The municipal market can expect $4.68 billion in new issuance this week, with a half dozen deals above $250 million contributing to volume and putting the projected total around the average for the year.
Issuance is up from last week’s revised $3.38 billion during the shortened holiday week, according to Ipreo LLC and The Bond Buyer.
“Light new-issue volume and high seasonal reinvestment demand has provided a tailwind to munis,” said Alan Schankel, managing director at Janney Capital Markets. “The new-issue calendar may be building,” with this week’s issuance “not a big week by historical standards, but bigger than recent weeks,” he said.
Slated for this week is $3.9 billion in negotiated deals, versus a revised $2.33 billion last week. Also scheduled are $775 million in competitive deals, down from a revised $1 billion last week.
The biggest deal is slated to come to market Thursday, when Houston issues $430 million of Series 2011D combined utility system revenue bonds. Underwritten by Bank of America Merrill Lynch, the bonds are rated double-A by Moody’s Investors Service and Standard & Poor’s. An underwriter said Thursday will be the only day for pricing; the structure of the bonds was not available by press time.
The next biggest scheduled deal is $375 million of marine terminal revenue refunding bonds from Valdez, Alaska planned for Tuesday. Underwritten by Goldman, Sachs & Co., the bonds are rated single-A by Moody’s and Standard & Poor’s.
The Central Texas Regional Mobility Authority is also issuing $374 million of debt, consisting of $294 million of senior-lien revenue bonds and $80 million of subordinate-lien revenue bonds. They are underwritten by JPMorgan.
Other fairly large offerings include the New Jersey Higher Education Student Assistance Authority and Franklin County, Ohio, issuing $326.5 million and $316.7 million, respectively. The New Jersey bonds will be priced on Tuesday and are underwritten by Bank of America Merrill. They are rated Aa3 by Moody’s and A by Standard & Poor’s. The Ohio bonds will be priced on Thursday and are underwritten by Barclays Capital.
“Low issuance continues to be something we carefully monitor,” said Mark Maroney, head of RBC Municipal Capital Markets. “The market in totality was expecting issuance to be off coming into the calendar 2011 year. But the continued downward revisions to forecasts have been impacting buyers’ strategies.”
He added that his division is concerned about low supply, and “heavy redemptions in June and July will contribute further to the scarcity narrative in the marketplace.”
One of the bigger deals last week was $521 million of revenue bonds from the New York State Environmental Facilities Corp., which was well-received, according to market participants.
“The deal was well-subscribed,” said Dan Loughran, a senior portfolio manager at OppenheimerFunds Inc. “The deal, which was priced for retail early in the week, had over $200 million of retail orders on the first day. Slightly more than two-fifths of the deal was subscribed for in the retail order period on the first day.” He added that compared to other New York deals, 40% on the first day is high.
Loughran added the institutional order was oversubscribed, allowing yields to be lowered by five basis points on the two longest terms. The 41-year term was originally priced with yields at 4.61% and the 36-year was priced at 4.56%. They were lowered to 4.56% and 4.51%, respectively.
“The fact that this deal went as well as it did is an indication that there has not been new issuance and that we’re running at half the pace of last year,” Loughran said. Getting past tax season should help the demand side, he said.
Retail investors are also becoming more comfortable with the muni market in general, improving net flows. “A good deal of credit fear that became widespread is gradually abating,” Loughran said.
