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Thanksgiving Week Takes its Seasonal Bite Out of Issuance

NOV 18, 2012 6:42am ET
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The Thanksgiving holiday should occasion a seasonal, light calendar this week from municipal bond issuers at a time when investor demand remains considerable and yields hover at record lows.

Muni bond volume for the holiday shortened week is expected to total $2.25 billion, down from $6.03 billion last week.

JPMorgan should lead all deals with the expected pricing of $1 billion of Texas Municipal Gas Acquisition and Supply Corporation III gas-supply revenue bonds. Though large in size, the deal is really the only special on the menu, anticipated to comprise 44% of new issuance for the week.

As the months of October and November are traditionally heavy months for issuance, the season’s comparatively slight volume has been something of a surprise to the market. Demand has remained incredibly strong, said Duane McAllister, co-manager of the BMO intermediate tax free fund, part of BMO Global Asset Management U.S.

“We never really got the supply push so many of us were expecting,” he said.

Even though there is plenty of cash available, McAllister said, it’s been hard to get sufficient size. With that in mind, he said, any uptick in volume the near term should easily be absorbed.

“It’s hard to think that we wouldn’t have sufficient demand to contain any upward pressures that might come from additional supply down the road, post-Thanksgiving,” McAllister said. “We’ve got a fairly narrow window to get stuff in before year end.”

Muni bonds scheduled for negotiated sale this week are estimated at $1.97 billion, down from $3.95 billion last week. The competitive calendar totals an estimated $276.5 million, down from the $2.08 billion sold last week.

The $1 billion Texas Municipal Gas gas supply revenue bond deal is rated A3 by Moody’s Investors Service and BBB by Standard & Poor’s. The bonds, expected Monday, should arrive structured as serials, maturing from 2014 to 2032.

The deal arrives at a propitious time, said James Ahn, an executive director at JPMorgan Asset Management. Investors have been focused on the possibility of higher tax rates in the coming year, so munis as a sector have become an even greater focal point for them.

The spreads for Texas Municipal Gas appear in line with similarly rated bonds trading in the secondary market, he added.

“Given the ratings and types of spreads offered, the deal should do really well,” Ahn said. “The weak A and strong triple-B buckets, as a whole, have performed well relative to other credits this year.”

JPMorgan also is expected to price $143.5 million of Connecticut Housing Finance Authority housing mortgage finance program bonds in two series. The bonds are rated triple-A by Moody’s and Standard & Poor’s.

The bonds are expected to price for retail Monday. Institutions should have their shot on Tuesday.

The first series, for $103 million, should arrive structured as serials, maturing between 2013 and 2024, as well as terms in 2027, 2032, 2037 and 2042.

The second series, $40.5 million subject to the alternative minimum tax, matures in May and November 2013, and includes a five-year planned amortization class bond.

Morgan Stanley is expected to price $134.2 million of Vermont Student Assistance Corp. education loan revenue notes. The asset-backed securities, considered to be structured finance, are rated A(sf) by Standard & Poor’s and Asf by Fitch Ratings.

The notes are secured by student loans. They should arrive structured as term: $92 million class A-1 notes due June 1, 2022, and $42.2 million class A-2 notes due Dec. 3, 2035.

There are no competitive deals slated to top $100 million for the week.

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