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Friday
Dec. 19, 2014
www.bloombergbriefs.com
Good Times Slow Down in the Oil Patch
MUNI SHOW WITH TAYLOR & JOE
BY STEVE MATTHEWS, LAUREN ETTER AND JEANNA SMIALEK
While slumping crude and gasoline prices are projected to boost the nation's economy
by leaving more cash in consumers' pockets, they also threaten to limit growth, tax
revenue and job opportunities from Texas to North Dakota. By restraining new industry
investment, the declines are set to subdue the most rapidly expanding U.S. regions.
"For oil producers, it means an adjustment in terms of expectations and a realignment
in terms of capital-spending plans,'' said Nathaniel Karp, chief U.S. economist at BBVA
Research in Houston. "That implies that we're going to see slower growth.''
Rising energy prices, which coincided with the end of the recession in 2009, and
improved drilling methods including hydraulic fracturing spurred rig counts and put the
U.S. on the road to energy independence.
A subsequent hiring binge at companies such as Exxon Mobil Corp. and closely held
Endeavor Energy Resources LP drove spending at hotels, restaurants and retailers.
Such secondary economic effects made North Dakota and Wyoming the fastest growing
U.S. states last year.
The momentum is poised to slow. Crude oil fell to $54.11 a barrel on the New York
Mercantile Exchange Dec. 18, down 49 percent since mid-June, reflecting the highest
domestic production in three decades and slowing global demand.
"If lower oil prices persist through 2015, the economies and finances of the energy
producing states — Texas, Louisiana, Alaska, Wyoming, New Mexico, Oklahoma and
North Dakota — will be put to the test,'' according to a report from Standard & Poor's.
The region comprising Texas, Oklahoma, Louisiana and Arkansas will expand by 7.4
percent in 2014 and 3.9 percent in 2015 — down from 19.2 percent in 2012, according
to S&P's projections.
For the national economy, reduced prospects for energy-producing states will be
masked by stronger consumer spending, with Americans paying less to fill their cars'
tanks and heat their homes.
"Consumers gain more than domestic producers lose,'' said James Hamilton, an
economist at the University of California-San Diego and former visiting scholar at the
Fed, whose research focuses on energy.
Bloomberg AAA Benchmark Yields
30-Day Supply Fixed: $2.7 Bln (LT)
30-Day Supply Fixed: $26 Mln (ST)
Sold YTD Fixed: $228n (Neg LT)
Sold YTD Fixed: $71.5 Bln (Comp LT)
Sold YTD Fixed: $39.8 Bln (ST LT)
SECONDARY MARKET
MSRB: $11.9 Bln
PICK: $12.9 Bln
VARIABLE RATE
SIFMA Muni Swap Rate: 0.04%
Bloomberg Weekly AAA Rate: 0.044%
Bloomberg Weekly AA Rate: 0.075%
Daily Reset Inventory: $500 Mln Weekly Reset Inventory: $1.4 Bln IN THE PIPELINE
DESCRIPTION
CURRENT
PREVIOUS
NET CHANGE
BVAL Muni Benchmark 1T
0.19
0.21
-0.02
BVAL Muni Benchmark 2T
0.50
0.45
+0.05
BVAL Muni Benchmark 3T
0.79
0.75
+0.05
BVAL Muni Benchmark 4T
1.06
1.03
+0.02
BVAL Muni Benchmark 5T
1.28
1.28
+0.01
BVAL Muni Benchmark 6T
1.50
1.49
+0.01
BVAL Muni Benchmark 7T
1.70
1.69
+0.01
BVAL Muni Benchmark 8T
1.86
1.84
+0.01
BVAL Muni Benchmark 9T
1.98
1.96
+0.02
BVAL Muni Benchmark 10T
2.09
2.06
+0.03
BVAL Muni Benchmark 20T
2.68
2.64
+0.04
BVAL Muni Benchmark 30T
2.90
2.90
0
Source: GBY<GO>
PRIMARY FIXED RATE
MUNICIPALITY
AMOUNT
Ohio
$175 million GO
Texas Water
$124 million GO
Washington
$530 million GO
Shelby County TN
$190 million GO
Gainesville FL
$68 million Rev
Source: Bloomberg CDRA <GO>
SIZE OF MARKET
AMOUNT
OUTSTANDING
($MLNS)
MATURING
NEXT 30
DAYS
($MLNS)
ANNOUNCED
CALLS NEXT 30
DAYS ($MLNS)
3,521,584
10,577
15,662
Source: MBM<GO>
Bloomberg Brief
Dec. 19, 2014
Municipal Market
2
SUPPLY AND DEMAND
10-Year Average Yield Falls to Eight-Week Low on Higher Inflows
Investors continued to pour cash into
municipal bond funds, investing $611
million into funds that report weekly to
Lipper US Fund Flows, more than the
$510.8 million four-week moving average.
Demand outweighed the $6 billion in debt
issuers sold this week, pushing the
10-year average yield down to 2.08
percent from the previous week's 2.13
percent. The 10-year weekly-average
yield is the lowest in eight weeks.
High-yield funds saw $298.6 million of
inflows in the week ended Dec. 17, the
highest in nine weeks. Long-term funds
saw $464.2 million of inflows, also the
highest in nine weeks. Intermediate funds
that report weekly recorded $153.9 million
of inflows, down from the previous week's
$243.9 million. Flows, Supply, Yields
— Taylor Riggs
DIARY
Philadelphia Charter School Looks to Municipal Market
BY KATE SMITH
Harambee Institute of Science
Technology, a Philadelphia-based charter
school that made headlines for an
embezzlement and nightclub scandal, will
look to tap the municipal market for $5.9
million in coming weeks.
The bonds will be issued by the
Philadelphia Authority for Industrial
Development and divided into two
tranches, a $5.45 million tax-exempt
piece and a $450,000 taxable piece,
according to a preliminary limited offering
memorandum.
With the proceeds, the school plans to
buy back the facilities from its former
affiliated institute, the now defunct
Harambee Institute, whose sole purpose
was to lease the facilities to the school,
according to the POS. The unrated deal
will be the charter school's first since
opening in 1997, according to the POS.
Harambee's bonds come one year after
the former CEO, Masai Skief, was
sentenced to three years in prison for
stealing $88,000 from the school and
$12,000 from the Institute. How the bond
sale will be received hinges on the
strength of the new leader and faith in the
turnaround of the school.
"Strong leadership is absolutely
essential for a successful charter school
and, in this case, it's ability to be
resilient," said Reena Abraham, vice
president of education programs at Local
Initiatives Support Corporation, a
nonprofit that assists charter schools with
financing, policy and management
assistance.
For a leader to be most effective, their
expertise must translate into academic
performance as well. "If the newly
appointed school leader has a great track
record of academic performance at their
old school, then the school is likely to do
well in the future," Abraham said.
The new CEO, Sandra Dungee Glenn,
was appointed in April 2014 and prior to
Harambee served as the chairperson of
the School Reform Commission, the
governing body of the School District of
Philadelphia. In 2009, Dungee Glenn was
also appointed to the Pennsylvania State
Board of Education by Governor Edward
Rendell.
The school received scrutiny in 2010
when its practice of running a nightclub
on nights and weekends was exposed.
Just under $80,000 of the issuance will go
towards unpaid liquor sales taxes related
to this practice, according to the POS.
Charter schools are the eighth highest
defaulting sector in public finance, with a
default rate of 1.37% as of this summer,
said Matt Fabian, a managing director at
Municipal Market Advisors.
"In the past two years they got into the
top ten," Fabian said. "We didn't notice
them until last year."
Only "accredited investors" or "qualified
institutional buyers" will be eligible to buy
the debt, according to the POS.
Bloomberg Brief
Dec. 19, 2014
Municipal Market
3
ACCORDING TO
Port Hires PFM
The Port Authority of New York & New
Jersey has hired Philadelphia-based
Public Financial Management Inc. to
advise on bond sales. The agency, which
manages the New York area's three
major airports, four bridges, two tunnels,
ports, bus terminals, a commuter railroad
and the World Trade Center site, is hiring
an adviser to allow "efficient access'' to
investment banks, said Steve Coleman,
a Port Authority spokesman. Under SEC
rules adopted this year, banks are barred
from pitching financing ideas to state and
local bond issuers unless there's a formal
request for proposals or one of three
conditions are met. One of those criterion
is that the issuer retain an independent
registered financial adviser. PFM will be
paid $180 to $350 per hour, depending on
the level of the person doing the work,
Coleman said. Eight firms applied for the
job, he said. In February, the Port
Authority adopted a $27.6 billion 10-year
capital plan. The agency had about $20
billion in debt as of Dec. 31, 2013,
according to financial statements. PFM
will handle all Port Authority debt
issuance except for the agency's five
airports: John F. Kennedy International,
Newark Liberty International, LaGuardia,
Stewart and Teterboro. New York-based
Frasca and Associates handles aviation
financial matters for the Port Authority,
Coleman said.
— Martin Z. Braun
Pimco, Gross Differ
Pacific Investment Management Co. is
diverging with its co-founder and former
chief investment officer Bill Gross on
whether falling oil prices will delay the
Fed's move to raise interest rates. In its
outlook for 2015, Pimco projects global
growth accelerating in a "rising tide,'' with
lower oil prices helping economies, and
the Fed on track to boost borrowing costs.
Gross, who used to run Pimco's biggest
fund before his surprise exit Sept. 26 to
join Janus Capital Group Inc., said the
U.S. central bank may be constrained by
disinflationary pressures after oil prices
plunged in recent weeks. Added to this
mix is former Fed Chairman Ben S.
Bernanke, who endorsed Pimco's views
when he was invited to speak at the firm's
internal forecasting session. Bernanke
suggested policy makers would "look past
the drop in headline inflation in the U.S.
next year,'' focusing on momentum in real
growth and core inflation's impact on
future monetary policy, Saumil Parikh, a
managing director who leads Pimco's
quarterly cyclical forum, and group chief
investment officer Daniel Ivascyn said in
a report posted on the firm's website. "Dr.
Bernanke affirmed Pimco's view that the
outlook for the U.S. economy in 2015 is
incrementally positive,'' Parikh and
Ivascyn wrote. "Despite the drop in oil
prices today likely leading to negative
headline inflation in early 2015, we expect
the Fed will remain on course to raise
official policy interest rates in mid-2015,
sometime between June and September.''
Pimco, the manager of the world's largest
bond mutual fund, said expansion will
climb to about 2.75 percent from about
2.5 percent this year. Economists expect
worldwide growth of 2.8 percent in 2015,
the average forecast in a Bloomberg
survey.
— Mary Childs and Matt Robinson
MSRB MARKET FLOW
Top Traded Borrowers in the Municipal Market 12/12/14 to 12/18/14 ($Mln)
ISSUE
BORROWER
VOLUME
CUSTOMER SELLS
CUSTOMER BUYS
NET
DEALER TO DEALER VOLUME
Total
28969
6498
12257
-5760
10214
1
State of California
643
149
217
-68
277
2
New York State Dormitory Authority
589
64
340
-276
185
3
Los Angeles Community College District/CA
502
191
121
70
190
4
County of Bexar, TX
382
16
186
-170
180
5
State of Texas
350
73
131
-58
146
6
Omaha Public Power District
333
22
249
-227
63
7
Commonwealth of Massachusetts
301
45
127
-82
129
8
Housing Development Corp/NY
299
11
184
-173
104
9
Scottsdale Healthcare Hospitals Obligated
296
10
244
-234
41
10
New Jersey Transportation Trust Fund
291
63
86
-23
142
Source: MFLO<GO>
* Volume numbers treat trades>$5MM as $5MM due to MSRB reporting restrictions
Bloomberg Brief
Dec. 19, 2014
Municipal Market
4
CREDIT CLOSE-UP
Kansas Considers Bond Sale to Fund Pensions
BY DARRELL PRESTON
Governor Sam Brownback's plan to
divert pension cash to plug a budget
deficit has Kansas Treasurer Ron Estes
recommending a fiscal tool the state
hasn't used in a decade — selling bonds
to fund its retirement plan.
Brownback, a Republican who starts his
second term in January, last week
proposed shortchanging the state's
pension contributions by $58 million to
close a $280 million budget hole caused
in part by tax cuts the governor
championed. Kansas, with the
fifth-weakest pension system among
states, had its issuer ratings downgraded
by Standard & Poor's and Moody's this
year.
To close a $7.35 billion funding
shortfall, the state needs to keep
commitments that were part of a 2012
pension overhaul, said Estes, a
Republican who also won re-election last
month. The plan called for more funding
from the state, including revenue from
casinos it owns, and raised the amount
employees pay.
"We need to keep working on our
pension reforms passed two years ago or
we'll fall further behind,'' Estes said in an
interview from Topeka.
Kansas can take advantage of interest
rates close to five-decade lows to raise
cash, increase the funding level and
create fixed payments, Estes said. The
state issued $500 million of pension
bonds in 2004; a proposal to sell another
round stalled in the legislature last year.
The 2004 bonds were sold through the
Kansas Development Finance Authority.
The debt, which is insured, has traded
this month at an average yield of 4.5
percent for a May 2034 maturity,
Bloomberg data show. That's about 1.9
percentage points above Treasuries.
Because of investment losses from the
recession and insufficient contributions,
public retirement plans nationwide are at
least $1.3 trillion short of the assets
needed to pay about $5 trillion of
projected benefits, Federal Reserve data
show. Since 2005, every state but Idaho
has passed laws to boost pension
funding, according to the National
Conference of State Legislatures.
Kansas is among states and localities
that have turned to debt to bolster their
plans. Led by California's Orange County,
municipalities have issued a combined
$356 million of revenue-backed pension
bonds this year, compared with $424
million in 2013, according to data
compiled by Bloomberg. In 2003, Illinois
sold $10 billion of bonds for its pensions.
The debt, which is typically taxable,
carries risk. The strategy is to invest the
proceeds, usually in stocks, and earn
more than it costs to repay bond
investors. The approach can backfire if
issuers borrow when equities are at
historic highs, said Jean-Pierre Aubry,
assistant director of state and local
research at the Center for Retirement
Research at Boston College. The S&P
500 Index this week posted its best
two-day gain in more than three years.
"There are instances where they can
"There are instances
where they can work,
but they can be risky
financial tools for
cash-strapped
borrowers."
— JEAN-PIERRE AUBRY, CENTER FOR
RETIREMENT RESEARCH, BOSTON
COLLEGE
work, but they can be risky financial tools
for cash-strapped borrowers,'' Aubry said.
"They're gambling on the market and
should be undertaken by those with the
appetite for the risk and the ability to
absorb the risk.''
Kansas, which was charged by the SEC
in August with failing to disclose its
pension liability to municipal-bond
investors, passed legislation in 2012 to
bolster its retirement plans.
The state's pensions were 56.4 percent
funded as of 2013, higher than only four
states, according to data compiled by
Bloomberg. The ratio would reach 100
percent by 2033 if Kansas sticks to the
changes laid out in 2012, Estes said.
Starting next month, workers'
contributions to the Kansas Public
Employees Retirement System will
increase to 6 percent of their salaries
from 5 percent. About 281,000 people
pay into the system, which has $14 billion
of assets.
The system supports issuing bonds or
any measure that boosts its funding, said
Kristen Basso, a spokeswoman.
"Pension bonds would reduce our
unfunded liability and improve our funded
ratio,'' she said in an e-mail.
Brownback's plan would reduce the
pension payment by almost 12 percent.
He can make general-fund budget cuts on
his own, without the legislature's
approval, according to Ashley Murdie, a
spokeswoman for Estes.
"I can't go into details right now, but the
governor will address the long-term
sustainability of KPERS,'' said Eileen
Hawley, the governor's communications
director. "It is one of his top priorities.''
The budget deficit for the state of 2.9
million arose when a committee that
estimates revenue met this month and
lowered its projection. After tax reductions
approved by the legislature in 2012, the
state took in about $340 million less than
forecast during the year through June.
In August, S&P cut the state to AA, the
third-highest level. It assigned a negative
outlook, citing budget pressure as
scheduled income-tax cuts are phased in.
Moody's in April dropped it to an
equivalent Aa2.
"There could be a threat of a
downgrade if this situation goes on for
several years,'' said Estes.
Dec. 19, 2014
Bloomberg Brief
STORYCHART
Muni Year in Review: Yields Fall, Returns Climb BY TAYLOR RIGGS
The 30-year muni yield fell to 2.95
percent on Dec. 15 from 4.25 percent on
Jan. 2. The 10-year yield fell to 2.10
percent from 3 percent. The five-year
yield fell to 1.29 percent from 1.58
percent at the beginning of the year.
Muni Yields Fall
10-Year Ratio Rebounds to 100%
Credit Spreads Tighten
Supply Tops 2013
Funds See Strong Inflows
Returns Highest Since 2011
Municipal Market
5
Bloomberg Brief
Dec. 19, 2014
Municipal Market
6
RESULTS OF SALES
Long-Term Bond Sales Results
SELLING
DATE
ISSUE
STATE
RATING
TAX
AMT
($Mlns)
12/15
Adams 12 SD-Ref-B
CO
Aa2 /AA/
N
58.79
12/15
Fairfield Cnty
OH
Aa2//
N
12/15
Round Rock -Ref
TX
//
12/15
Tompkins Co Dev
Corp -A
NY
12/15
South San Antonio
ISD-Ref
12/18 11:00
12/18 11:00
1 YEAR
5 YEAR
10 YEAR
20 YEAR
STATUS
TYPE
SENIOR MANAGER
3.000/0.300 5.000/1.390 5.000/2.210
Final
Negt
Stifel Nicolaus &
Co Inc
33.92
1.000/0.320 2.000/1.420 4.000/2.360 3.375/3.560
Final
Negt
Robert W. Baird &
Co Inc
N
32.47
5.000/1.460 5.000/2.350
Repriced
Negt
BOSC Inc
/BBB/
N
31.72
5.000/3.830
Final
Negt
Ziegler Capital
Mkts Grp
TX
//AAA
N
26.80
5.000/2.230 4.000/3.260
Final
Negt
Morgan Stanley &
Co Inc
Clg Pk Business &
Ind Dev
GA
Aa3/AA-/
T
37.18
4.500/2.250 4.250/3.400 4.250/4.350 Awarded Comp
Clg Pk Business &
Ind-Ref
GA
Aa3/AA-/
T
24.89
5.000/0.700 4.000/2.250 4.000/3.300 4.250/4.300 Awarded Comp
Suntrust
Robinson-Humphry
Robert W. Baird &
Co Inc
TRADING
Most Active Bonds
DESCRIPTION
STATE
DATED
COUPON
MATURITY
VOLUME
PRICED AVERAGE
YIELD AVERAGE
NO. OF TRADES
New York City, NY Hsg
NY
12/23/14
3.950
11/15/44
Arizona St Hlth Facs
AZ
12/23/14
5.000
12/01/42
81,445,000
99.771
3.950
69
69,920,000
110.907
3.679
34
Los Angeles Wtr & Pwr
CA
01/08/15
5.000
07/01/44
50,500,000
115.237
3.130
16
New York City, NY Hsg
NY
12/23/14
3.700
11/15/34
48,800,000
99.771
3.700
87
SC Pub Svc Auth-C-Ref
SC
ME Hlth & Hgr Ed
ME
10/28/14
N.A.
12/01/46
44,400,000
99.249
3.021
300
01/07/15
4.000
07/01/44
41,885,000
98.742
4.067
95
AZ Transprtn Brd-Ref
AZ
01/28/15
5.000
07/01/32
31,000,000
118.827
2.720
12
MI Bldg Auth-Ii-Remk
MI
07/28/11
N.A.
10/15/43
30,000,000
100.000
0.000
6
St James Psh-B2-Nucor
LA
11/23/10
N.A.
11/01/40
30,000,000
100.000
0.000
6
DASNY Income Tax-E
NY
12/30/14
5.000
02/15/39
29,015,000
115.828
3.149
18
AZ Transprtn Brd-Ref
AZ
01/28/15
5.000
07/01/30
28,620,000
119.859
2.610
11
Arizona St Hlth Facs
AZ
12/23/14
5.000
12/01/39
28,190,000
111.519
3.610
8
MI Bldg Auth-I-Remk
MI
12/19/07
N.A.
10/15/42
25,000,000
100.000
0.000
5
New York City, NY Hsg
NY
12/23/14
3.800
11/15/39
25,000,000
100.000
3.800
7
AR Dev Fin Auth-A
AR
01/15/15
4.000
02/01/38
24,850,000
97.033
4.202
70
AZ Transprtn Brd-Ref
AZ
01/28/15
5.000
07/01/25
24,305,000
123.630
2.209
10
Puerto Rico-A
PR
03/17/14
8.000
07/01/35
24,200,000
84.668
9.740
18
CA Edu Facs Auth-U6
CA
05/14/14
5.000
05/01/45
24,000,000
136.856
3.114
6
AZ Transprtn Brd-Ref
AZ
01/28/15
5.000
07/01/33
23,740,000
118.480
2.759
21
Bloomberg Brief
Dec. 19, 2014
Easing Cuban Sanctions a Negative for Puerto Rico
@TridentMuni
Probably not the first to note this, but
Cuba news is a negative for Puerto
Rico tourism #muniland
7
Bloomberg Brief:
Municipal Market
TWEET OF THE DAY BY KATE SMITH
TMR
Solutions
Municipal Market
After the announcement to ease
sanctions with Cuba, Trident Municipal
Research, a municipal research firm,
noted that this might thwart Puerto Rico's
tourism efforts, which aim to boost
tourism revenue to 8 percent from 6
percent over the next three years, a $1.2
billion increase.
Details
Newsletter Executive Editor
Ted Merz
[email protected]
+1-212-617-2309
Newsletter Managing Editor
Jennifer Rossa
[email protected]
+1-212-617-8074
Municipal Market Editor
Joe Mysak
[email protected]
+1-212-617-2323
Find Muni Data on the Bloomberg Terminal
Editor
DATA
FREQUENCY
ON THE TERMINAL
Taylor Riggs
[email protected]
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Daily
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Every Monday
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