Nearly $600 million of taxable Build America Bonds priced yesterday amid firmness in the market led by a large Illinois State Toll Highway Authority transaction.
A $500 million BAB deal for the tollway contains two maturities. A $100 million portion matures in 2024, yielding 5.29% priced at par, or 3.44% including the federal subsidy. The bonds were priced at 210 basis points over the comparable Treasury yield, and are callable at par in 2019. The remaining larger $400 million portion of the debt matures in 2034, yielding 6.18% priced at par, or 4.02% including the federal subsidy. The bonds were priced at 200 basis points over the comparable Treasury yield, and are not callable. They contain a make-whole call at the Treasury rate plus 30 basis points.
The deal was priced by co-senior managers Morgan Stanley and Goldman, Sachs & Co. and is secured by a senior lien on the net revenue of the toll road system. Proceeds will be used to fund the authority's five-year, $6.3 billion capital program, which is nearly completed. The senior-lien bonds are rated Aa3 by Moody's Investors Service and AA-minus by Standard & Poor's and Fitch Ratings.
"We're pleased with the results of the transaction today. The net cost of borrowing to the Illinois Tollway at less the 4% compares favorably with traditional tax exempt bonds," Michael Colsch, chief of finance for the tollway, said in a press release.
In other BAB activity, Raymond James & Associates Inc. priced $79 million of unlimited-tax general obligation BABs for Michigan's Van Buren Public Schools. The bonds mature from 2010 through 2025, with term bonds in 2029 and 2039. Yields range from 1.64% in 2010 to 6.58% in 2039, all priced at par, or from 1.07% in 2010 to 4.28% in 2039, including the federal subsidy. The 2010 bonds were priced 75 basis points over the comparable Treasury yield, while the 2039 bonds were priced 240 basis points over the comparable Treasury yield. The 2025 bonds had the widest spread to comparable Treasuries, at 285 basis points. The bonds are callable at par in 2019. Qualified for the Michigan State School Bond Guaranty program, the bonds are rated Aa3 by Moody's, and AA-minus by Standard & Poor's.
Meanwhile, in the secondary market traders said tax-exempt yields were flat to slightly lower.
"There's some activity out there, a bit more than yesterday, but it's still somewhat quiet," a trader in New York said. "It feels a bit firmer in spots, but I'd still call it mostly unchanged."
Participants added that gains were scattered throughout the curve.
"It's more the intermediate paper than anything else where the scale might actually be bumped a basis point or two," a trader in Los Angeles said. "But for the most part, it's quiet, and pretty unchanged."
The Treasury market was somewhat mixed yesterday. The yield on the benchmark 10-year note, which opened at 3.16%, was quoted near the end of the session at 3.17%. The yield on the two-year note was quoted near the end of the session at 0.90% after opening at 0.89%. The yield on the 30-year bond, which opened at 4.19%, was quoted near the end of the session at 4.16%.
As of Monday's close, the triple-A muni scale in 10 years was at 91.2% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 106.7% of comparable Treasuries. Also, as of the close Monday, 30-year tax-exempt triple-A general obligation bonds were at 119.3% of the comparable London Interbank Offered Rate.
Trades reported by the Municipal Securities Rulemaking Board yesterday showed some gains. Bonds from an interdealer trade of California 6s of 2035 yielded 5.39%, down two basis points from where they traded Monday. A dealer sold to a customer New Jersey Turnpike Authority BABs, 7.41s of 2040 at 6.68%, even with where they were sold Monday. A dealer sold to a customer New York's Metropolitan Transportation Authority 5s of 2030 at 5.00%, even with where they traded Monday. A dealer bought from a customer Tennessee Housing Development Agency 5.1s of 2038 at 5.49%, down two basis points from where they were sold Monday.
Elsewhere in the new-issue market, Barclays Capital priced $122.1 million of GO bonds for Braintree, Mass. The bonds mature from 2010 through 2029, with yields ranging from 1.25% with a 5% coupon in 2011 to 4.52% with a 4.5% coupon in 2029. Bonds maturing in 2010 will be decided via sealed bid. The bonds, which are callable at par in 2019, are rated Aa3 by Moody's and AA-minus by Standard & Poor's.
Wachovia Bank NA priced $110 million of educational facilities revenue bonds for the North Carolina Capital Facilities Finance Agency. The bonds mature from 2025 through 2031, with term bonds in 2038 and 2039. Yields range from 4.11% with a 4% coupon in 2025 to 4.68% with a 4.5% coupon in 2039. The bonds, which are callable at par in 2019, are rated Aa3 by Moody's and AA by Standard & Poor's.
Barclays also priced $95.6 million of revenue bonds for the Massachusetts Development Finance Agency in two series. Bonds from the $70.8 million series Q-1 mature from 2010 through 2023 and from 2025 through 2029. Yields range from 0.78% with a 3% coupon in 2010 to 4.45% with a 5% coupon in 2029. Bonds from the $24.8 million series Q-2 mature from 2010 through 2023 and from 2025 through 2029. Yields range from 0.78% with a 3% coupon in 2010 to 4.45% with a 5% coupon in 2029. All bonds are callable at par in 2019, and rated Aa3 by Moody's and AA-minus by Standard & Poor's.
The economic calendar was light yesterday.
