July 2 (Reuters) – A widely applauded congressional
compromise okaying a $105 billion federal transportation bill
blows away many worries overhanging tax-free bonds used by U.S.
states and mass transit systems for roads and other
infrastructure.
For nearly three years, since the last long-term
transportation bill expired on Sept. 30, 2009, owners and
issuers of bonds known as grant anticipation revenue vehicles,
or GARVEES, fretted that the flows of federal funds backing
GARVEES might stall.
Although Congress passed temporary bills 10 times since 2009
and kept the federal transport grants flowing to state and local
governments, uncertainty clung to the generally high-rated
GARVEES and inhibited issuance and put off tax-free investors,
according to analysts.
The uncertainty prompted Fitch Ratings in early 2011 to
assign a negative ratings outlook to stand-alone GARVEES.
But on Friday, when the Senate and House of Representatives
passed by massive margins the new transport bill ensuring funds
for 27 months, Fitch said the bill should allow states to more
readily green-light infrastructure projects and wou ld spur Fi tch
to eva l uate its rati ngs outl ook for GARVEES.
States with large amounts of outstanding GARVEES include
Georgia, Maryland, Massachusetts and Ohio, according to a report
last week by Janney Capital Markets analyst Tom Kozlik.
Congress in recent years had been obliged to transfer $30
billion from the U.S. Treasury to the fund backing GARVEES
because federal gasoline taxes have fallen off sharply since the
Great Recession that began in 2007.
In the broader $3.7 trillion municipal bond market, trading
was slow on Monday, the start of a short trading week containing
a U.S. holiday on Wednesday.
Prices moved little and finished generally flat, with yields
on some maturities falling by a basis point after five straight
trading sessions last week without a change.
Yields on 30-year munis were flat at 3.16 percent on
Municipal Market Data’s b enchmark triple-A scale. Yields on
top-rated 10-year munis eased 1 basis point to 1.85 percent,
according to MMD, a unit of Thomson Reuters.
(Reporting by Michael Connor in Miami; Editing by Chizu
Nomiyama)
