The Week Ahead: Rarity Value Highlights a Slimmer Slate

Some seldom seen issuers are returning to the municipal bond market in the upcoming week as sales slip.

Total new issue volume is estimated at $6.138 billion for the week, according to Ipreo and The Bond Buyer. This is down from the $6.992 billion of new supply that priced last week, Thomson Reuters said.

There are $3.884 billion of municipal bond sales scheduled for negotiated sale versus a revised $4.915 billion sold in the past week. Bonds scheduled for competitive sale total $2.254 billion compared with $2.077 billion.

Topping the primary calendar is a $1 billion competitive sale from Pennsylvania. The unlimited tax general obligation bonds will go up for bidding on Tuesday and are structured as serials ranging from 2016 to 2035. The issue is rated Aa3 by Moody's Investors Service and AA-minus by both Standard & Poor's and Fitch Ratings.

The commonwealth last came to market on April 29, 2014, when it sold $834.945 million of GOs to Bank of America Merrill Lynch with a true interest cost of 3.2542%.

Since that time, the three credit rating agencies have cut the state's debt, all citing the roughly $50 billion unfunded pension liability of the Keystone State's two major pension plans, the State Employees Retirement System and the Public School Employees Retirement System.

In 2014, S&P downgraded the state to AA-minus from AA on Sept. 25, Fitch lowered the state's debt to AA-minus from AA on Sept. 23, and Moody's cut the state to Aa3 from Aa2 on July 21.

"State lawmakers have been grappling with a structurally imbalanced budget, a condition expected to continue," according to a recent research note from Janney Capital Markets. "A significant unfunded pension liability of $76 billion (129% of revenues), more than double the Moody's state median, is a key source of the structural imbalance."

On Monday, Morgan Stanley is expected to price the biggest negotiated deal of the week -- Utah Transit Authority's $831.6 million offering on Monday for retail investors with the institutional pricing to follow on Tuesday. The deal will be structured as $639.43 million sales tax revenue refunding bonds, Series 2015A, and $192.21 million subordinated sales tax revenue refunding bonds, Series 2015A. The issue is rated Aa2 by Moody's, AAA by S&P and AA by Fitch.

The UTA deal was originally slated to price a day later, but several factors caused it to be moved up.

"There were a couple reasons to move up a day. One is the fact that the current market is so favorable," said Brian Baker, vice president at financial advisor Zions Bank Public Finance. "Another more important reason is the FOMC meeting Wednesday the 28th and the news release around noon our time that could lead to some market movement. We are bidding out open market securities to find the escrow, and with a total escrow size over a billion dollars, the idea was to get everything wrapped up Tuesday to avoid any potential disruptions on Wednesday with pricing and escrow bidding."

The UTA serves about 2.3 million residents, or about 79% of the state. Proceeds from the sale will be used to pay down outstanding debt. The authority, which was created in 1970, is not a frequent issuer. It last sold bonds when it did a private placement of $144 million of subordinated sales-tax revenue bonds in April of last year. Before that, the UTA completed a financing for rail projects and converted much of its variable-rate bonds to fixed-rate bonds in a $296.8 million sale in 2013.

Another issuer not frequently seen is the Kentucky State Property and Building Commission. Citigroup Global Markets will price its $385.155 million issue on Wednesday. The deal will be structured as $128.45 million of revenue bonds, Project No. 108, Series A, and $256.705 million of revenue refunding bonds, Project No. 108, Series B. The bonds are rated Aa3 by Moody's and A-plus by S&P and Fitch.

The SPBC was last in the competitive market on May 7, 2014, when it sold $6.085 million road fund revenue bonds, Project No. 107, Series A and $4.4 million taxable road fund revenue bonds, Project No. 107, Series B. Morgan Stanley won the Series A bonds with a TIC of 3.0924% and PNC Capital Markets won the taxable Series B bonds with a TIC of 2.2949%.

Elsewhere, Glendale, Ariz., site of the upcoming Super Bowl, will be coming to market with four separate negotiated deals totaling $277.28 million. Morgan Stanley is expected to price the city's $114.89 million of senior lien water and sewer revenue refunding obligations, Series 2015 and 2015C, on Wednesday. JPMorgan will price the city's $104.375 million of taxable bonds, Series 2015A, on Thursday and $29.970 million of taxables, Series 2015B, on Wednesday. Piper Jaffray is scheduled to price the city's $37.045 million of refunding bonds, Series 2015, on Monday.

Also on tap is a $289.21 million competitive sale of GO refunding bonds from San Francisco on Wednesday. The bonds, which are structured as serials ranging from 2015 to 2030, are rated Aa1 by Moody's, AA-plus by S&P and AA by Fitch.

San Francisco was last in the market on Sept. 17, 2014, when it sold $155.62 million of GO earthquake safety and emergency response bonds to JPMorgan with a TIC of 2.9737%

Rounding out the week's roster, JPMorgan is slated to price the Maryland Health and Higher Educational Facilities Authority's $333.35 million offering for Medstar Health Inc. The bonds will consist of $230 million of revenue bonds and $103 million of taxable bonds. The issue is rated A2 by Moody's, A-minus by S&P and A by Fitch.

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