Muni bond issuers delay debt deals as market churns
MIAMI, Sept 17 (Reuters) - Cities, states and other tax-free municipal borrowers don't like what they see in a U.S. municipal bond market snared in the global credit crisis and are putting off primary deals worth about $2 billion or more.
The Boston Water and Sewer Commission, the states of Connecticut and Oregon, cities in Montana, New York, Massachusetts and California, South Carolina school districts and a Texas port were among issuers that postponed primary offerings or cut deals so far this week.
"It's the general volatility of the market; interest rates are up," Clark Rowell, a financial advisor to the Boston water commission, said when asked about the commission's decision to put off its $150 million deal.
The commission, which had planned to sell fixed-rate revenue and refunding bonds on Thursday, was now weighing an Oct. 7 sale, according to Rowell, a vice president at Unibank Fiscal Advisory Services Inc in Whitinsville, Massachusetts.
Re-offering rates on the planned deal's longest maturities had in recent days looked to have reoffered yields 60 basis points above the "AAA" scale, or three to four times initial forecasts by underwriters, Rowell said in an interview.
"We will watch the market," Rowell said. "After events like this, what you typically hope is that the market will calm down."
Long regarded as a safe haven for investors, municipal bond prices fell this week after the collapse and merger of top Wall Street investment banks central to the operation of the municipal bond market.
Yields on 30-year municipals rose an extraordinary 38 basis points so far this week and are substantially higher than comparable U.S. Treasuries.
Traders, portfolio managers and investment strategists have predicted that the shake-ups on Wall Street and in global credit markets will raise borrowing costs for municipal issuers and dry up liquidity in the tax-free market.
Matt Fabian, an analyst at Municipal Market Advisors in Concord, Massachusetts, earlier this week cut his forecast for new municipal debt for 2008 to $425 billion from $450 billion.
"If you look at the new issues that have been coming to market on the competitive side, they've only been garnering a couple of bids," a Chicago trader said. "Maybe two syndicates bidding an issue, where they used to be five or six. I mean, that gives you an idea of how tough it is to get people to commit money right now."
Saying it was watching market conditions, New York City announced on Wednesday it will delay next week's $700 million sale of Transitional Finance Authority building aid revenue bonds by one to two weeks.
Connecticut slashed a debt sale to $100 million from $479 million. A state official, who requested anonymity, said Connecticut had gotten about $88 million of retail orders during a presale period and expected its syndicate to absorb the rest. Connecticut expects to issue the rest of the debt as soon as the market settles down, added the state official.
The Ohio Public Facilities Commission put the brakes on pricing for nearly $300 million of new and refunding bonds through Citigroup, according to Kurt Kauffman, the state's debt manager, adding pricing was now being targeted for next week.
"We decided not to enter the market with all this disruption and volatility," Kauffman said. Continued...
