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Muni Issuance Still Only Measured, at $7.6B

The municipal market has been glad to mark the end to election-related uncertainty and hurricane-generated disruption. But new issuance still has yet to reach seasonal average volumes.

This week’s anticipated calendar at least heads in that direction. Estimated municipal bond volume for this week should total $7.61 billion, up from $4.65 billion last week.

The Texas Transportation Commission should lead all deals with an expected issuance of $841 million in Central Texas Turnpike System revenue refunding and put bonds in two series.

One constant of the year still rings true, though: investor demand remains robust. They see that the market retains its position of strength, said Wayne Godlin, a senior portfolio manager in the municipal bond department at AllianceBernstein.

“The market is very, very strong technically,” he said. “We expect that to continue. There are very few bonds available for institutional investors in the Street, and they haven’t been able to replace bonds easily. Flows and spread compression are tightening. There are concerns about the equities market. Credit fundamentals are improving in the muni asset class.”

A closer look at the calendar shows that municipal bonds scheduled for negotiated sale this week should total $6.63 billion, up from $3.69 billion sold last week. Bonds scheduled for competitive sale this week should reach an estimated $984.6 million, up slightly from $964.9 million sold last week.

“Deals that come out are very well subscribed,” Godlin said. “[The calendar] will be very easily absorbed.”

Municipal issuers now have the ominous and impending fiscal cliff — highlighted by $1 trillion in spending cuts and the cessation of the Bush tax cuts — in their sights, Municipal Market Data analysts Domenic Vonella and Randy Smolik wrote in a research post. Its potential arrival could accelerate planned deals.

“Prior to the presidential election, [Mitt] Romney’s talk of eliminating deductions and reducing tax rates could have been troublesome for tax-exempt yields,” they wrote. “Now with the [Barack] Obama victory and a fiscal cliff that threatens higher tax-rates, conditions for the tax-exempt markets looked much more favorable. And, although primary issuance is on the heftier side this coming week, the holidays will make supply very manageable into year end.”

JPMorgan is expected to lead the way with the largest negotiated deal this week: $853 million in Texas Transportation Commission Central Texas Turnpike System revenue refunding and put bonds in two series. The bonds are rated Baa1 by Moody’s Investors Service, A-minus by Standard & Poor’s, and BBB-plus by Fitch Ratings.

The first series consists of $628 million of first tier revenue refunding bonds maturing in 2039 and 2041. The second series involves $225 million of first tier revenue soft put bonds. The bonds are expected to arrive Thursday.

Goldman, Sachs & Co. and Bank of America Merrill Lynch should follow with $800 million of Hawaii general obligation taxable and tax-exempt bonds in three series. The bonds are rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch.

The bonds are expected to cover the costs for major school repairs and maintenance projects. They are broken down into three series: $400 million in tax-exempt GO refunding bonds; $374 million in tax-exempt GOs; and $26 million in taxable Gos.

A two-day retail order period should begin on Tuesday. Institutions should have their opportunity to participate on Thursday.

Barclays expects to price $654.2 million of Minnesota state general fund appropriation refunding bonds in taxable and tax-exempt series. The bonds, scheduled to arrive Wednesday, requested ratings from Standard & Poor’s and Fitch.

The first series, $599.2 million, should arrive structured as serials, maturing between 2015 and 2030. The second series, $55 million taxable, should mature in 2014 and 2015.

B of A Merrill is also expected to price $345.7 million of Dallas-Fort Worth International Airport bonds. The bonds are rated A1 by Moody’s and A-plus by Standard & Poor’s and Fitch; they are expected to arrive Wednesday.

There are few large competitive deals. Louisville/Jefferson County, Ky., is expected to auction $226.3 million of Louisville/Jefferson County, Ky., sewer district bonds. They are expected to arrive Thursday, structured as serials.

Tennessee on Wednesday is expected to auction $140 million of GO bonds. The state is also expected to auction $30.5 million of federally taxable refunding GOs the same day.

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