Iowa Deal Tests Market Amid $5.8B Slate

A $1.2 billion Iowa Finance Authority offering for the construction of a new fertilizer plant is the week’s largest planned deal amid almost $5.8 billion in new volume. It could be a tough sell due to its timing on the heels of the Texas fertilizer plant explosion two weeks ago and investors’ mixed reactions to economic numbers released late last week.

It will be the first substantial deal to test the market, which was quiet to one basis point firmer in spots on Friday afternoon, market participants said. The week’s smaller offerings include a $350 million of New Jersey General Obligation bonds that are earmarked for competitive pricing on Wednesday, and $255 million of financing for the El Paso County, Texas, Hospital District.

“The municipal bond market was firmer in spots yesterday, but overall general market yields were generally unchanged,”Interactive Data reported on Friday. “The market has a positive tone today and yields are one basis point to two basis points lower in the intermediate and long end of the curve, with municipals benefitting from a stronger U.S. Treasury market.”

An estimated $5.76 billion is expected to be priced this week, according to The Bond Buyer and Ipreo LLC, versus a revised $5.60 billion last week, according to Thomson Reuters. On Friday, the market was mostly muted following the morning announcement of a worse-than-expected increase in real gross domestic product. annual rate of 2.5% in the first quarter of 2013 – just short of the 3% increase expected by economists.

Municipals were range-bound last week, amid uncertainty over interest rates, as the Labor Department announced a  better-than-expected drop in initial jobless claimsfor the week ending April 20. Claims fell by 16,000 to 339,000.

Markets participants last week said the Iowa deal could face a headwind from the negative headlines after the explosion of a Texas fertilizer plant two weeks ago that killed 14 people and injured more than 100.

The deal on behalf of the Iowa Fertilizer Co. will be comprised of tax-exempt Midwestern Disaster Area Bonds that will refund short-term financing to help pay for  construction of a nitrogen fertilizer plant in southeast Iowa.

The financing will come to market on Tuesday in a pricing structure that includes term bonds slated to mature in 2019, 2022, and 2025. Citi is the senior book-running manager.

The bonds are already in the speculative-grade category with ratings of BB-minus by Standard & Poor’s and Fitch Ratings, and one New York public finance banker said the bonds will have to come cheap in the context of the current market, where yield spreads between quality classes have narrowed.

“There is probably good institutional demand at the right price point,” he said. On Thursday, the generic, triple-A general obligation scale in 2043 was yielding 2.90%, according to Municipal Market Data.

The week’s offerings are likely to attract investors’ interest.“Miller Tabak Asset Management expects money to continue to be put to work selectively by investors as global growth is sputtering and inflation fears are turning to deflation concerns,” said Michael Pietronico, chief investment officer of the New York City-based firm.

The New Jersy GO deal,  consisting of serial bonds maturing from 2014 to 2033, was originally scheduled to price last Tuesday, but officials from the state Treasurer’s office decided to postpone the sale to give the market time to digest last week’s crowded calendar in the aftermath of other larger deals from the Garden State earlier in the month. Rated A1 by Moody’s Investors Service, and AA-minus by Standard & Poor’s and Fitch, it is an example of an offering with investment-grade ratings  from a specialty state where investors typically gravitate toward quality and exemption from high state taxes.

Rating agencies said the state’s rating exemplifies its high wealth levels and broad economy offset by a high debt burden and a multitude of spending pressures, such as continued capital needs.

In other activity,  the El Paso County Hospital District plans to sell a  combination of tax and revenue certificates of obligation and GO refunding bonds on Tuesday. The negotiated deal will be led by Bank of America-Merrill Lynch and will be rated AA-minus by Standard & Poor’s and AA by Fitch.

The Louisiana Local Government Environmental Facilities Authority is gearing up to issue $218 million of subordinate lien revenue debt for the East Baton Rouge Sewerage Commission Project.

Citi will price the two-pronged financing on Wednesday consisting of $126 million of tax-exempt subordinate lien revenue bonds maturing in 2035, 2043, and 2048, as well as $92 million of Securities Industry & Financial Market Association floating-rate notes that track the London Inter-Bank Offered Rate (LIBOR) index. The deal is rated A1 by Moody’s, A-plus by Standard & Poor’s, and AA-minus by Fitch.

Elsewhere in the short-term market, Fulton County, Ga., is preparing a $200 million sale of tax anticipation notes for competitive bidding on Wednesday, backed by the county’s general fund and rated SP1-plus by Standard & Poor’s and F1-plus by Fitch.

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