Build America Bonds will make a prominent appearance in this week's primary market as three of the largest deals will offer a sizable amount of the taxable securities amid an estimated $6.33 billion in total competitive and negotiated volume, according to Ipreo LLC and The Bond Buyer.
A two-pronged toll road revenue sale from the Metropolitan Washington Airports Authority totaling approximately $853 million will headline new-issue activity tomorrow to finance projects at Dulles International Airport, including the Dulles Metrorail and other capital improvements.
The larger portion of the deal will be priced by Citi and consists of $494 million of tax-exempt securities that are subdivided into three smaller series: $176 million of current interest senior-lien bonds maturing in 2039 and 2044; $123 million of second-senior lien capital appreciation bonds maturing serially from 2016 to 2040; and $195 million of second senior-lien convertible CABs maturing in 2041.
The other portion of the deal consists of $359.5 million of senior-lien direct-pay BABs being priced on Wednesday by Morgan Stanley. The structure of the BAB portion was still being hammered out at press time, according to an underwriter at Morgan on Friday.
The senior-lien toll road bonds are rated A2 by Moody's Investors Service and A by Standard & Poor's, while the second senior-lien bonds are rated Baa1 by Moody's and BBB-plus by Standard & Poor's.
Last Friday, triple-B rated revenue bonds due in 2038 were priced at 6.70% by Municipal Market Data on its tax-exempt triple-B revenue sector scale.
The North Texas Tollway Authority, meanwhile, will makes its way to market this week with a two-pronged sale also featuring BABs. Tomorrow, Goldman, Sachs & Co. will price $810.3 million of Series 2009 first-tier BABs maturing in 2049, while Morgan Stanley will price $424.6 million of first-tier tax-exempt current interest bonds today, though - however, the structure for that portion of the deal was not available by press time.
The first-tier Texas tollway bonds are expected to be rated A2 by Moody's and A-minus by Standard & Poor's.
While both deals should do well overall since they are recognizable names that typically get strong demand, key characteristics of each issue could limit some investors' participation more than usual.
The structure of the new Dulles deal is interesting because of its concentration of zero-coupon bonds and convertible paper, said Tom Spalding, a senior investment officer at Nuveen Advisory Corp. in Chicago, who manages $8 billion in national mutual fund assets.
"People are a little edgier on buying those lower-quality bonds," he said, noting that the talk of yields potentially in the 8% range on the CAB structure last week might help investors overcome those fears.
"If you are going to buy a Baa credit, you are going to want to see that higher yield," he added.
On the NTTA offering, since the authority is such a frequent issuer, Spalding said some buyers might be full on the name and "people might be getting a little tired" of the credit, adding: "It all depends on price."
With tax-exempt supply down as a result of the summer doldrums and the abundance of BAB paper in the market recently, investors flush with cash should be eager to put that money to work on this week's deals, Spalding said. "The deals should be very well-received if the structure is right and they have generous yields," he said.
"Anecdotally, retail is buying out to 15 years, and there's definitely money coming into our market and the flows continue to be fairly healthy," Spalding said.
Overall, he said both the Dulles and North Texas toll way deals will finance projects that are already in place and have a history of operations - strong selling points for investors considering the bonds.
Elsewhere in Texas, one of the other large deals featuring BABs this week will be a $280.5 million sale of certificates of obligation being sold by the Bexar County, Tex., Hospital District in a negotiated deal slated for pricing tomorrow by Siebert, Brandford Shank & Co.
Approximately $208.9 million of the Series 2009B bonds are designated as direct-pay BABs maturing from 2024 to 2039, while the tax-exempt Series 2009 A bonds totaling $71.6 million and will mature from 2010 to 2023.
In other activity, the state of Washington will tomorrow issue $298.7 million of lease revenue bonds on behalf of various district improvements and projects. The deal, which is being senior-managed by Barclays Capital, will consist of serial bonds maturing from 2012 to 2029, with term bonds maturing in 2034 and 2039, and is rated AA by Standard & Poor's.
In the Southeast, the Metropolitan Atlanta Rapid Transit Authority is gearing up to issue $225 million of Series 2009 sales tax revenue bonds in a negotiated deal being priced by Merrill Lynch & Co. today. The structure was not available at press time. The deal is expected to be rated Aa3 by Moody's, and AA-plus by Standard & Poor's, and Fitch Ratings.
Last week, a revised $4.44 billion entered the market, according to Thomson Reuters, led by a $563.7 million sale from the Indianapolis Local Public Improvement Bond Bank. The deal's final, uninsured maturity in 2038 was priced with a 5.97% yield - 130 basis points higher than the generic triple-A GO scale in 2038 published by MMD at the time of the pricing.
