Post-Holiday Market Spotlights $500MM MTA Deal

A $500 million transportation revenue offering from New York’s Metropolitan Transportation Authority is part of an estimated $4 billion slate of new issuance that seeks to attract investors as they return from the Memorial Day hiatus looking for ways to put  almost  $100 billion in spring redemption money to work.

The deal will be the first large financing to test the post-holiday market when it is priced by JPMorgan for retail investors on Wednesday, followed by an institutional pricing on Thursday. The bonds are rated A2 by Moody’s Investors Service, and A by Standard & Poor’s and Fitch Ratings. The structure was not available at press time.

Just before the arrival of June 1 redemptions, Ipreo LLC and The Bond Buyer estimate this week’s new volume at $4 billion, compared with a revised $7.24 billion last week, according to Thomson Reuters. According to Interactive Data, there are $54.46 billion in current and advanced refundings, and maturing bonds and note redemptions slated for June 1.

Municipal experts say investors with spring reinvestment needs can find value in the current market – but some disagree on where to find it.

“At the moment we see the market as ripe with opportunity as long as investors take a long term approach,” said Michael Pietronico, chief executive officer at Miller Tabak Asset Management. “Buying bonds in the secondary market is more appealing to us at the moment, as negotiating lower prices and higher yields for our clients is value we can add in this environment.”

With reinvestment season on the horizon, a California underwriter said retail investors will favor bonds in the first 10 years of new financings – to match bonds issued back in 2003 that are now eligible for current refunding. 

Beyond that, they will have little interest because of the lack of yield incentive for extending further. “The tough part of the curve is the 15- to 20-year range,” he said.

The MTA deal arrives on the heels of Federal Reserve Chairman Ben Bernanke’s promise to continue fueling the bond market with his monetary accommodation strategy.

The weakening in prices that began back on May 17 prevailed through the pre-holiday market, as the municipal-to-Treasury ratio slipped..

The ratio of five-year ratio fell to 94.4% from 112.3%, while the 30-year dropped to 96.6% from 98.2%. At the same time, the 10-year and 30-year benchmark yields increased four basis points each last Thursday to 1.90% and 3.08%, respectively, according to Municipal Market Data. Since May 17, the 10-year yield increased nine basis points from 1.81% and the 30-year yield jumped 13 basis points from 2.95%.

Between now and early July, the California underwriter expects the supply – and demand -- of New York and California paper to increase in anticipation of the next big redemption date on July 1, on which another $37.23 billion in redemptions in expected, according to Interactive Data. “There is a lot of money to be reinvested in New York and California both,” he said. “I see it as one of the bigger years we have had as far redemptions” in the last decade, he said.

In addition to  the MTA deal, issuance planned for this week includes a $368.70 million sale of Columbus, Ohio, general obligation refunding bonds in what will be the largest redemption to date of Build America Bonds due to federal subsidy cuts.

Under the BAB program, municipalities were given a federal subsidy equal to 35% of the issuers’ interest cost on the BABs. The subsidies were reduced as part of the across the board government belt-tightening known as the sequestration.

The bonds, which are scheduled to be priced on Wednesday by Bank of America Merrill Lynch, will refund various 2009 and 2010 BABs into traditional tax-exempt, fixed-rate GO bonds and may be structured as serial bonds, according to a source at Merrill.

Rated triple-A by all three major rating agencies, the deal will consist of $326.8 million of tax-exempt various purpose unlimited tax refunding GOs, and $41.9 million of taxable various purpose limited tax refunding bonds.

In the competitive market, a $250 million sale from the Los Angeles Community College District is structured to mature serially 2013 to 2037 and slated for Wednesday.




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