Three new issues being priced this week will attempt to attract retail investors who need tax-exempt income and will accept the dreadfully low yields that are now scaring off many buyers.
Two gilt-edged offerings in the Southeast and a triple-B rated hospital deal in Missouri will appeal to individual investors, according to regional underwriters.
A $25 million Forsyth County, N.C., school general obligation offering will generate retail demand - even though sticker shock will still keep a lot of buyers from being drawn to its trio of natural triple-A's, underwriters said.
Set for competitive pricing tomorrow, the bonds mature from 1999 to 2014.
The need to replace Jan. 1 coupon and maturity proceeds will drive some of the demand, according to Rich Hasel, vice president of municipal trading at Wachovia Bank of North Carolina in Charlotte.
Bob Dercher, vice president of municipal trading at Marion Bass, also in Charlotte, said that although many retail clients are holding out for higher rates, there are still some investors buying bonds at the current yields.
For his part, Gregg Hollidge, branch manager and a retail broker at Scott & Stringfellow in Charlotte, said institutions will probably crowd out individual buyers when the issue comes to market.
But Forsyth County is popular with retail, he said, and he has been seeing "outstanding" retail demand for secondary municipal offerings as investors get used to the current interest rate environment.
The week's other natural triple-A offering - an $80 million Chesterfield County, Va., GO deal - will be a welcome addition in a market where what little supply available looks all too familiar, according to Sam Stoakley, senior vice president of municipal trading and underwriting at Scott & Stringfellow in Richmond.
Scheduled for competitive pricing on Wednesday, the bonds mature from 1999 to 2018 and are rated triple-A by Moody's Investors Service and Fitch IBCA Inc. Standard & Poor's does not rate the bonds.
Aside from Chesterfield County's top-notch rating - one of the very few local natural triple-A's - the issue will offer diversity and liquidity, he noted.
"This will be the first sizable GO issue to come in probably six weeks or so, and that will help it a great deal," Stoakley said.
It will be even more appealing for the retail market if par bonds are available, he pointed out.
Whitey Lipscomb, manager of the municipal department at Davenport & Co., also in Richmond, agreed the bonds will help revive a stale market.
"What's going to drive demand is just lack of supply," he added.
"With rates being down as low as they are, the older issues are trading at substantial premiums, which is causing some of the buyers to stay away from those, so they are looking for new issues at current prices," Lipscomb said.
In terms of maturity range, Lipscomb said demand is across the board. "There's just been so little supply, I think people are looking at wherever they see some value," he said, adding "they might have to swallow hard to look at 5% or less in 25 to 30 years, but they are buying."
While Virginians will indeed be interested in the Chesterfield deal, Lipscomb warned that the equity market is still the municipal market's biggest competitor.
Some have reallocated money into bonds, but daily surges in the Dow Jones industrial average easily catch investors' attention, Lipscomb said.
"As more and more fear comes into the (stock) market, there'll be more and more attention paid to the bond market. But until there's a sustained downtrend in the stock market, I think that retail will be a little slow" coming back into bonds, he explained.
In the high-yield health care sector, B.C. Ziegler & Co. in West Bend, Wis., hopes to entice retail investors with a $26.6 million triple-B plus issue from the Missouri Health and Educational Facilities Authority for Freeman Health System in Joplin, Mo.
The 30-year financing will feature serial and term bonds.
The bonds were upgraded earlier this month to BBB-plus from BBB-minus by Standard & Poor's and have a stable outlook. They are not rated by Moody's or Fitch.
Despite modest cash reserves, the upgrade reflects the hospital's successful completion of a recent merger with Oakhill Hospital, sizable medical staff, competition position, entry into the cardiac business, increased admissions, and elimination of merger-related costs, according to analyst Martin Arrick's Jan. 19 CreditWeek article.
A portion of the proceeds will refund 1991 bonds, while the rest will finance the construction of a new heart center at the hospital.
Demand should be strong based on the hefty appetite for high-yielding paper given the current yield climate, and because the hospital is an existing facility with a good operating track record, according to Mike McDaniel, senior vice president of the firm's retail distribution and marketing.
"Retail has been going through some sticker shock lately, but we're still finding good retail demand for story bonds," McDaniel said.
"Anything that's noninsured in a specialty state seems to find a real willing audience."
