Post by jeffolie on Feb 12, 2008 22:34:40 GMT -6
Municipal Market Is Beset By Wave of Auction-Bond Failures
By Martin Z. Braun
Feb. 12 (Bloomberg) -- Banks including Goldman Sachs Group Inc., Wall Street's most profitable securities firm, and Citigroup Inc. failed to support auctions of debt sold by U.S. municipal borrowers, causing interest rates on the securities to surge as high as 20 percent.
Rates on $100 million of bonds sold by the Port Authority of New York and New Jersey with yields determined through periodic auctions soared to 20 percent today from 4.3 percent a week ago, after the debt failed to attract enough bidders, according to data compiled by Bloomberg. Presbyterian Healthcare in Albuquerque, operator of seven hospitals throughout New Mexico, had rates on $38.7 million of debt reset at 12 percent.
``This market has been under a tremendous amount of stress,'' said Alex Roever, a JPMorgan Chase & Co. fixed income analyst. ``Dealers want to use their balance sheet in a way that's going to produce maximum revenue for them. It's not clear supporting the auction rate market is going to do that.''
Demand for bonds in the $360 billion auction-rate securities market has declined in recent months on waning investor confidence in the credit strength of bond insurers backing the debt. With fewer buyers bidding for the bonds, dealers who collect fees for managing the bidding have grown reluctant to commit their own capital to prevent failures and risk ending up with too many of the securities on their books.
``We have seen widening spreads, reduced demand for certain auction rate securities and failed auctions, including some auctions in which Citi acted as broker dealer,'' Danielle Romero-Apsilos, a spokeswoman at New York-based Citigroup, said in a statement.
Michael DuVally, a spokesman at New York-based Goldman, declined to comment.
Failure Rates
Auction bonds have interest rates that are determined by bidding that typically occurs every seven, 28 or 35 days. When there aren't enough buyers, as has occurred in recent months, the auction fails and bondholders who wanted to sell are left holding the securities. Rates at failed auctions are set at a level spelled out in the terms of the debt.
In the case of the Port Authority, owner of the World Trade Center site in lower Manhattan and operator of the New York area's three major airports, bond documents show that a failed auction would result in rates of 20 percenet.
Steve Coleman, a Port Authority spokesman, didn't immediately a return a call seeking comment.
Bob Davis, Presbyterian Healthcare's vice president for treasury services, confirmed the failed auction, declining further comment.
New York state's Metropolitan Transportation Authority, operator of New York City's subways and buses, also had a failed auction, spokesman Jeremy Soffin said.
``Although there was a substantial number of failed auctions in today's market, including one of five issues of the MTA, the failed piece does not materially impact MTA's debt service expense both because of the size of the one failed auction and the rate cap,'' Soffin said.
www.bloomberg.com/apps/news?pid=20601015&sid=azrGaTA75kSQ&refer=munibonds
By Martin Z. Braun
Feb. 12 (Bloomberg) -- Banks including Goldman Sachs Group Inc., Wall Street's most profitable securities firm, and Citigroup Inc. failed to support auctions of debt sold by U.S. municipal borrowers, causing interest rates on the securities to surge as high as 20 percent.
Rates on $100 million of bonds sold by the Port Authority of New York and New Jersey with yields determined through periodic auctions soared to 20 percent today from 4.3 percent a week ago, after the debt failed to attract enough bidders, according to data compiled by Bloomberg. Presbyterian Healthcare in Albuquerque, operator of seven hospitals throughout New Mexico, had rates on $38.7 million of debt reset at 12 percent.
``This market has been under a tremendous amount of stress,'' said Alex Roever, a JPMorgan Chase & Co. fixed income analyst. ``Dealers want to use their balance sheet in a way that's going to produce maximum revenue for them. It's not clear supporting the auction rate market is going to do that.''
Demand for bonds in the $360 billion auction-rate securities market has declined in recent months on waning investor confidence in the credit strength of bond insurers backing the debt. With fewer buyers bidding for the bonds, dealers who collect fees for managing the bidding have grown reluctant to commit their own capital to prevent failures and risk ending up with too many of the securities on their books.
``We have seen widening spreads, reduced demand for certain auction rate securities and failed auctions, including some auctions in which Citi acted as broker dealer,'' Danielle Romero-Apsilos, a spokeswoman at New York-based Citigroup, said in a statement.
Michael DuVally, a spokesman at New York-based Goldman, declined to comment.
Failure Rates
Auction bonds have interest rates that are determined by bidding that typically occurs every seven, 28 or 35 days. When there aren't enough buyers, as has occurred in recent months, the auction fails and bondholders who wanted to sell are left holding the securities. Rates at failed auctions are set at a level spelled out in the terms of the debt.
In the case of the Port Authority, owner of the World Trade Center site in lower Manhattan and operator of the New York area's three major airports, bond documents show that a failed auction would result in rates of 20 percenet.
Steve Coleman, a Port Authority spokesman, didn't immediately a return a call seeking comment.
Bob Davis, Presbyterian Healthcare's vice president for treasury services, confirmed the failed auction, declining further comment.
New York state's Metropolitan Transportation Authority, operator of New York City's subways and buses, also had a failed auction, spokesman Jeremy Soffin said.
``Although there was a substantial number of failed auctions in today's market, including one of five issues of the MTA, the failed piece does not materially impact MTA's debt service expense both because of the size of the one failed auction and the rate cap,'' Soffin said.
www.bloomberg.com/apps/news?pid=20601015&sid=azrGaTA75kSQ&refer=munibonds