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New York Liberty Development Sells $650 Million as Tax-Exempt Supply Drops

New York Liberty Development Corp., issuer of $2.6 billion in debt to help rebuild the World Trade Center, sold $650 million in tax-exempts, the most this week, as the supply of municipal securities fell to a 12-week low.

States and municipalities plan to sell about $8.6 billion of fixed-rate bonds in the next 30 days, about 25 percent less than the daily average of $11.4 billion for the last 18 months, according to the Bloomberg Visible Supply Index. Sales of about $4.6 billion are scheduled this week, the lowest for a non- holiday period since April 9.

That trend may further depress yields in coming months, said Tom Dalpiaz, who oversees about $250 million in municipal holdings for Monument, Colorado-based Advisors Asset Management Inc.

“We could be facing this maybe throughout the summer,” said Dalpiaz, who’s based in Melville, New York. “Municipal yields are low for understandable reasons: strong demand and limited supply.”

New York Liberty, an arm of the state-controlled Empire State Development Corp., was established to encourage redevelopment of lower Manhattan after the Sept. 11 terrorist attacks through the sale of Liberty Bonds.

The corporation raised $2.58 billion in December with bonds initially priced to yield 0.5 percent to aid Larry Silverstein, the World Trade Center leaseholder and developer who plans to construct three office towers. The sale was timed to meet a year-end deadline to keep federal tax exemption on the interest. Proceeds were to be held in escrow until construction began. The yield was unchanged June 15, according to Municipal Securities Rulemaking Board data.

Three Classes

The latest issue is split into three classes, reflecting the priority of debt service payments. Standard & Poor’s and Fitch Ratings assigned AA, third-highest; A, sixth-highest; and BBB-, the lowest investment grade, to the respective classes.

The Class 3 securities, which mature in 2049, were priced to yield 6.38 percent, 97 basis points below a Bloomberg Fair Market Value index of 30-year, BBB rated obligations. A basis point is 0.01 percentage point.

The New York Liberty 39-year debt received four times more bids than securities offered, according to Fred Yosca, head of fixed-income trading at BNY Mellon Capital Markets LLC in New York.

“There still is a strong demand for municipal paper because people expect tax increases down the road,” Advisors Asset’s Dalpiaz said.

Proceeds from the New York Liberty sale will help refinance debt on the Bank of America building at One Bryant Park, the first refunding deal for Liberty Bonds, according to Elizabeth Mitchell, an Empire State Development spokeswoman.

Yields Fall

Yields on top-rated tax-exempts due in 10 years fell yesterday for the seventh straight day, to 3.07 percent, the lowest since March 23, according to a daily survey by Concord, Massachusetts-based Municipal Market Advisors.

Ten-year Treasuries fell to 2.94 percent, the lowest since April 2009, data compiled by Bloomberg show. That decline has boosted the municipal yield ratio to about 102 percent as of June 29, the highest since May 2009, Bloomberg data show.

“When you look at the alternatives out there, you understand why high net-worth individuals are looking at municipal bonds, even with the yields where they are,” Dalpiaz said. “It’s a nice total return.”

Top-rated tax-exempts returned 3.2 percent through the first half of the year, with BBB rated bringing in 4.9 percent, according to Merrill Lynch indexes. Taxable Build America Bonds provided a return of 10.1 percent, while AAA rated long-term corporate obligations returned 11.3 percent.

Following are descriptions of pending sales of municipal debt in the U.S.:

U.S. VIRGIN ISLANDS, whose rum shipments to the mainland in 2009 reached 8 million “proof gallons,” a measure for calculating federal excise tax, plans to offer about $396 million of tax-exempt debt through its public finance authority as soon as next week. About $308 million of the issue is senior obligations rated BBB+ by Fitch, third-lowest. The remaining subordinate bonds are rated BBB, second-lowest. Underwriters led by Jefferies & Co. will market the securities to investors. (Added June 30)

MISSISSIPPI DEVELOPMENT BANK, created in 1986 by the state legislature to issue bonds on behalf of local governments and counties, plans to offer about $165 million in tax-exempt municipal bonds as early as next week to refinance existing debt. The bonds, rated AA by S&P and Fitch, third-highest, will be marketed by a group led by Morgan Stanley. (Added July 1)

To contact the reporters on this story: Brendan A. McGrail in New York at bmcgrail@bloomberg.net; Justin Doom in New York at jdoom@bloomberg.net.

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