The bonds are not rated. The deal is expected to reach the market Tuesday.

Finally, Bank of America Merrill Lynch is expected to price $333.7 million of Massachusetts Water Resources Authority general revenue refunding bonds. The bonds are rated AA-plus by S&P and Fitch.

In the competitive market, North Carolina is expected to sell $400 million of capital improvement limited-obligation bonds Wednesday. The bonds are rated Aa1 by Moody’s, and AA-plus by both Standard & Poor’s and Fitch.

Also, the city and county of San Francisco is expected to sell $368.1 million of general obligation refunding bonds on Wednesday. The bonds are rated Aa2 by Moody’s, AA by Standard & Poor’s, and AA-minus by Fitch.

But industry appetite for new supply is difficult to read, said Dave Manges, muni trading manager at BNY Mellon Capital Markets. Though the supply in the past two weeks has been fairly well received, he noted, the supply earlier in October was less so.

“Volume in the muni market is problematic,” Manges said. “So, we have high hopes of a good reception. But our eyes are open all the same.”

The total for competitive deals is expected to rise over that of last week. For the largest issuers, that could easily increase in the coming weeks at the expense of negotiated deals, said John Mousseau, a portfolio manager at Cumberland Advisors.

“If you’re a really well-known name, and you’re going to come competitively, you’re going to get a better rate than negotiated right now,” Mousseau said.

However, the recent volume surge has been mostly driven by refunding activity, rather than new money, Chris Mauro, head of U.S. municipals strategy at RBC Capital Markets, noted in a research report. “And as such, [the surge] could prove fleeting,” he wrote, “especially since most of this refunding volume has been in the form of current refundings, which are highly sensitive to movements in rates.”

Last week’s largest deal, $1.25 billion for 4 World Trade Center from the Liberty Development Corp., was reasonably well-received. So were most of the deals for the rest of the week, as they were able to take advantage of Tuesday’s rally in Treasury yields, according to a joint research report by Arbor Research & Trading and Alprion Capital Management.

“With a majority of high-profile deals pricing Tuesday,” the two firms wrote, “issuers were able to lock in attractive financing.”


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