Municipals barely registered a pulse yesterday, but some traders said buyers showed resistance at the current price levels.
Traders said the market remained steady but action was light as players took a breather after last week's big rally.
High-grade yields, meanwhile, fell as much as four basis points on the day, traders said, as successful new issues led the market.
The Treasury market was lower for the first time since last Thursday and municipals were mixed on the day.
In the debt futures market, the September municipal contract settled down 6/32 to 103.16.
The credit markets gave a muted response to the news that housing starts fell 2.7% in July, while building permits, an indicator of future building activity, gained 3.0%.
Prices are likely to stay within narrow ranges, traders said, until some new deals hit the market or players decide to take some profits.
"We're due for a breather," a trader said. "We're going to have to wait and see what kind of buyer interest in generated by some new deals."
Other traders noted that retail investors have yet to sell bonds and take profits at prices that have risen dramatically over the last week
"We've seen some lists out for sale, but retail has not made a major move to sell their bonds at the highs," a trader said. "That's unique and is telling you the market has a solid foundation."
Skeptics, however, noted a climb in secondary supply over the past two days and warned that some selling may be imminent.
The Blue List spiked up $138.2 million, to $1.39 billion yesterday, the first significant increase in more than a week.
"We're comfortable right now, but we're still overbought," a trader said. "You can look for retail to take some profits and watch for arb selling."
"The bid weakened a bit in the afternoon," another trader said. "In certain areas paper is beginning to back up. It's a feeling more than anything else, but some customers are resisting these levels."
In light new issue action, investors appeared eager enough to buy bonds so underwriters were able to raise prices on new issues.
Dillon, Read & Co. priced $93 million Delaware Transportation Authority transportation system senior revenue bonds.
At the repricing, the firm boosted the amount from $93 million and lowered yields about five basis points from 1995 through 2007.
The final scale include serial bonds priced to yield from 3.20% in 1995 to 5.40% in 2012. A 2014 term was priced as 5s to yield 5.40%.
The managers said they expected the bond to be rated A1 by Moody's Investors Service and AA-minus by Standard & Poor's Corp.
Elsewhere in the negotiated sector, Goldman, Sachs & Co. priced and repriced $83 million Massachusetts Health and Educational Facilities Authority revenue bonds for Massachusetts General Hospital.
At the repricing, yields were lowered by 10 basis points on serial bonds in 1995, 1996, and 1999. Yields were lowered by five basis points in 1998 and 2000 and by three basis points in 2023.
The final offering included serials priced to yield from 3.30% in 1995 to 5.25% in 2007. A 2011 terms was priced as 5 3/8s to yield 5.40%; a 2013 term was priced as 5 3/8s to yield 5.45%; and a 2023 terms was priced as 5 1/4s to yield 5.507%.
The bonds are insured by the AMBAC Indemnity Corp. and rated triple-A by Moody's and Standard & Poor's.
Secondary Markets
Traders reported light dealings and said a couple of bid-wanted lists were circulating in the seconary.
In secondary dollar bond trading, prices were quoted unchanged to up 1/8 to 1/4 point in spots, traders said.
In late action, Charlotte COP AMT AMBAC 5 1/4s of 2020 were quoted at 5.50% bid, 5.45% offered; New York State Dormitory Authority 5 1/4 s of 2019 were quoted at 5.67% bid, 5.65% offered; and Philadelphia Water MBIA 5 1/4s of 2019 were quoted at 5.54% bid, 5.51% offered
PICA MBIA 5.60s of 2015 were quoted at 99 5/8-par to yield 5.62% and Fulton-DeKalb Hospital MBIA 5 1/2s of 2020 were quoted at 98 5/8-99 to yield 5.59%.
In the short-term note market, yields were unchanged to three basis points lower.
Moody's Rates Texas COPs
Moody's Investors Service yesterday assigned a MIG-1 rating to the Texas Association School Boards Finance Corp.'s $58 million tax anticipation certificates of participation.
The note program is designed to meet fiscal 1994 cash flow requirements for 38 school districts located throughout the state.
Moody's said in a release that "an examination of the historical information as well as projected cash flows indicated generally satisfactory financial margins for participating districts.
"Further, the majority of districts continue to record good current property tax collections, Moody's said." bearing accounts, turned a blind eye to theft of toll moneys by employees, and "improperly" diverted skyway revenues to fund the city's legal costs in the skyway litigation, according to court documents.
The bondholders charge that the city's action has led to a $14.8 million loss in skyway revenues, which is the amount they seek in damages. If awarded to bondholders, the money would be deposited in the sinking fund for the bonds, triggering the first redemption of the debt since 1991.
Chicago, meanwhile, has asked the U.S. District Court for the Northern District of Illinois for a summary judgment in its favor.
The bondholders' lawsuit against Chicago was filed in march 1992, but was put on hold earlier this year when U.S. District Court Judge James Moran directed city officials and bondholders to discuss a possible settlement of the 1963 default.
The discussions broke down in April because the city did not offer anything that the bondholders would view as acceptable, according to Ken Purcell, an attorney at Winston & Strawn, which is representing the bondholders.
One bondholder said it was his understanding that the city offered to redeem only $2.5 million of bonds in 1995 and extend the maturity of the rest of the bonds 36 years. The $90.2 million of outstanding bonds are scheduled to mature on Jan. 1, 1995.
The city "was being totally unrealistic," the bondholder said.
Andrea Brands, spokeswoman for Chicago's Department of Law, declined to comment on the city's settlement offer.
With the offer rejected, Chicago asked the court in June for a summary judgment in the case, and bondholders late last month asked the court to deny the motion. The city is preparing a reply to the bondholders' request, with a filing deadline of Friday, Brands said.
Once the reply is filed, Moran will then decide whether to grant the city's motion or proceed with a bench trial on the case, Purcell said.
Insufficient toll revenues led to a default in 1963 on $101 million of revenue bonds that Chicago sold in the 1950s to build the 7.8-mile toll road connecting the southeast side of Chicago with the northwest corner of Indiana.
Bondholders have alleged since their first class-action filing in 1972 that the city breached its fiduciary duty by allowing the default. The district court dismissed part of the bondholders' lawsuit in 1989, but left the door open to damage claims if bondholders could prove the city diverted skyway revenues to other city uses. The 1992 complaint was the result.
The latest complaint is the first opportunity that bondholders have had to present evidence to the court on their claims that the city breached its fiduciary duty, Purcell said.
The complaint states that until 1987 the city had deposited skyway toll revenues in accounts at American National Bank in Chicago that did not bear interest. In return, the city received benefits unrelated to the skyway, the complaint says.
Bondholders' court filings point to depositions from both former and current city officials that allege the deposits existed to compensate the bank for services it provided the city, or to offset minimum balance requirements for other city accounts at the bank.
Bondholders estimated that $544,000 of interest had been lost.
The lawsuit also claims that city officials knew that employees were stealing toll revenues "but responded to that problem with a pattern of benign neglect or indifference, even as the amounts involved increased dramatically."
Toll revenues lost to theft are estimated at $13 million, according to the bondholders' complaint.
Bondholders are also seeking $1.3 million in legal fees that both they and the city incurred. They claim Chicago has diverted hundreds of thousands of dollars of skyway revenues to "liberally reimburse itself for its legal costs."
The bondholders say the bond ordinance does not allow Chicago to use skyway revenues for legal expenses brought on by the city's "own misconduct," but does allow for skyway revenue to pay investors' legal expenses in the event of a default.
Purcell said bondholders are asking the court to award them $14.8 million in damages and place the money in the bond sinking fund. Depositing money into the currently empty fund would trigger a bond redemption, Purcell said, because the bond ordinance holds that any amount in the fund over $50,000 must go to retire bonds.
The last bond redemption occurred in 1991. After years of bondholder litigation, the city redeemed $10.8 million of the $101 million of defaulted revenue bonds through a tender offer, leaving $90.2 million of bonds outstanding.
Brands, in the city's Law Department, said the city has not improperly used any skyway funds, and did not have to replace any stolen money.
"We don't deny there were thefts, but we don't believe the amount taken was as high as alleged, and we don't believe if employees were stealing that we'd have a liability or responsibility to make up that money," she said.
She said the city will address the charges in its filing on Friday.
Brands said Chicago's position in the latest litigation is that bondholders will have to prove that skyway revenues were diverted to other city uses.
"We just don't believe they are going to be able to do that," she said.
In its court filing, the city contended that no skyway revenues "were ever diverted to non-skyway uses."
"No money that was allegedly stolen by skyway employees was diverted to the city for other city uses or into the city's general fund," the city said. "Moreover, money which the city allegedly failed to collect as interest cannot be ~skyway revenues.'
"Finally, the city's legal expenses are an authorized use of skyway revenues under the bond ordinances, and plaintiffs themselves have consistently contended that their own attorney's fees are also a proper use of skyway revenues," the city filing says.
Neither Brands nor Purcell would predict when a court ruling would be forthcoming.
In the meantime, the city will raise skyway tolls on Monday to $2 per trip from $1.75 to comply with an order by Judge Moran last month. Bondholders, in a petition filed last September, had successfully argued for the toll increase so there would be more money to pay off the bonds.
Another bondholder petition is pending before the court. This one calls for the hiring of an independent inspector at Chicago's expense to examine the structural needs of the skyway. The city has refused to deposit skyway revenues in the bond sinking fund, contending that all the revenues are needed for the $65 million of repairs that it says the tollroad needs.
