The municipal market faces a calendar of $4.59 billion of new debt this week, smaller but still sizable, after devouring the $6.5 billion California general obligation sale last week with only a slight uptick in yields, according to data from Thomson Reuters.
Yields on the long end were down one basis point on triple-A bonds and up three basis points for A-rated GOs over the last week, according to Municipal Market Data.
That ability to absorb bonds was key to the sale of the more than $81 billion in municipal debt sold through last week, as the market enters the final days of the first quarter.
Last week, the market welcomed a revised $11.24 billion in new volume, inflated by the behemoth California sale on Thursday priced by Merrill Lynch & Co. that sparked $3.2 billion in orders during the first two days of the retail order period and prompted underwriters to price the deal a day early for institutions due to the demand.
The deal was the fourth-largest municipal bond sale in history. It came to market on the heels of two downgrades just before the pricing, carrying underlying ratings of A2 from Moody's Investors Service, and A from Standard & Poor's and Fitch Ratings. The final 2038 maturity carried a 6% coupon and was repriced last Wednesday to yield 6.10% - 125 basis points higher in yield than the comparable generic, triple-A GO scale published by MMD at the time of the pricing.
Peter Delahunt, national institutional sales manager at Raymond James & Associates Inc., said the success of the California GO sale demonstrates the strong retail demand in the market for healthy-sized deals that are priced attractively.
"There's a price for everything. Municipals are still attractive, but they might have to get a little more attractive" as volume continues to build, Delahunt said. The 30-day visible supply is estimated at $12.25 billion, according to The Bond Buyer's data.
Officials from Michigan and underwriters at Merrill are hoping for a similarly strong retail appetite when they price at least $281.1 million of GO debt for mom-and-pop investors on Wednesday ahead of Thursday's official pricing for institutions - despite a rating revision from Moody's ahead of the pricing last week.
Moody's revised its outlook to negative from stable on the state's GO debt amid fundamental economic weakness. Job losses stemming from the deterioration in the U.S. auto industry caused the state's unemployment rate to reach 12% in February, the highest in the nation. It also suffers from a steep drop in revenues and depletion of budget reserves.
Moody's rates Michigan's GO debt Aa3, while Standard & Poor's rates it AA-minus with a stable outlook. Fitch also rates the debt AA-minus, but with a negative outlook.
The new deal includes three series of bonds pricing this week - $182.5 million of taxable bonds maturing from 2015 to 2020, $65.20 million of tax-exempt bonds maturing from 2021 to 2025, and $33.57 million of taxable debt maturing in 2011. Merrill said the state may or may not issue a tax-exempt tranche of capital appreciation bonds as part of its GO financing, but could not confirm the size, structure, or expected sale date of that portion of the deal on Friday at press time.
Underwriters at Barclays Capital, meanwhile, have also planned a retail order period for today on a $377.1 million sale of educational facility revenue bonds from the Virginia College Building Authority.
Scheduled for official pricing for institutions tomorrow, the deal is structured to mature from 2016 to 2029 and is rated Aa1 by Moody's, and AA-plus by Standard & Poor's and Fitch.
Elsewhere in the higher education sector, the Dormitory Authority of the State of New York is planning to issue $305 million of revenue bonds in a negotiated deal that is being senior-managed and priced by JPMorgan on Wednesday following a retail order period tomorrow. Being sold on behalf of Cornell University in Ithaca, N.Y., the deal is structured with bonds maturing from 2010 to 2039 and is rated Aa1 by Moody's and AA by Standard & Poor's.
In addition, the New Jersey Educational Facilities Authority is planning to issue $253 million of revenue refunding bonds in a negotiated deal being priced on Wednesday by Morgan Stanley.
The bonds, which are rated Baa2 by Moody's and BBB-plus by Standard & Poor's, are being sold on behalf of the University of Medicine and Dentistry of New Jersey. The structure of the deal was not available at press time.
Elsewhere in the market, the utility sector will see the arrival of a $351 million offering of revenue debt from Washington's Energy Northwest, which will be priced by Citi for retail investors today and institutions tomorrow. Rated Aaa by Moody's and AA by Fitch and Standard & Poor's, the deal is structured as Series A, which matures from 2014 to 2018, and Series C, which matures from 2020 to 2024.
One of the only other sizable deals on its way this week is a $300 million sale of revenue bonds from the Louisiana Citizens Property Insurance Corp. being priced for retail today and for institutions tomorrow by Raymond James.
Insured by Assured Guaranty Corp., the deal is rated Aa2 by Moody's and AAA by Standard & Poor's. It is structured as four subseries of bonds, each sized at $75 million.
Subseries C-1 matures from 2012 to 2026, and C-2 includes one bullet maturity in 2026. Subseries C-3 is structured as one bullet maturity in 2025, while C-4 is structured to mature serially from 2009 to 2011.
