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Sandy Strikes Market

CHICAGO – Hurricane Sandy brought much of the municipal market to a grinding halt as it barreled toward the northeastern seaboard Monday with the Securities Industry and Financial Markets Association recommending a full market close Tuesday after an early end to trading Monday.

Most issuers pushed off their bond sales as attention centered on coping with the storm’s impact and aftermath as it delivers on its anticipated fury,

SIFMA recommended the full market closure Tuesday for municipals and other fixed-income securities after suggesting the Noon suspension for Monday’s activities.

Such recommendations are a rarity. SIFMA recommended an early close for a 1996 hurricane and a three-day close followed the Sept. 11 2001 terrorist attacks.

The storm’s swath is cutting across the nation as issuers from all regions push off their bond issues. The extent of the market disruption on roughly $5.88 billion in issuance slated for sale this week will depend on the severity of damage to transportation, communications, and utility networks, market participants said.

President Obama who halted re-election campaign activities to return to the nation’s capital where most federal offices were shuttered in anticipation of the storm said he was in frequent contact with impacted governors to ensure there were no unmet needs. “This is going to be a big storm. It is going to be difficult” and will take time to cleanup, Obama said of the impact on citizens, transportation, power, and the economy.

Obama has declared a state of emergency in the District of Columbia, Massachusetts, New York, Connecticut, Pennsylvania, Maryland, Rhode Island and New Jersey, which calls for federal aid to supplement the cities’ response efforts to meet the emergency condition.

Underwriting desks at Wall Street firms such as Morgan Stanley, JPMorgan and Bank of America Merrill Lynch reportedly placed their negotiated deals on day-to-day status.

“Everything is going day to day and we’re not being pushed to get anything in the market,” said one underwriter with a Midwest-based firm who asked not to be named. “You need not only the underwriters in the office but you need the buy side people in the office, or it’s not a fair transaction for the issuer,” the source said.

“People are dealing with it and we’re going to see what happens on Wednesday, if the market participants are in and involved. Everyone wants to get a fair pricing for the issuing side, and if that takes a couple of extra days, I think most people understand that,” the participant said.

The competitive sales of Washington Suburban Sanitary Commission and Virginia College were postponed. Also, the Central Utah Water Conservancy District announced that the retail and institutional order periods for $130.8 million of revenue bonds were combined into a single order period Monday morning.

Other deals held up by the storm include Wisconsin which had been eyeing Monday or Tuesday to price $250 million of general fund appropriation backed taxable refunding bonds but decided to put off the sale. “We will be keeping open our lines of communication with underwriters and financial advisor and have not yet established any targeted timeline for this transaction,” said assistant capital finance director David Erdman.

The Washington Suburban Sanitary Commission deal put off its competitive sale for $250 million.

The State Public School Building Authority of Pennsylvania was scheduled to sell $269 million of school lease revenue bonds for the school district of Philadelphia on Tuesday. Officials did not return a call to comment on its status.

As reported on Friday, New Jersey held up its $2.6 billion tax and revenue anticipation note issue slated for Tuesday to pay off a line of credit and finance ongoing cash flow needs. On Friday, the treasurer’s office announced that the deal was postponed indefinitely.

The Dallas Area Rapid Transit decided to put off its Wednesday pricing of $128.3 million of bonds. “At the moment a new selling date has not been finalized,” said DART spokesman Morgan Lyons.

Michigan has a $108 million general obligation refunding transaction that was set to price competitively Wednesday morning. As of Monday morning, a state spokesman said the deal was still set but that officials were “monitoring the situation.”

A deal by the Hospital Authority No. 1 of Nebraska, scheduled to price $105 million on Thursday may also be postponed. The Indiana Finance Authority was set to price $179 million of revenue bonds Thursday, but moved to day-to-day calendar. “We want to be respectful - we have customers in the northeast and on the coast, and we want to make sure they have the opportunity [to participate],” said Tom Howard, of Ziegler Capital Markets which is underwriting the transaction.

The Pennsylvania state Senate postponed its scheduled Monday hearing on the Harrisburg incinerator bond financings, a follow-up to the Oct. 4 hearing. No new date has been set yet.

Local Government Committee chairman Sen. John Eichelberger, R-Blair Township, held out until the last minute. “We have people that drove into Harrisburg today and others that are coming in the morning from all over the state and possibly a few from out of state,” Eichelberger said in a statement.

Also in Pennsylvania, the state Department of Community and Economic Development postponed a hearing scheduled for Monday in Pittsburgh on that city’s request to exit state oversight. It will likely be held next week, after Election Day.

Virginia said the storm has not yet impacted the Commonwealth’s financial operations. “My staff in charge of banking, operations, and investments was here this morning to take care of all essential and urgent matters,” said Treasurer Manju Ganeriwala.

The commonwealth did, however, postpone a $132 million Virginia College Building Authority deal scheduled for sale on Tuesday but hoped to enter the market Thursday.

SIFMA – which maintains an emergency site for updates at http://www.sifmaemergency.org/ also noted that primary dealers will need to determine if they intend to provide limited staffing on funding desks on Tuesday to accommodate any potential open-market operations by the Federal Reserve Bank of New York. The agency also recommended that firms, to the extent possible, limit settlements on Tuesday.

“These recommendations apply to trading of U.S. dollar-denominated government securities, mortgage- and asset-backed securities, over-the-counter investment-grade and high-yield corporate bonds, municipal bonds and secondary money market trading in bankers’ acceptances, commercial paper and Yankee and Euro certificates of deposit,” SIFMA said in a statement.

SIFMA’s recommended early and full market closes are recommendations only; each member firm should decide for itself whether its fixed-income departments remain open for trading. All SIFMA recommendations are subject to change due to market conditions.

The Municipal Securities Rulemaking Board cancelled a board meeting-related press call Monday due to deteriorating weather conditions caused by the storm, the effects of which were intensifying over the Washington, D.C., region Monday morning.

The MSRB said the call, which was supposed to be held at 10:30 a.m., would likely be rescheduled for Wednesday. The board said it would also likely release an overview of its board meeting, which was held Oct. 24 – 26, on Wednesday.

Topics are expected to include investor protection, electronic brokerages, bond ballot campaigns, municipal market indices, bondholder consent and collecting data on 529 college savings plans, the board said.

The Commerce Department did not hold a press lockup for the release of Personal Income and Spending Data, due to the closure of the Federal Government’s DC offices. Instead, the data was placed online at the normal release time.

All three major ratings agencies said their analysts continued to work with those located in New York City and other impacted areas working remotely although few reports were released Monday.

“We’ve organized a well-coordinated continuity plan and our analysts are equipped to work remotely,” said Standard & Poor’s representative Olayinka Fadahunsi.

“Our New York office is closed but people are working remotely as long as the power holds out,” said Moody’s Investors Service spokesman David Jacobson.

“While it’s not business as usual, Fitch Ratings US Public finance is generally able to issue ratings and commentary. Most analysts can connect remotely, and our Chicago, Austin, and San Francisco offices are unaffected. We also have publishing capabilities out of Chicago, London and Singapore,” said Jeff Schaub, managing director.

This story was compiled from reports filed by Tonya Chin, Caitlin Devitt, Lynn Hume, Paul Burton, Kyle Glazier, James Ramage, Yvette Shields, Richard Williamson, Jonathan Hemmerdinger and James Watts

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