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Munis Face Another Heavy Slog Led by $1.3B California Higher Ed Sale

FEB 24, 2013 4:44am ET
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After the municipal market struggled to get through a heavy new-issue calendar last week, another slate of sizable new deals will test the market this week, anchored by a $1.3 billion California higher education sale.

The offering from the Regents of the University of California will be part of an estimated $7.79 billion in new volume, according to The Bond Buyer and Ipreo LLC.

“We view the upcoming supply bulge as an opportunity for investors to lock in higher yields as we see a sizeable summer rally as a strong possibility,” said Michael Pietronico, chief executive officer at Miller Tabak Asset Management.

The University of California deal will consist of two series: $800 million of tax-exempt debt maturing serially out to 2033 with a final term bond in 2039, and $500 million of taxable debt maturing serially out to 2028 and a final term bond in 2039.

JPMorgan will price the tax-exempt portion on Thursday following a retail order period on Wednesday, and will price the taxable portion on Wednesday. The bonds are rated Aa1 by Moody’s Investors Service, AA by Standard & Poor’s and AA-plus by Fitch Ratings.

It comes on the heels of a revised $4.19 billion that was priced last week, according to Thomson Reuters, at a time when the market ended on a firmer tone than it began, aside from some deals that struggled to get done and in the end came with slight concessions.

“Miller Tabak Asset Management expects concessions for large deals to continue for the next month or so until the market reaches a firmer technical footing,” Pietronico said. “Should the Treasury market rally we expect munis to underperform and gain much-needed ratio to draw in more institutional accounts.”

Last week, the generic, triple-A general obligation scale in 2043 ended at a 2.94% on Thursday after closing at a 2.92% on Tuesday and as high as 2.96% on Wednesday, according to Municipal Market Data.

Traders said bonds were higher in the secondary market on Thursday, following steady to weaker trading on Tuesday and Wednesday.

Last week’s new-issue activity was headlined by a pair of negotiated deals, the larger of which was a $527.3 million Los Angeles Department of Water and Power.

Senior-managed by Bank of America Merrill Lynch, the power system revenue bond issue was priced with a final maturity in 2031 that carried a 3% coupon and 3.10% yield. The bonds are rated Aa3 by Moody’s, and AA-minus by Standard & Poor’s and Fitch.

The New York City Municipal Water Finance Authority sold $455.95 million of second general-resolution revenue bonds in a Barclays Capital-led deal that was priced with trifurcated coupons of 3.75%, 4% and 5% in the 2047 bullet maturity that was priced to yield 3.85%, 3.75% and 3.50%, respectively.

The deal’s one-day retail order period last Tuesday generated $56 million in orders, and the bonds are rated Aa2 by Moody’s and AA-plus by Standard & Poor’s and Fitch.

Besides this week’s mammoth California higher education deal, the Big Apple will be in the spotlight for the second time in as many weeks when New York City issues $853.72 million of GO debt in a negotiated deal led by Morgan Stanley, which will offer the bonds to retail investors on Monday and Tuesday ahead of the official pricing on Wednesday.

The three-pronged offering consists of tax-exempt new money and refunding debt, but the structure was still being determined at press time.

Elsewhere in the Northeast, the the Massachusetts Water Resources Authority is slated to issue between $170 million and $289 million of revenue debt expected to be rated Aa1 by Moody’s and an equivalent AA-plus by S&P and Fitch.

Slated to be offered to retail investors on Tuesday, the bonds will be officially priced for institutions on Wednesday by Jefferies & Co. with a tentative structure of serial bonds maturing from 2016 to 2032 with a term in 2036.

In California, a $300 million sale of lease revenue and refunding debt is being planned by Ventura County and is expected to be priced on Wednesday by Citi. The bonds, which are rated Aa3 by Moody’s, and AA by Standard & Poor’s and Fitch, are structured with serials and terms maturing from 2013 to 2043.

Switching the Southwest, the Houston Community College System is slated to sell $400 million of limited-tax GO bonds in a JPMorgan-led negotiated deal slated for pricing on Tuesday and structured with serials and term bonds out to 2043.

The bonds are rated Aa1 by Moody’s and AA-plus by Standard & Poor’s, though the full structure was not available at press time.

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