A nearly $2 billion taxable offering of revenue bonds for the Chicago Transit Authority may be priced in the new-issue market this week, leading an otherwise modest slate of deals as July comes to a close.
Aside from that offering, the next largest deal is a $464 million sale of Puerto Rico Housing Finance Authority debt, priced in two series of $374 million and $90 million. Including the $2 billion taxable deal, $7.3 billion of bonds are slated to be priced this week.
"The easier calendar helps a bit," said Matt Fabian, managing director at Municipal Market Advisors. But he added that the market is still very sensitive to "events and developments with the bond insurers" after Moody's Investors Service last week put its Aaa ratings of bond insurers Financial Security Assurance Inc. and Assured Guaranty Corp. on review for possible downgrade.
"Another negative development could really disrupt things," he said. "And you may have people wanting to get out of insured positions prior to the end of the month, before those positions are sort of immortalized in their accounting. So you could have more pressure related to that."
Fabian also said the week "sort of straddles the end of the month, so you have a lot of potential volatility."
"It seems like the market so far has been able to hold itself together and show some discipline, and the upside is that will continue - that the market will continue to be able to hold itself together," he said. "But there's a lot of downside pressure. The downside risks still far outweigh the upside in the market."
"And we're heading into August, where retail is generally less of a player, and the market right now is totally relying on retail," Fabian added. "Plus, with the insurance problems, everything points to worsening liquidity, so you have the risk of jerky movements one way or the other. When it's a thin trading environment, you could have the market rally or sell off on just a few trades, without broader market sentiment really being affected all that much. It's a very unpredictable week."
In what would be the week's largest transaction, Morgan Stanley may price close to $2 billion of taxable sales and transfer tax receipt revenue bonds for the Chicago Transit Authority.
The pension-related bonds will be sold in two tranches - a nearly $640 million Series B to fund a permanent trust that would be established to cover other post-employment benefits, or OPEBs, for retirees' health care, and a $1.3 billion Series A that would bring the funded ratio of the CTA's pension fund up to about 80%.
The financial advisers are Mesirow Financial Inc., Peralta + Garcia Solutions, Columbia Capital Management LLC, and Scott Balice Strategies LLC. Bond counsel is Katten Muchin Rosenman LLP, and co-bond counsel is Burke Burns & Pinelli Ltd. and Gonzalez, Saggio Harlan LLC.
The bonds are rated Aa3 by Moody's and AA-plus by Standard & Poor's.
In other activity, JPMorgan tomorrow will price $464 million of bonds for the Puerto Rico Housing Finance Authority in two series. The larger series is comprised of $374 million of capital fund modernization program subordinated bonds, and the smaller series is $90 million of revenue bonds. The bonds, which are all subject to the alternative minimum tax, are rated AA-minus by Standard & Poor's and AA-plus by Fitch Ratings.
In the week's largest scheduled competitive transaction, King County, Wash., today will competitively sell $350 million of sewer revenue bonds that will mature from 2017 through 2048. The bonds, which are callable at par in 2018, are rated Aa3 by Moody's and AA-plus by Standard & Poor's.
Morgan Stanley Thursday will price $350 million of student loan revenue bonds for the New Jersey Higher Education Student Assistance Authority.
Citi tomorrow will price $350 million of taxable pension obligation bonds for San Diego. The bonds mature in 2018 and 2028, and are rated Aa3 by Moody's and AA by Standard & Poor's.
Citi will also price $250 million of bonds for California's Imperial Irrigation District Wednesday. The bonds are slated to mature from 2008 through 2039. The credit is rated AA-minus by Fitch.
Also next week, Citi will price $237 million of bonds for the New Jersey Health Care Facilities Financing Authority to benefit St. Joseph's Health Care. The bonds are slated to mature in 2013, 2018, 2028, and 2038.
Finally, Morgan Stanley tomorrow will price $221 million of health care facilities revenue refunding bonds for St. Louis Park, Minn.
