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Tampa Water Sells $129 Million as Issues Languish: Muni Credit

Tampa, Florida’s third-most populous city, sold $121 million of tax-exempt water and sewer bonds to refund outstanding debt as municipal issuance drops amid budget cuts by borrowers.

The transaction locks in lower interest rates on 2001A and 2001B fixed-rate bonds, rolls over short-term debt into long-term bonds and provides $14 million for new capital projects, said Sonya Little, chief financial officer for the city. Water and sewer bills secure the AA+ rated sale.

Pricing of $6.6 million of debt maturing in 10 years yesterday produced a 2.71 percent yield, five basis points below a 10-year index of AA rated utility debt. The largest portion, $18.8 million maturing in 2031, yielded 4.18 percent, or 17 basis points below a 20-year index of AA rated utility bonds.

The offering is the third-largest in a week with about $1.8 billion of municipal debt slated for sale, the lowest in the week before Labor Day in at least eight years, according to data compiled by Bloomberg. Tax-exempt borrowers are less likely to plan new construction until the economy improves, said Tom Kozlik, director of municipal credit analysis for Janney Montgomery Scott, a Philadelphia brokerage firm.

“They’re just waiting to see what the more macro-level results are from the economy before they start making these substantial changes to their budgets,” Kozlik said. “Most budgets have been cut over the last year or two, and so the last thing that a lot of leaders want to do, right now, is add to the burden.”

Canceled Projects

To help balance budgets and make up for shrinking revenue, 69 percent of U.S. cities delayed or canceled infrastructure spending in 2010, according to the National League of Cities’ annual survey of local finance officers released in October.

Cities also lowered spending with personnel cuts, service reductions, changes to health-care benefits and public-safety curbs, the report showed. Eighty percent of finance officers forecast that their cities will be less able to meet needs in 2011 than in 2010, the survey said.

States and municipalities have borrowed $144.6 billion of long-term debt so far this year. That’s $107.8 billion less than during the same period in 2010, according to data compiled by Bloomberg, when sales were boosted by the federally subsidized Build America Bonds program.

Municipal sales for 2011 will be below the yearly average since 1990 of $287 billion, with low issuance continuing in 2012, Kozlik said.

“We’ll be under that average this year and we’ll probably be under that level even next year too,” he said.

Average Yield

A AA+ rated Tampa water and sewer revenue bond sold in 2006 and maturing October 2016 traded Aug. 3, the most recent transaction, with an average yield of 2.06 percent, or 52 basis points above a five-year index of AA rated utility bonds, according to Bloomberg data.

Yields on top-rated 10-year tax-exempt debt rose to 2.24 percent today from a 2011 low of 2.17 percent on Aug. 23. The year-to-date average is 2.88 percent.

Yields on top-rated 30-year tax-exempt bonds hovered at 3.86 percent, after a year-low of 3.82 percent on Aug. 23. The 2011 average is 4.53 percent.

Ten-year tax-exempt yields amounted to 103 percent of equivalent taxable Treasury yields yesterday after falling as low as 95.7 percent last week. The ratio has been more than 100 percent for most of August as investors bought Treasuries, driving down yields, and sold equities after Standard & Poor’s downgraded the U.S. to AA+ and reports indicated a slower economic recovery.

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