Muni Bonds Undone by Lehman Collapse Test Latest Market Turmoil
- Alabama districts to sell $1.7 billion of debt for gas trades
- Backed by banks, the bonds are tied to financial sector's fate
As investors demand higher premiums to buy debt sold by financial firms, two Alabama utility districts are selling about $1.7 billion of bonds backed by decades-long natural gas trades with Goldman Sachs Group Inc. and Royal Bank of Canada.
The sales by the Lower Alabama Gas District and the Black Belt Energy Gas District will test whether the fears of a worldwide economic slowdown are seeping into a niche of the municipal market, where utilities borrow to buy fuel from banks that’s delivered years later. With investors demanding the most extra yield in 31 months to hold bank bonds, Wells Capital Management and Barclays Plc say concern about financial turmoil could lead to losses on the gas debt, which carries the same ratings as the financial firms involved.