New York City led the way in the municipal market yesterday with more than $2 billion of taxable and tax-exempt debt over two issues, which included $800 million of Build America Bonds, amid a firmer secondary market.
Morgan Stanley priced the $970 million of taxable bonds for New York City in two series. The $800 million of BABs mature from 2022 through 2024, with term bonds in 2031 and 2034. The bonds are priced at par to yield from 4.59% in 2022 to 5.68% in 2034, or from 2.98% in 2022 to 3.69% in 2034 after the 35% federal subsidy. The bonds were priced to yield between 130 and 165 basis points over the comparable Treasury yield.
The deal also contains a $170 million taxable series, which matures from 2011 through 2017. The bonds are priced at par to yield from 1.47% in 2011 to 4.05% in 2017. The bonds were priced to yield between 50 and 113 basis points over the comparable Treasury yield. The credit is rated Aa3 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-minus by Fitch Ratings.
The city also sold $1.1 billion of fixed-rate tax-exempt refunding bonds, priced by Merrill, Lynch & Co.. The yields ranged from 0.74% in 2010 to 3.92% in 2027. There were $507 million of orders during the three day retail order period of which $470 million of orders were filled. The present-value savings were approximately 10% of the amount of refunded bonds.
Carol Kostik, the city’s deputy comptroller for public finance, said the deal “got completed at what we think are some of the best spreads we’ve seen in the BABs market.”
“We think this is saving us up to 88 basis points compared to tax-exempt in 2031 — compared to tax-exempt it will range from 51 bps savings in 2023 to 88 basis points in 2031, by using the BABs compared to the tax-exempt financing,” she said. “There were small balances in some of the early serials, otherwise it was completely subscribed.”
Alan Anders, the city’s deputy director for finance, said officials didn’t want the deal to be “too oversubscribed.”
“That was some of the problem with the earlier deals five months ago and that’s why the aftermarket wasn’t as great as those issuers would have liked,” Anders said. “We’re very pleased that we got the deal done and we didn’t get it so oversubscribed to be concerned about the aftermarket.”
“We wanted to make sure the benefits were captured by us in the initial pricing,” Kostik added. “The bulk of the demand was captured by us in the initial pricing rather than in the secondary market.”
Traders said tax-exempt yields in the secondary market were lower by about two or three basis points overall.
“It’s pretty much the same story we’ve been telling for a couple weeks now,” a trader in New York said. “We’re doing a bit better, mostly out long. All in all, we’re probably better two, maybe three basis points. Activity is somewhat quiet, but business is getting done. It’s really been pretty much the same thing for a while now.”
“We’re better maybe two, three basis points, mostly out long” a trader in Los Angeles said. “There’s some decent demand out there, too, as much as we’ve seen this week anyway.”
The Treasury market was mixed yesterday. The yield on the benchmark 10-year note, which opened at 3.29%, was quoted near the end of the session at 3.31%. The yield on the two-year note was quoted near the end of the session at 0.96% after opening at 0.99%, and the yield on the 30-year bond, which opened at 4.02%, was quoted near the end of the session at 4.05%.
Also yesterday, the Municipal Market Data triple-A scale yielded 2.57% in 10 years and 3.47% in 20 years, matching and extending their record lows, respectively, following yields of 2.57% and 3.50% Tuesday, respectively.
As of Tuesday’s close, the triple-A muni scale in 10 years was at 77.9% of comparable Treasuries, according to MMD, and 30-year munis were 97.0% of comparable Treasuries. At the same time, 30-year tax-exempt triple-A rated general obligation bonds were at 101.0% of the comparable London Interbank Offered Rate.
Elsewhere in the new-issue market yesterday, Morgan Stanley priced $167 million of revenue bonds for Florida’s Orange County Health Facilities Authority. The bonds mature from 2013 through 2023, with term bonds in 2029 and 2039. Yields range from 2.11% with a 4% coupon in 2013 to 4.42% with a 5% coupon in 2039. The bonds, which are callable at par in 2019, are rated AA-plus by both Standard & Poor’s and Fitch.
