| March 7
March 7 The supply-starved U.S. municipal bond
market will get its biggest deluge of debt so far in 2014 when
issuance is expected to more than double to $11.1 billion next
week from around $5 billion this week, due in part to Puerto
Rico's $3 billion bond sale, according to Thomson Reuters
estimates on Friday.
Bond sales by states, cities and other issuers in the $3.7
trillion market have been meager, with February's $14.1 billion
of issuance the lowest monthly level in three years. Weekly
supply topping $11 billion is not excessive as issuance normally
picks up in March and April.
Next week will be "the highest total we've had in 2014, but
historically it's not high," said Adam Buchanan at Ziegler
Capital Markets in Chicago.
Analysts also think supply next week will remain manageable
because the biggest deal on the calendar by Puerto Rico is
likely to attract non-traditional muni buyers.
The struggling Caribbean island, which recently saw its
credit rating cut to junk, is tentatively set to sell $3 billion
of general obligation bonds on Tuesday through Barclays Capital,
Morgan Stanley and RBC Capital Markets.
"You don't often get these multibillion (dollar) issues. And
when they come into the marketplace, and one as meaningful as
this because of potentially the rate Puerto Rico is going to
have to pay and what it means for their immediate financial
future, it does have great significance," said Van Eck Global
chief municipal strategist James Colby in New York.
Even though it's not investment-grade, the Puerto Rico deal
could also "squeeze some of the broker-dealers as to how much
capital they're going to need to put up to support the deal. It
might impact their bidding in the secondary market," said Dawn
Daggy-Mangerson a senior portfolio manager at McDonnell
Investment Management in suburban Chicago.
Next week's slate of negotiated deals, which total $9.8
billion altogether, also includes $1.6 billion of California GO
bonds. Bank of America Merrill Lynch will hold a two-day retail
order period for the bonds starting on Tuesday, followed by
formal pricing on Thursday.
Houston will sell $1.29 billion of combined utility system
first lien revenue refunding bonds in two deals with Siebert
Brandford Shank & Co pricing nearly $686 million of tax-exempt
bonds and J.P. Morgan Securities pricing $606 million of taxable
The New York State Dormitory Authority is also offering $830
million of tax-exempt and taxable personal income tax revenue
bonds through Citigroup, which will hold a retail presale period
on Tuesday before formal pricing on Wednesday.
Chicago, which was downgraded one notch to Baa1 on Tuesday
by Moody's Investors Service, will issue $655 million of new and
refunding GO bonds through Wells Fargo Securities.
"With the downgrade, Chicago falls into the realm of our
high-yield purview," said Colby of Van Eck, which has two
high-yield muni ETFs. Colby wouldn't say whether Van Eck would
buy Chicago or Puerto Rico debt, but he did say it would "pay
very close attention."
Moody's said the downgrade affecting Chicago's GO and sales
tax revenue bond ratings was due to the city's massive and
growing unfunded pension liability, which threatens its fiscal
solvency. It was the city's second downgrade from Moody's in
less than eight months.
"We're going to see how much pain the downgrade caused
them," Buchanan said. "Moody's has been very straightforward
with how (it's) monitoring pension obligations. There's going to
be continued rating pressure on the city of Chicago and Illinois
because they stick out so much on the pension issue."
Illinois, which passed a law in December to ease its own
$100 billion pension funding shortfall, is also slated to come
to market next week with $402 million of taxable sales tax
revenue bonds in a competitive sale on Tuesday.
Unlike Illinois' GO bonds, which have the lowest ratings
among states, the revenue bonds were rated AAA by Standard &
Poor's Ratings Services and AA-plus by Fitch Ratings.
Competitive sales altogether are expected to total about
$1.3 billion next week, including Ohio's $300 million of higher
education general obligation bonds, which are selling on