By Jeremy R. Cooke Dec. 30 (Bloomberg) — Illinois will lead states and municipalities bringing to market at least $9.8 billion of fixed-rate bonds in the opening weeks of 2010, after a lull in sales to close out this year, data compiled by Bloomberg show. Illinois, the second-lowest rated U.S. state after California, will offer $3.47 billion of taxable notes to be repaid over five years to contribute to public employee pension funds for the fiscal year that ends June 30. Moody’s Investors Service and Standard & Poor’s cut Illinois’ credit ratings this month as it resorts to such borrowing to help bridge a budget gap of almost $12 billion. Next week’s sale will be Illinois’ first issue of “medium- term notes for its pension system,” Governor Pat Quinn ’s budget office said in a Dec. 16 statement. Preliminary sale documents will be available as soon as today, Kelly Kraft, a spokeswoman for the office, said in a Dec. 23 e-mail. The state borrowed $10 billion in June 2003 with the largest single sale of taxable municipal bonds, to mature through 2033. The need to close its budget deficit at the time and pay money owed to workers’ retirement systems also prompted that sale. Illinois taxable general obligation bonds due in June 2015 from the deal traded on Dec. 28 at prices set to produce an average 3.9 percent yield, about 130 basis points more than comparable-maturity Treasuries, according to data compiled by Bloomberg. A basis point is 0.01 percentage point. The state’s so-called spread at issue six years ago was 75 basis points more than 10-year benchmark U.S. notes. Tax-Exempt Yields Yields on tax-exempt bonds with top ratings due in 10 years held at a four-week high of 3.05 percent yesterday, according to a daily survey by Municipal Market Advisors of Concord, Massachusetts. Moody’s, which rated Illinois Aa3 in June 2003, ranks the state two levels lower at A2. S&P and Fitch Ratings each ranked the state AA six years ago. Today, Illinois has S&P’s A+ and Fitch’s A, two and three ratings lower than before. Underwriters led by JPMorgan Chase & Co., Goldman Sachs Group Inc. and Loop Capital Markets LLC will market Illinois’ new debt to investors. Bear Stearns Cos., which JPMorgan took over in 2008, handled the earlier $10 billion deal. Taxable sales grew this year to make up 21 percent of fixed-rate municipal issuance because of the federally subsidized Build America Bond program, from 9 percent the year of Illinois’ record pension deal, Bloomberg data show. The federal government rebates 35 percent of the interest on the bonds. Build America Bonds Among issuers planning to sell Build America Bonds beginning next week are Miami-Dade County’s Aviation Department, New Jersey’s Transportation Trust Fund Authority and New York’s Metropolitan Transportation Authority. The Illinois offering is taxable since federal rules preclude proceeds from tax-exempt borrowings from going into funds that invest in potentially higher-yielding investments such as stocks. The Build America initiative subsidizes capital for government projects that would otherwise be tax-exempt such as schools, roads, and transit lines. A lesser share of tax-free issues in the municipal market has helped to drive performance in mutual funds at a time when record amounts of cash are seeking a shelter from federal income taxes that may rise after Bush administration cuts expire in 2011. Investors injected $67.9 billion in new cash into municipal bond mutual funds this year through Dec. 16, according to preliminary data compiled by the Washington-based Investment Company Institute. The previous record year was 1993, when net new cash flow for munis totaled $38.3 billion. Open-End Funds Open-end funds have returned an average 14.8 percent this year and exchange-traded funds have gained 10.6 percent, according to Bloomberg data. Closed-end funds, which don’t continually issue new shares, have rallied 47 percent, on average, the data show. The BofA Merrill Lynch Municipal Master Index, which climbed 14.4 percent this year through Dec. 28, is headed for its best performance since 2000, when the increase was 17.2 percent. The total return for the decade ending tomorrow is 88 percent, or an annualized 6.5 percent. Following are descriptions of additional pending sales of municipal bonds in the U.S. NEW JERSEY TRANSPORTATION TRUST FUND AUTHORITY plans to borrow about $850 million next month to finance road, bridge, rail and bus projects in the most densely populated state. The offering, through banks led by Barclays Plc, will include a mix of zero-coupon, tax-exempt securities and taxable Build America Bonds, according to Moody’s Investors Service. The debt, backed by state appropriations, is rated A1 by Moody’s, A+ by Fitch and AA- by S&P. (Updated Dec. 30) MIAMI-DADE COUNTY, the most populous county in the U.S. Southeast, will sell $600 million of bonds backed by revenue from Miami International Airport, the largest U.S. gateway to Latin America, the week of Jan. 11. As much as 30 percent of the issue will be taxable Build America Bonds. Sales to individual investors will occur Jan. 12, with sales to institutions the following day. Proceeds will be used to repay $375 million of commercial paper, with the rest used on the airport’s $6 billion expansion. Underwriting will be led by Citigroup Inc. S&P rates the bonds A-. (Added Dec. 17) LOWER COLORADO RIVER AUTHORITY, which manages electricity generation and water use in the region around Texas’s Colorado River, intends to offer about $426 million of tax-exempt bonds as soon as next week through Barclays to refinance debt. They will mature from 2010 through 2020, according to preliminary offering documents. The bonds are rated A+ by Fitch, A1 by Moody’s and A by S&P. (Updated Dec. 30) NEW YORK’S METROPOLITAN TRANSPORTATION AUTHORITY, the largest U.S. mass-transit agency, plans to sell $350 million of taxable, federally subsidized Build America Bonds the week of Jan. 4 through banks led by JPMorgan Chase & Co. The debt is backed by revenue from the MTA’s bus, subway and commuter-rail networks, state and local government subsidies, dedicated taxes and operating surpluses from the agency’s toll bridges and tunnels. Proceeds from the bonds, rated A2 by Moody’s and A by S&P and Fitch, will fund projects to repair and improve the MTA’s transit and commuter systems in and around New York City. (Added Dec. 22) NEW JERSEY’S HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY plans to sell $338 million of fixed-rate, tax-exempt bonds backed by student loan revenue the week of Jan. 11. The proceeds will allow the authority to buy back and retire auction-rate securities and to fund loans that allow education borrowers to consolidate multiple borrowings into one regular payment. Banks led by Merrill Lynch will handle the offering. Ratings on the deal are AA from S&P and Aa2 from Moody’s, and maturities will range from 2011 through 2037. (Updated Dec. 18) PORT OF HOUSTON AUTHORITY , overseer of the busiest shipping port in the U.S. by foreign tonnage, plans to sell as much as $327.2 million of tax-exempt bonds backed by property taxes collected in Harris County, Texas. Underwriters led by Bank of America Corp.’s Merrill Lynch & Co. will handle the deal as soon as next month. The transaction will refinance debt that the port can buy back, either through call options or investor tenders. Interest on all except $40.5 million of the bonds can be excluded from calculations of the federal alternative minimum tax. The debt that may be refinanced was issued in 1997, 1998, 2001, 2002, 2005, 2006 and 2008, preliminary bond sale documents show. (Added Dec. 18) OHIO, the seventh most-populous state, intends to offer $271 million of tax-exempt general-obligation bonds in a refinancing to provide savings for the current two-year budget. Bank of America Corp.’s Merrill Lynch & Co. leads underwriters and will set prices and rates on the debt in the week of Jan. 4. The latest issue is part of a plan to shift $736 million in debt payments to future fiscal years from the biennium ending June 30, 2011, without extending final maturities, according to Standard & Poor’s. The debt to be refunded originally paid for higher education, common schools and infrastructure improvement. The state is rated AA+ by S&P, Aa2 by Moody’s and AA by Fitch. (Added Dec. 24) MARYLAND ECONOMIC DEVELOPMENT CORP., which issues tax- exempt bonds to encourage business in the state, plans to sell almost $260 million in debt as soon as next month as part of a marine-terminal concession with Ports America Chesapeake. The money raised will fund state transportation projects and an expansion of Seagirt Marine Terminal to make it big enough to handle some of the world’s largest cargo vessels. The Port of Baltimore’s container facility will be leased for 50 years to Ports America, controlled by Highstar Capital, a New York-based private-equity firm. The debt, secured by terminal revenue, received a provisional Baa3 rating from Moody’s. A group of underwriters led by Goldman Sachs will market the debt to investors. (Added Dec. 22) To contact the reporter on this story: Jeremy R. Cooke in New York at jcooke8@bloomberg.net .
See the original post:
Illinois Leads $9.8 Billion of Municipal Bond Sales Planned for Early 2010
