Friday, May 29, 2015

Municipal Bond Market
Munis are slightly stronger this morning for the third straight day.  Attention was on the secondary with most of the week’s larger deals already priced.   For the first time in a week we saw dealers lifting offerings in the secondary instead of relying solely on BWs to fill inquiry.  In the primary, Atlantic City came to market with $12mln in GOs under the state of NJs Municipal Qualified Bond Act, which facilitates distressed investors access to the market.  The 6.375% of 2030 priced at a 6% and were met with extremely strong demand.  30-day supply is larger this morning with $14bln scheduled versus $11.5bln yesterday.

Muni funds reported outflows with $179mln flowing out of funds compared to $842mln in inflows last week.  This number should not have much of impact on the market with a below average calendar of about $5.5bln next week.

In PR credit news, NRG Energy and ITC Holdings Corp have proposed a plan to build two natural gas generators on the island; in return, PREPA would agree to purchase electricity from the group for 30 years. The generators would save the island an estimated $1.5bln annually.  This is certainly credit positive for PREPA debt; however, there is too much uncertainty with the upcoming July payment and the release of their business and financial plan to see any real impact.  PR Benchmark GO 8’s of 2035 remain unchanged and have started to stabilize around as $84.00 (9.84%) after trading as low as $77.125 (10.80%) in early May.  We should continue to see GO’s around this level as we approach the upcoming July PREPA payment.

30-Day visible supply: $14bln