New-issue municipal volume is set to rebound in the coming week with $8.4 billion in scheduled deals, including a variety of issues ranging from Puerto Rico electric power bonds to Washington State various-purpose general obligation bonds.
Goldman, Sachs & Co. leads the heavier week of volume with a $1.2 billion South Carolina Public Service Authority issue scheduled for Wednesday. The term bonds are rated A1 by Moody's Investors Service, AA-minus by Standard & Poors and AA-minus by Fitch Ratings.
The South Carolina bonds include $811 of tax-exempt bonds maturing in 2043, 2048 and 2053, and $399 million of tax exempts maturing in 2037 and 2046.
The week's heavy slate will be the largest group of issues since the week beginning on July 14, which posted a revised $8.3 billion of new issues, and a significant jump above the weekly average of $5.5 billion so far this year, according to Thomson Reuters data.
"As far as next week's deals, we're seeing that there is certainly some appetite," Geoff Urbina, managing director at KeyBanc Capital Markets Inc., said in an interview. "Traders on the street will say we're in the summer months, rates are rising, but with all that said there's very much a lack of supply. The deals coming next week and [later in] August will be well-received."
Investors of all types are likely to find something of interest next week, Urbina said.
Puerto Rico electric power bonds, set to price on Wednesday by Morgan Stanley & Co LLC, will likely come with high yields that are appealing amid rising interest rates, Urbina said, while highly-rated Washington state bonds will appeal to the safety-minded investor.
"With the pressure that's on Puerto Rico and the spreads they're coming out with, it will attract some buyers even though rates have risen," Urbina said. "Certainly investors are still yield hungry, so that particular sale will be attractive."
Market weakness at the end of the last week amid a government pre-payrolls report could bring a 7% yield on the Puerto Rico bonds, according to a Janney Capital Markets report published Friday. Long-maturity Puerto Rico Electric Power Authority blocks traded at 6.85% on Aug.1, compared to 6.48% on July 29 and 6.00% on July 17, according to Janney managing director Alan Schankel.
"With no major Puerto Rico issuance since June 2012, demand for new triple tax-exempt debt should be solid," Schankel said in a note in the report. Schankel added that amid a mix of rate increases and a shrinking economy, the secondary market for PR debt is trending weaker. A 7% yield on next week's sale "would surely generate strong investor demand, potentially reversing the negative price trend."
The $600 million of Puerto Rican power bonds are rated Baa3 by Moody's, BBB by S&P and BBB-minus by Fitch. The bonds will mature in 2036 and 2043, according to Janney.
Seattle-based Urbina said competitive offerings coming from Washington, beginning with $533 million of various-purpose GO bonds slated for Wednesday, are on his radar. The bonds are structured as serials maturing between 2017 and 2038, with ratings of Aa1, AA-plus and AA-plus from Moody's, S&P and Fitch, respectively.
The Washington bond proceeds will go toward financing various capital and transportation projects, including a tunnel in Seattle. The three-part offering will also include $275 million of motor vehicle fuel-tax GOs and $56 million of taxable GOs.
"At some level that will be well-received, as the state is highly-rated credit," Urbina said. "Yield versus higher credit is on investor's minds. To a certain degree they're willing to walk out on the credit curve, but they're still looking at safe investments."
Barclays Capital Inc. is set to price $635 million of University of California Medical Center bonds on Wednesday. The preliminary structure of the bonds was not known by press time.
