New-issue volume is expected to nearly double this week as a unique $1.4 billion California transportation financing leads off the activity in the primary market following last week's holiday-shortened calendar of deals.
According to Ipreo LLC and The Bond Buyer, volume may reach $5.92 billion, an improvement from the revised $3.33 billion last week reported by Thomson Reuters as issuers, investors, and underwriters went home after four days to celebrate the Fourth of July on Friday.
The coming week's two largest deals — the Bay Area Toll Authority's $1.4 billion revenue offering and the $675 million New York Transitional Finance Authority future tax secured subordinate bonds — should get "gobbled up," according to a New York underwriter.
"There's just not a lot of supply pressure right now," he said.
At the same time, though, he said some retail investors might be reluctant to spend any remaining summer reinvestment cash on new bonds with absolute interest rates so low.
The generic, triple-A general obligation scale in 2044 ended at a 3.39% on Friday — one basis points higher than where it began last Monday, according to Municipal Market Data.
The BATA financing on Tuesday will be the first deal of size to debut in the third quarter. Its unique structure is one that the authority hopes will generate hundreds of millions in savings.
The bonds — on behalf of toll bridge projects for BATA — will be sold in four series, consisting of nearly $1.2 billion of refunding bonds being priced by Bank of America Merrill Lynch on Tuesday, and a $200 million series of new money bonds is slated for pricing by JPMorgan Securities on either Tuesday or Wednesday following a retail order period on Monday, according to underwriter sources at the firms.
B of A's portion includes the first three series of refunding bonds which will be sold as fixed-rate put bonds to be remarketed as variable-rate soft put bonds at each put date in 2017, 2018, and 2019. The refunding bonds will mature in 2047.
The new money bonds will mature in 2053. Proceeds will fund the authority's capital improvement projects, including construction for the seismic retrofit program.
Brian Mayhew, BATA's chief financial officer, said this is a unique opportunity that will allow the authority to take advantage of favorable market conditions.
"What's sort of intriguing about it is the ability to pull off an advanced refunding, take it from a fixed to variable mode, and have it be cost effective," Mayhew said. "Personally I've never done it before so it's going to be kind of neat to see how this comes out."
Estimated net present value savings from the refunding bonds are around $200 million, based on an assumed rate of 3.22% and 0.15% costs on each put date.
"An advanced refunding wouldn't usually be possible, but because of the short-term curve we get, we generate tremendous cash-flow between now and the put date, and then they just switch over to variable after that," Mayhew said.
He said the authority currently plans to issue more debt later this year, which will be the final piece of borrowed cash needed to finish funding the program.
The bonds are rated Aa3, AA, and AA-minus by Moody's Investors Service, Standard & Poor's, and Fitch Ratings, respectively.
All three assign stable outlooks, citing the authority's near monopoly over bridge crossings in the Bay Area.
The New York TFA deal will be priced by Morgan Stanley & Co. on Wednesday, following a two-day retail order period Monday and Tuesday.
Rated Aa1 by Moody's and triple-A by both Standard & Poor's and Fitch, serial and term bonds will be available. The exact maturing structure was still be finalized at press time, according to a source at the firm.
Ahead of the imminent supply, the New York underwriter said Puerto Rico dominated the spotlight last week after additional downgrades by rating agencies stirred concern and the debt sold off.
"It definitely has affected our market because of the liquidations," he said.
However, some of the general obligation bonds with 8% coupons maturing in 2035 had begun firming as of early Friday afternoon.
There were eight trades reported at a volume of $20.6 million, with yields between 9.46% and 9.66% according to trade data provided to the MSRB.
On Tuesdaya $500 million tax and revenue anticipation note offering from Colorado will boost short term volume when the deal is priced in the competitive market.
The notes are rated MIG-1 by Moody's and SP1-plus by Standard & Poor's.
