U.S. municipal bond sales to suffer mid-August slump

August 12, 2016 3:41 PM EDT

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By Stephanie Kelly

NEW YORK (Reuters) - U.S. municipal bond and note sales next week will total about $6 billion, the lowest total issuance since the July 4 holiday week and a sign that the summer doldrums have set in.

While the first two weeks of August saw larger than usual debt issuance, the market is slowing down, said Alan Schankel, managing director and municipal strategist at Janney Montgomery Scott.

"I just think things slow down as you come towards Labor Day often," he said.

The largest negotiated offering next week comes from the Brooklyn Arena Local Development Corporation, which plans to sell nearly $482 million of PILOT revenue refunding bonds, according to the preliminary official statement.

PILOTs, or bonds backed by payments in lieu of taxes, have been used recently to develop areas in New York, according to a Fordham Urban Law Journal article.

PILOT financing is similar to tax increment financing, which "allows local governments to finance development projects with the increased tax revenue generated by the redeveloped property," it said.

Next week's offer consists of about $462 million of series 2016A PILOT revenue refunding bonds and $20 million in series 2016B taxable PILOT revenue refunding bonds.

The series 2016 PILOT bonds will be used to refund a portion of outstanding 2009 PILOT bonds, which were in part used to help pay for the development and construction of the Barclays Center in Brooklyn, the statement said.

The center is home to the Brooklyn Nets and the New York Islanders.

Rating actions from Moody's and S&P Global Ratings on New Haven, Connecticut, general obligation bonds moved in opposite directions as the city plans to market about $117 million in GO bonds next week.

While Moody's downgraded its rating to Baa1 on the city's $530 million outstanding GO bonds, S&P raised the outlook on its A-minus rating to positive from stable.

S&P cited the city's "improved financial performance" as a reason for its positive rating action, according to a July 28 report. It also noted the city's operating surpluses in fiscal 2015.

Moody's, in an Aug. 1 report, cited New Haven's "reliance on debt restructurings" as one reason for the downgrade, in addition to the city's "sizeable liabilities for pension and OPEB benefits as well as the highly leveraged debt position."

Ratings that move in opposite directions are uncommon, noted Janney's Schankel.

(Reporting by Stephanie Kelly; Editing by Bernard Orr)

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