The bulk of the week’s new issuance hit the primary market yesterday, led by a $900 million Pennsylvania competitive sale that included more than $600 million of taxable Build America Bonds, against the backdrop of a slightly firmer secondary market.
In the new-issue market, Pennsylvania competitively sold $900 million of debt to Barclays Capital with a structure that includes $604.1 million of taxable BABs maturing from 2020 through 2030, and $295.9 million of tax-exempt GO refunding bonds maturing from 2011 to 2019.
The BABs mature in 2020, 2021, 2026, and 2030, yielding 4.43% with a 4.45% coupon, 4.53% with a 4.55% coupon, 4.63% with a 4.65% coupon, 5.44% with a 5.45% coupon, respectively.
After the 35% federal subsidy, yields range from 2.87% in 2020 to 3.53% in 2030.
The bonds were priced to yield between 70 and 90 basis points over the comparable Treasury yields. They are subject to a make-whole call at the Treasury rate plus 25 basis points.
Barclays won this series with a true interest cost of 5.06%. Other bids were 5.15% from Citi, 5.17% from JPMorgan, 5.18% from Wells Fargo Securities, 5.23% from Bank of America Merrill Lynch, 5.27% from Goldman, Sachs & Co., and 5.30% from Morgan Stanley.
Rick Dreher, director of Pennsylvania’s bureau of revenue, cash flow, and debt, said the structure of the BABs was changed from the originally planned serials from 2020 through 2030, as the state provided the option of converting the serials into terms.
He also noted the state received more bids than usual.
“We had seven bids received. We’ve been averaging five to six bids, so that was encouraging,” Dreher said. “When you factor in the 35% interest subsidy for the BABs it works out to about 3.13%, which is the lowest rate the commonwealth the has received on any non-refunding general obligation bond issue. So it’s a tremendous sale.”
Barclays also won the $295.9 million tax-exempt series with a TIC of 2.33%.
The bonds mature from 2011 through 2019, with yields ranging from 0.72% with a 5% coupon in 2012 to 3.02% with a 5% coupon in 2019.
Bonds maturing in 2011 were not formally re-offered. The bonds are not callable.
The proceeds will be used to fund various capital facilities projects and environmental initiatives. The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and by Fitch Ratings.
Siebert Brandford Shank & Co. priced $794 million of taxable and tax-exempt GO bonds for Chicago in four series.
Bonds from the $403 million Series A mature from 2018 through 2030, with yields ranging from 3.35% with a 4% coupon in 2018 to 4.41% with a 5% coupon in 2030.
The bonds are callable at par in 2020. Bonds maturing from 2025 through 2030 are insured by Assured Guaranty Municipal.Bonds from the taxable $159.5 million Series B mature in 2032, yielding 6.21% priced at par. The bonds were priced to yield 150 basis points over the comparable Treasury yield.
Bonds from the $98.3 million taxable BAB Series C mature in 2036, yielding 6.21%, priced at par, or 4.03% after the 35% federal subsidy. The bonds were priced to yield 150 basis points over the comparable Treasury yield.
Bonds from the $133.2 million Series D recovery zone economic development bonds mature in 2040, yielding 6.26% priced at par. The bonds were priced to yield 155 basis points over the comparable Treasury yield.
The underlying credit is rated Aa3 by Moody’s, AA-minus by Standard & Poor’s, and AA by Fitch.
Bank of America Merrill Lynch priced $713 million of bonds for the New Jersey Higher Education Student Assistance Authority in two series.
Bonds from the $677 million Series 1A mature from 2011 through 2029, with term bonds in 2032 and 2037.
Yields range from 1.28% with a 2% coupon in 2011 to 5.40% priced at par in 2037. The bonds are callable at par in 2019.
Bonds from the $36 million Series 1B contain a split maturity in 2013, both yielding 2.39%, with coupons of 3% and 5%. The bonds are not callable.
The credit is rated Aa2 by Moody’s and AA by Standard & Poor’s.
Morgan Stanley priced $706.5 million of certificates of participation for Arizona.
The bonds mature from 2012 through 2029, with yields ranging from 1.68% with a 2% coupon in 2012 to 4.95% with a 5% coupon in 2029.
The bonds, which are callable at par in 2019, are insured by Assured Guaranty Municipal. The underlying credit is rated A2 by Moody’s and A-plus by Standard & Poor’s.
Citi priced $600 million of aviation revenue bonds for Miami-Dade County that mature from 2012 through 2041. Pricing information was not available by press time.
JPMorgan priced $500 million of future tax-secured subordinate bonds for the New York City Transitional Finance Authority in two series. Bonds from the $449.2 million Series D mature from 2011 through 2025, with yields ranging from 0.71% with a 2% coupon in 2011 to 3.88% with a 5% coupon in 2025.
Bonds from the $50.8 million Series E mature from 2010 through 2017, with yields ranging from 0.71% with a 2% coupon in 2011 to 3.05% with a 3% coupon in 2017. Bonds maturing in 2010 were decided via sealed bid.
The credit is rated Aa2 by Moody’s, AAA by Standard & Poor’s, and AA-plus by Fitch.
Washington competitively sold $488 million of various purpose GO bonds to Bank of America Merrill Lynch with a TIC of 4.10%.
The bonds mature from 2011 through 2035, with yields ranging from 2.65% with a 5% coupon in 2017 to 4.15% with a 4% coupon in 2030. Bonds maturing from 2011 through 2016, in 2020, and from 2031 through 2035 were not formally re-offered. The credit is rated Aa1 by Moody’s, AA-plus by Standard & Poor’s, and AA by Fitch.
Overall, traders said tax-exempt yields in the secondary market were slightly lower.
“All eyes are pretty much on the primary right now,” a trader in New York said. “We are seeing some trading going on, and it’s a bit firmer. It really depends what you’re trading and where on the curve you’re talking, but we’re probably anywhere from one to three basis points better.”
The Treasury market showed losses yesterday. The yield on the benchmark 10-year note opened at 3.71% and finished at 3.79%. The yield on the two-year note opened at 0.91% and finished at 0.97%. The yield on the 30-year bond finished at 4.71% after opening at 4.62%.
Yesterday’s Municipal Market Data triple-A scale yielded 3.04% in 10 years and 3.76% in 20 years, matching Tuesday’s levels. The scale yielded 4.10% in 30 years yesterday, following Tuesday’s level of 4.13%.
As of Tuesday’s close, the triple-A muni scale in 10 years was at 81.5% of comparable Treasuries and 30-year munis were 89.0% of comparable Treasuries, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 92.8% of the comparable London Interbank Offered Rate.
