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Big Week Looming With $12B

JUN 8, 2012 7:47pm ET
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Municipal bond issuers have assembled a whale of a calendar for this week, with just over $12 billion slated to come to market, nearly double last week’s $6.35 billion total.

The Michigan Finance Authority leads the pack with about $3 billion of long-term bonds. The Dormitory Authority of the State of New York follows with an anticipated $2.0 billion of bonds.

Though muni bond yields fell up to 15 basis points at the intermediate and long parts of the curve since last Friday, industry pros said the cash-rich market is still positioned to absorb the expected uptick in volume.

For one, there is a lot of money around, according to Chris Mauro, director of municipal bond research at RBC Capital Markets. The firm estimated that between June and July, the muni market will see about $80 billion in coupon payments and principal redemptions, as well as another $35 billion in August.

“The market should be able to absorb this heavy volume,” Mauro said. “It’ll probably be a little bit if a struggle, like it was [last] week. But these deals should be able to get placed.”

A total of $1.08 billion in competitive offerings is scheduled for sale, compared with a revised $1.83 billion this week. In addition, $10.96 billion in negotiated deals is slated for sale, versus a revised $4.52 billion this week.

In the week’s largest deal, the Michigan Finance Authority should come to market with $2.72 billion of unemployment obligatory assessment revenue bonds in two series. The bonds in both are rated triple-A by the major rating agencies and should arrive structured as serials. The deal will also tentatively include a $346 million bond premium, plus $100 million in cash, as well as a series of $250 million of variable-rate debt that will price later.

Citi is expected to price the first series, at $1.47 billion. There should be a retail order period on Monday, with institutions permitted to participate on Tuesday. Bank of America Merrill Lynch is expected to price the second series, at $1.25 billion. A retail order period is expected on Monday and institutions may participate on Wednesday.

The deal has the attention of Thornburg Investment Management, said associate portfolio manager Nick Venditti. The deal’s size and triple-As are positives, Venditti said. But it also has the Michigan stigma attached to it.

“It’s a strong credit,” Venditti said. “It’s got to have a little bit of a premium, because, again, its Michigan stigma. But if it’s priced attractively, I would imagine that Thornburg and others will take a good look at it.”

Goldman, Sachs & Co. is expected to price $2.0 billion of DASNY general-purpose New York personal income tax revenue refunding bonds. The bonds are rated AAA by Standard & Poor’s and Fitch Ratings. A retail order period should be held Tuesday, with institutions following up on Wednesday. The bonds should arrive structured as both serials and terms.

JPMorgan is expected on Tuesday to price $1.25 billion of Florida’s Citizens Property Insurance Corp. bonds and notes, marking the third deal slated for more than $1 billion. The credit is rated A2 by Moody’s Investors Service and A-plus by Standard & Poor’s and Fitch.

Many of the week’s deals fall in the 10- to 15-year range, Mauro said, which should not overly stress the long end of the market. “Even some of the deals that go out longer are heavily weighted toward the short end,” he said. “So, there’s going to be a lot of bonds in the intermediate part of the curve. That might stress that sector a little bit, but the long end should hold up pretty well.”

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