Muni Deal Volume to Top $11B

Mammoth deals from three issuers will thunder into the primary market this week as underwriters price an estimated $11.33 billion of long-term supply in what is likely the last significant calendar of 2013.

The deals are expected to include more than $2 billion of refunding bonds from California's Foothill/Eastern Transportation Corridor Agency that will be priced in two series of bonds on Thursday by Barclays and Goldman, Sachs & Co.; almost $2.1 billion of tax-exempt and taxable debt that Goldman and Morgan Stanley will price for the Utility Debt Securitization Authority of New York on Wednesday; and $1.6 billion of New York State Thruway junior indebtedness obligations that Citi will bring to market on Thursday.

In addition to beating the holiday rush, municipal issuers are trying to bring their deals to market before the Federal Open Market Committee meets on Dec. 17 and 18.

Long-term issuance has fallen 15% this year through November, to $301 billion, Thomson Reuters numbers showed. Calendars averaged about $6.27 billion each week through November, down from $7.35 billion in the same period in 2012.

Potential volume for this week should climb to $11.33 billion, from $6.23 billion last week, Ipreo, The Bond Buyer and Thomson Reuters figures show. The data show $10.11 billion of bonds scheduled for negotiated sale this week, versus a revised $4.58 billion sold last week.

Bonds scheduled for competitive sale this week should slip to $1.23 billion, from $1.42 billion last week.

"From the investor's standpoint, the calendar represents one of the last big opportunities to get into a robust week for issuance prior to the end of the year," said John Dillon, chief municipal bond strategist at Morgan Stanley Wealth Management. "At $11 billion, that's easily among the largest of the year."

But the magnitude of the week's deals means they'd have to be priced cheaper to move, he added.

The Foothill transportation agency deal consists of almost $1.7 billion of 2013 toll road refunding revenue bonds structured to mature as term bonds in 2049 and 2053 and capital appreciation bonds maturing from 2020 to 2024 and from 2036 to 2044. The bonds are rated Ba1 by Moody's Investors Service and BBB-minus by the two other major rating agencies.

Foothill expects to include on Thursday the pricing of a two-pronged series of toll-road revenue refunding debt totaling $575.9 million that's structured to mature as 2013B toll road revenue refunding bonds and 2013C junior-lien toll road revenue refunding bonds priced by Goldman.

The Series 2013B bonds are rated Baa1 by Moody's, and BBB-minus by Standard & Poor's and Fitch Ratings, while the Series 2013C bonds are rated Baa1 by Moody's and BB-plus by S&P and Fitch.

The Utility Debt Securitization issue will also come to market with $1.609 billion of revenue bonds slated to be priced for retail investors on Tuesday. Goldman Sachs should price the bonds, which are triple-A rated by all three major rating agencies, for institutions on Wednesday. Morgan Stanley will also price a $485 million taxable series for the authority.

Some of last week's larger deals cleared with modest bumps or cuts to yields, or about several basis points in either direction, traders said.

The week's biggest deal, $1.2 billion in New York tobacco settlement bonds, saw yields on bonds fall as much as 12 basis points between the retail order period and pricing on Wednesday, according to a market analyst.

Struggling municipalities, led by Detroit and Illinois, dominated the news this week.

On Tuesday, the Illinois General Assembly passed proposed legislation to restructure pensions. Chicago and Illinois paper generally rallied over the next two days.

The same day a judge let Detroit's bankruptcy stand.

The 10-year triple-A tax-exempt yields on the week rose 12 basis points this week to 2.76%, Municipal Market Data numbers showed. The 30-year muni yield increased 10 basis points to 4.20. The two-year yield held at 0.33% for a 16th straight session.

Muni yields roughly mirrored those of Treasuries.

Munis "did better because of Illinois," said Robert Smith, president, founder and chief investment officer at Sage Advisory Services. "Obviously, we saw an improvement in spreads in Illinois paper; it tightened up on the back of the pension legislation."

The muni market also gained a degree of clarity because of the bankruptcy decision in Detroit, Smith added.

"At least we know there are clear lines," he said. "There will be more litigation involved with that. So, with the names that have problems with Chapter 9 issues, there's a little bit more clarity, and that helps the market."




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