CORRECTED-Prisons and an airport to dominate $4.9 bln muni week

Fri Mar 21, 2014 5:36pm EDT

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(Corrects week of Puerto Rico debt issue in second paragraph)

NEW YORK, March 21 (Reuters) - Two large municipal bond deals for prisons in California and an airport in Atlanta will make up over a third of the $4.87 billion in new issuance next week as deals remain subdued for a second week running.

After Puerto Rico's massive $3.5 billion issue that pushed planned weekly issuance to around $11 billion last week, issuance next week will have been below last year's weekly average of $5 billion for two consecutive weeks, according to Municipal Market Data.

The reduced issuance comes as muni market yields have been adjusting upwards after Federal Reserve Chair Janet Yellen suggested this week that the Fed could move towards higher interest rates sooner than previously thought.

Yields on AAA rated 10-year muni bonds rose 10 basis points over the week to 2.52 percent. The move, however, was most pronounced in the shorter-dated bonds. Yields on three-year AAA-rated bonds jumped 21 basis points to 0.69 percent.

Next week, around $3.85 billion of the new issuance will be in the form of negotiated deals while $1.02 billion will come from competitive sales, according to Reuters estimates.

The State of California will issue $793 million in a negotiated deal to fund the Mule Creek medium security state prison and the Richard Donovan Correctional Facility. Construction of the two facilities is scheduled to start in May.

The bonds, rated A minus, are being issued on behalf of the Department of Corrections and Rehabilitation and are secured by revenue from the lease of the facilities. Morgan Stanley is the lead manager on the negotiated deal.

The City of Atlanta is refunding $705.6 million of airport debt. It's airport is the busiest passenger airport in the world with 95.5 million passengers in 2012, according to the bond offering document.

The sale will be divided between general revenue bonds, rated A by Fitch, and hybrid bonds, rated A-plus, secured by revenues from a passenger facility charge, backed up by a subordinate lien on general revenues.

Siebert Brandford is the lead manager. (Reporting by Edward Krudy; Editing by Chris Reese)

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