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Slight Uptick in Volume Includes Two Large Water Deals

FEB 17, 2013 4:38am ET
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A pair of large water deals will flood the primary market with nearly $1 billion this week as part of more than $6 billion in total new volume that’s expected to be priced on the heels of last week’s market firmness.

After tapering off last week, total volume will inch up slightly to an estimated $6.66 billion, according to The Bond Buyer and Ipreo LLC. That is up from the revised $5.92 billion that came to market last week, according to Thomson Reuters, amid a steady to stronger tone following gains earlier in the week.

This week’s negotiated volume is estimated at $4.41 billion, up from a revised $3.44 billion last week. Meanwhile, an estimated $2.24 billion expected to arrive in the competitive market, down a bit from last week’s revised $2.47 billion.

The activity will kick off on Wednesday with the retail order period for a $520.9 million Los Angeles Department of Water and Power system revenue bond sale being priced by Bank of America Merrill Lynch.

Rated Aa3 by Moody’s Investors Service and AA-minus by Standard & Poor’s and Fitch Ratings, the bonds will be priced for institutions on Thursday and are structured to mature serially from 2013 to 2031.

A financing of $435 million from the New York City’s Municipal Water Finance Authority is on tap for Wednesday. Barclays Capital is planning to price the water and sewer revenue offering on Wednesday following a retail order period planned for Tuesday. The second general resolution bonds are rated Aa2 by Moody’s and AA-plus by Standard & Poor’s and Fitch.

Piper Jaffray & Co. on Wednesday will price a tax and revenue anticipation note offering for California’s school-cash reserve program in a multi-series deal, the largest of which is $449.7 million comprising Series AA, Y and Z.

The smaller portions of the deal also include a $140.61 million series of cash reserve senior-subordinate notes in Series X, $47.83 million of Series BB school notes, $37.83 million of Series DD and EE cash reserve notes, as well as $23 million of Series CC school notes.

Following some slight weakness last week, the new deals will enter the market with a backdrop of a steady to strengthening tone and an improving ratio of municipals to Treasuries.

For instance, on Thursday, the Municipal Market Data triple-A GO scale ended flat to one basis point firmer, while the 10-year yield fell one basis point to 1.84% and the 30-year yield finished steady for the second session at 2.92%. The two-year was steady at 0.32% for the fourth session.

In addition, so far this month municipal-to-Treasury ratios have risen as munis underperformed their taxable counterparts and have become relatively cheaper. The five-year muni yield to Treasury yield ratio increased to 91.1% from 89.8% at the beginning of February. The 10-year ratio rose to 91.6% on Thursday from 90.5% at the start of the month. Similarly, the 30-year ratio rose to 90.4% from 89.1% on Feb. 1.

This week’s primary market will see the arrival of a $307 million subordinate power supply revenue refunding from Utah’s Intermountain Power Agency, which will also add to the negotiated activity in the Far West.

JPMorgan is slated to price that offering on Wednesday with a structure of serial bonds maturing from 2014 to 2023 following a retail order period planned for Tuesday. The bonds are rated A1 by Moody’s, A-plus by Standard & Poor’s and AA-minus by Fitch.

One of the only other sizable negotiated sales expected this week is a $197.52 million system enterprise revenue and refunding from the Board of Governors of Colorado State University. Morgan Stanley & Co. is slated to the price the two-pronged offering on Thursday with a structure of serial and term bonds maturing from 2014 to 2044. The bonds are rated Aa2 by Moody’s and AA-minus by Standard & Poor’s.

Meanwhile, competitive market activity includes a nearly $500 financing from California’s Santa Clara County.

The $490 million offering of general obligation bonds will be reoffered on Wednesday with a serial structure that matures from 2014 to 2043. It is rated Aa2 by Moody’, and AA-plus by Standard & Poor’s and Fitch.

A pair of North Carolina GO deals — one sized at $348 million and another at $345 million — will enter the market on Wednesday.

On Thursday, Delaware will competitively price $225 million of gilt-edged GO debt in a structure maturing from 2014 to 2033.

The bonds have natural triple-A ratings from all three major rating agencies.

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A recent phenomenon is the emergence of bonds with shorter call protection as funding alternatives for municipalities. However, the shorter call protection also dampens the potential upside for investors, which in turn reduces the price they are willing to pay.

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