The municipal market will see a slight decline in new-issue volume this week as some issues remain postponed due to unsettled market conditions, and as some issuers await the Election Day outcome of an estimated $66 billion of bond referendums before proceeding with their deals.
Combined volume this week is estimated to be $3.53 billion, down noticeably from last week's revised $5.27 billion, according to Thomson Reuters. New volume includes $3.36 billion of negotiated sales versus $4.45 billion last week, and $173 million of competitive sales versus $820 million last week.
Two of the largest deals of the week are expected to take place in the Northeast, led by a $664 million sale of service contract revenue bonds from New York's Empire State Development Corp.
The deal is anticipated for pricing on Wednesday by Merrill Lynch & Co., which expects to conduct a two-day retail order period today and tomorrow. The deal consists of two series of bonds estimated at $332 million each, both structured to mature serially from 2012 to 2028. The bonds are rated AA-minus by Standard & Poor's and A-plus by Fitch Ratings.
The Massachusetts Bay Transportation Authority is planning to bring $350 million to market on Thursday, following a retail order period on Wednesday by book-runner JPMorgan. The bonds, which are rated Aa1 by Moody's Investors Service and AAA by Standard & Poor's, are structured to mature from 2013 to 2028 with term bonds in 2033 and 2038, according to a source at JPMorgan.
The deal was placed on the day-to-day calendar two weeks ago due to a combination of poor market conditions and a proposal on the Massachusetts ballot tomorrow that seeks to eliminate the state's 5.3% income tax.
The authority decided to wait until after the election because fear of the unknown outcome of the ballot measure could decrease investor appetite, according to Jonathan Davis, the MTBA's chief financial officer.
Davis said the authority was analyzing the market conditions on Friday and was scheduled to proceed with the sale on Thursday.
"All indications are that it will not pass," he said of the proposal, which is known as Question 1. He added that in the unlikely event the proposal does pass, the MBTA will decide how to proceed with the bond deal.
Other large deals scheduled this week include $400 million of senior revenue bonds from the Illinois State Toll Highway Authority with negotiated pricing by JPMorgan on Thursday. The structure of the deal was still being discussed at press time on Friday.
Catholic Health Initiatives will make a prominent appearance in the municipal market this week, with a coordinated multi-state offering on behalf of the health care provider's facilities in four different states.
The larger of the deals is a three-pronged sale totaling $300 million with separate tranches from issuers in three states - all being priced by JPMorgan on Wednesday and structured to include serial and term bonds maturing from 2009 to 2034. The health care provider will sell $210 million through the Colorado Health Facilities Authority, $65 million through Montgomery County, Ohio, and $25 million through the Chattanooga, Tenn., Health, Educational, and Housing Authority. The bonds are also all expected to carry ratings of Aa2 from Moody's and AA from Standard & Poor's and Fitch.
In a separate deal, also being senior-managed and priced by JPMorgan on Wednesday, the Washington State Health Care Facilities Authority will issue $172.4 million on behalf of Catholic Health Initiatives. That deal is structured to mature in 2016 and 2017, and offer term bonds in 2022, 2028, and 2036.
In other activity, two deals could be priced attractively enough relative to the generic market to offer yield-hungry investors a unique buying opportunity.
The Harris County, Tex., Health Facilities Corp. is planning to sell $228.3 million of revenue bonds on behalf of Memorial Hermann Healthcare, which operates 11 hospitals in the greater Houston area as well as many other health care services.
The deal, which is rated A2 by Moody's and A by Standard & Poor's, is tentatively scheduled for pricing by RBC Capital Markets on Thursday with a term bond structure that includes maturities in 2028, 2031, and 2035. Market conditions could delay the deal, however, according to an underwriter at RBC.
He said there is some concern about the market absorbing the deal given that the uninsured, A-rated health care sector has been out of favor among investors lately due to the credit concerns in the current market. Additionally, he noted that the county may not be prepared to issue the bonds at the levels above 7% that it has taken other health care deals of similar - or higher credit quality - around the country to get done in the past week.
For instance, a $313.2 million sale of revenue and refunding bonds from the Michigan State Hospital Finance Authority on behalf of double-A rated Trinity Health Group was priced with a 6.65% yield and a 6 1/2% coupon in 2033 last Tuesday at the same time that generic, triple-A general obligation bonds due in 2033 ended at a 5.22% yield, according to Municipal Market Data. The GO market had backed up to a 5.26% yield in 2033 by the end of trading on Thursday, according to MMD.
Meanwhile, in Arizona, the Mohave County Industrial Development Authority is planning $206 million of correctional facility contract revenue bonds on behalf of the Mohave Prison LCC expansion.
The deal will also likely have some appeal among yield-starved investors when it is priced by Morgan Keegan & Co. on Wednesday due to its BBB-plus rating from Standard & Poor's.
