SAN FRANCISCO — California issuers are unleashing a torrent of bonds this week — about $3.6 billion of debt.
Despite the impending glut, issuers have remained positive, even as buyers expect prices to take a hit.
Topping the calendar of four huge deals coming out of the Golden State, the Los Angeles Department of Airports has set final pricing for Wednesday for $875 million of revenue bonds that will help pay for capital projects at Los Angeles International Airport, including terminal construction and various upgrades.
Also out of Southern California, the Los Angeles County Public Works Financing Authority will sell $805 million of lease revenue paper that will be split into $105 million of tax-exempt debt and $700 million of Build America Bonds and recovery zone economic development bonds. It will sell to retail investors Tuesday and institutional investors on Wednesday.
This week’s flood also includes $760 million of revenue bonds pricing today from the University of California to pay for medical center upgrades. The Santa Clara Valley Transportation Authority will sell $650 million of sales tax revenue bonds, tentatively scheduled for final pricing on Wednesday.
Tom Spalding, a senior portfolio manager at Nuveen Asset Management in Chicago, which manages $9.5 billion of national municipal bond mutual funds, said he expects prices to come down this week due to the flood of supply.
“I think [the market reception] will be good, but it will be at adjusted levels,” Spalding said. “I just don’t see the market being able to take that kind of size.”
Underwriters are bracing for a busy week as $10.22 billion of new municipal volume heads to the primary market, according to Ipreo LLC and The Bond Buyer.
BAB sales are expected to accelerate in November and December, as the federal stimulus bond program nears expiration at year’s end.
The market anticipates $16 billion of debt from issuers over the next 30 days, according to The Bond Buyer visible supply.
The bulk of the week’s activity will happen in the negotiated market with an estimated $8.91 billion of total volume, compared to a revised $3.02 billion that arrived last week, according to Thomson Reuters.
Despite the onrush, issuers remain optimistic.
“We understand that there are a lot of issues coming to market, so the volume, particularly in the Build America side, is going to increase this week and possibly next week, but we are hoping for a good sale,” said Glenn Byers, Los Angeles County’s assistant treasurer.
Moody’s Investors Service rates the county’s bonds A1 and Standard & Poor’s and Fitch Ratings rate them A-plus. Bank of America Merrill Lynch will lead the public works authority sale.
The money raised will be used to finance several projects, including upgrading buildings at the University of California Los Angeles Medical Center, the Hall of Justice, and the county coroner’s crypt.
Standard & Poor’s said the county’s long-term creditworthiness reflects a very large, deep, and diverse economic base, but also noted its high unemployment.
The Los Angeles’ Department of Airports will use its borrowing to fund part of the construction of the Bradley West Terminal and its central utility plant at LAX, which is part of a broader capital improvement project.
“We expect favorable pricing. … It is a pretty crowded calendar,” said Marla Bleavins, debt and treasury manager for Los Angeles World Airports. “We are hoping that things go well.”
Moody’s rates the airport bonds Aa3 and Standard & Poor’s and Fitch rate them AA.
“The airport is well positioned in its current rating category, given the large additional debt and project construction risks expected for the current seven-year capital program,” Moody’s said in a recent report.
JPMorgan is the lead underwriter for the deal.
The Santa Clara Valley transportation deal is structured as $515 million of taxable BABs and $135 million of tax-exempt bonds to be used to pay for capital projects.
Moody’s rates the bonds Aa2 and Standard & Poor’s rates them AA-plus. Barclays Capital and Citi are co-senior managers on the sale.
The University of California deal, which will finance improvement at three of its medical centers, is structured as pooled revenue bonds split into $700 million of BABs, $50 million of tax-exempt paper, and $10 million of taxable debt. Moody’s rates the bonds Aa2 and Standard & Poor’s rates them AA-minus.
