Muni Market Slows as Summer Nears End

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Municipal volume is forecast to plunge to the lowest in six months as end-of-summer holidays approach.

There are only four deals greater than $100 million on the calendar for the week of Aug. 31, three of them negotiated deals. The estimated volume for the week is $3.3 billion, according to Ipreo. That's the lowest since revised volume of $3.2 billion the week of Feb. 16, according to Thomson Reuters. The revised total for the past week was $7.81 Billion this week, according to Thomson Reuters.

"We are not surprised by the light volume as markets have been volatile and vacations are plentiful at this point in the summer," said Michael Pietronico, chief executive officer at Miller Tabak Asset Management. "We expect September volume to increase as participants get back to work."

There might be some problems of the market digesting the volume, since a lot of people might be taking some time off of work, with Labor Day right around the corner. "Liquidity is somewhat challenged in the days before summer ends," Pietronico said.

The largest deal of the week, which will be priced by JP Morgan on Wednesday after a one day retail period, will be a $1 billion offering from the Dormitory Authority of the State of New York.

DASNY anticipates that the proceeds will be used to refund certain outstanding bonds issued under various programs, which may include bonds under the Personal Income Tax Revenue Bond Program issued by the Dormitory Authority and the Environmental Facilities Corporation, the CUNY Program, and the Upstate Community College Program. The bonds will be issued under the Personal Income Tax General Purpose Resolution.

"The market has been very volatile this week, but given the strength and familiarity of the Personal Income Tax Program we are optimistic that the sale will go well," a spokesperson for DASNY said. "Market conditions next week will dictate the duration of the retail order period."

The Series 2015E general purpose state personal income tax revenue bonds are tentatively structured as serials running from 2016 through 2037. The deal is rated Aa1 by Moody's Investors Service and triple-A by Standard & Poor's.

"We expect this deal to do quite well, as demand for New York paper remains strong," Pietronico said.

The second largest sale of the week will be a competitive offering from the state of Wisconsin, which is selling roughly $391 million of Series 2015C general obligation bonds on Tuesday.

City Securities is slated to price Valparaiso, Ind.'s $143 million multi-school building construction first mortgage bonds on Wednesday. The issue is expected to mature serially from 2018 through 2035. The deal is rated AA-plus by S&P

Barclays Capital will price The Lower Colorado River Authority, Texas, $135 million of Series 2015D refunding revenue bonds on Wednesday. The issue is rated A by S&P and Fitch Ratings and is expected to mature serially from 2016 through 2032.

"We expect 'quality' issuers to be more successful in placing deals at lower interest rates as investors seem to be in a 'risk off' mode before the upcoming September Federal Reserve meeting," he said.


To be or not to be, that is the question regarding the Puerto Rico Aqueduct and Sewer Authority's bond offering of $750 million. The deal was supposed to price on the Aug. 18, got pushed back to Aug. 20 and then got pushed back again, with sources saying that they expected the deal to price, but not until after September begins.

"They are saying it's postponed until more clarity is garnered on their restructuring process," a market source said. The reason it fell apart last week is that at the same time they were floating the deal to investors they were filing with US authorities for an appeal to the recent voiding of their restructuring law."

He added: "My gut tells me that they may never get the deal done, but if they do it will have to be at much worse levels. They had been floating 8% at 9.50%. That is just not enough for a basically distressed bond."

Aaron Weitzman is a markets reporter at The Bond Buyer.

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