Holiday Puts $800M Wisconsin Deal on Top

The municipal market can expect $1.3 billion of new issuance for this holiday-shortened week, down dramatically from last week’s revised $8.1 billion.

Municipal issuance this week is slated to be the second lowest all year, only slightly up from the $932.5 million that came in the first week of 2011. Both weeks are typically among the lightest each year.

The negotiated market will take the biggest hit, with an estimated $1.18 billion expected, down from last week’s revised $7.22 billion, according to Ipreo LLC and The Bond Buyer.

Competitive issuance is also down, with an estimated $114.8 million expected this week from a revised $927.4 million last week.

“Holiday weeks are always very slow, especially summer holidays,” said Tom Kozlik, municipal credit analyst at Janney Capital Markets, adding that low issuance this week should not be a surprise. “Bankers will typically schedule around holidays, but especially summer holiday weeks, because buyers will take advantage of the time off when kids are out of school, for example.”

The biggest deal comes in the competitive market, with Wisconsin issuing $800 million of short-term general obligation notes.

The notes will come to the market Wednesday morning and are rated MIG-1 by Moody’s Investors Service and F1-plus by Fitch Ratings.

The biggest deal in the negotiated market comes Thursday, with RBC Capital Markets underwriting $365.5 million of GO bonds for the San Diego Community College District.

Rated Aa1 by Moody’s and AA-plus by Standard & Poor’s, the serial bonds have maturities ranging from 2012 to 2029.

The bonds will be sold in three parts:  $250 million of GO election 2006 bonds, $100 million of GO election 2002 bonds, and $15.5 million of GO refunding bonds.

The second-largest deal comes from Dallas, and will be underwritten by JPMorgan. The $236.3 million of waterworks and sewer system revenue refunding bonds are rated Aa1 by Moody’s and AAA by Standard & Poor’s.

A source familiar with the pricing said the deal will come to market on Wednesday and has serial maturities from 2013 to 2031. The 2036 term bonds have maturities from 2032 to 2036 and the 2040 term bonds have maturities ranging from 2037 to 2040.

“This is actually fairly active issuance for the holiday period, particularly relative to a year ago,” said Peter DeGroot, head of public finance research at JPMorgan. “Last year, for the two weeks that straddle the Fourth of July, there was a combined $7.2 billion. So this year, origination is considerable relative to last year.”

DeGroot said volume should pick up after the holiday.

“Volume is lower next week but as we look forward, we do think supply will pick up and will be far closer to typical levels than we’ve seen so far,” he said.

During the summer reinvestment period, DeGroot expects investors will be well capitalized. “Looking over the next two months, we project $92 billion for July and August,” he said, which is 4% above last year’s numbers for July and August and 17% above the five-year average for coupon and redemption payments for the period.

Beyond the summer months, DeGroot sees issuance picking up as well.

“Long-term municipal bond origination was down 44% for the first half of the year, but we expect the pace of the decline to decelerate,” he said.

“Over the second half of 2011, we are forecasting that total issuance will be down 35% relative to last year but, given the absence of [Build America Bonds], tax-exempt volume should be comparable to the second half of 2010.”

Last year’s record second-half issuance was $228 billion, $130 billion of which was tax-exempt, according to DeGroot, and this year he expects to see $140 billion of tax-exempt issuance over the second half.

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