Top-quality municipal bonds finished mixed on Wednesday, according to traders, as some of the biggest deals of the week came to market.
One deal that didn't hit traders' screens was Alaska's $2.35 billion of taxable pension obligation bonds. The issue was originally slated to be priced by Citigroup on Wednesday, but Gov. Bill Walker called it off due to a lack of support from the state legislature.
The POB plan led S&P Global Ratings to place Alaska on creditwatch with negative implications Oct. 7, saying it would downgrade Alaska to AA from AA-plus if the deal went through. The Government Finance Officers Association recommends against POBs for many reasons, among them that pension earnings often fail to outpace the cost of the bonds.
“Although I was not expecting the deal to be pulled, I think the reasoning behind the cancellation, as I understand it, is strong,” said Alan Schankel, managing director at Janney. “With rates still low, and the equity markets not far below all-time highs, it’s not difficult to imagine pension fund returns falling below the 4% plus expected cost of borrowing. Lacking a high degree of confidence that investment returns will exceed borrowing costs, I think Alaska made a wise decision.”
Secondary Market
The yield on the 10-year benchmark muni general obligation was flat from 1.72% on Tuesday, while the yield on the 30-year rose one basis point to 2.55% from 2.54%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were weaker on Wednesday. The yield on the two-year rose to 0.87% from 0.85% on Tuesday, the 10-year Treasury yield gained to 1.79% from 1.76% and the yield on the 30-year Treasury bond increased to 2.54% from 2.50%.
The 10-year muni to Treasury ratio was calculated at 96.3% on Wednesday compared to 97.9% on Tuesday, while the 30-year muni to Treasury ratio stood at 100.6% versus 101.6%, according to MMD.
Primary Market
In the negotiated sector, Bank of America Merrill Lynch priced the New Jersey Transportation Trust Fund Authority's $2.74 billion of Series 2016A federal highway reimbursement revenue notes.
The $1.44 billion section of the issue was priced as 5s to yield from 2.14% in 2019 to 3.37% in 2025 and from 3.70% with a 5% coupon in 2027 to 4.10% at par in 2031. The $1.3 billion part of the deal was priced as 5s to yield from 2.34% in 2021 to 2.52% in 2024 and as 5s to yield from 2.77% in 2028 to 3.02% in 2031.
The deal is rated A3 by Moody's Investors Service, A-plus by S&P Global Ratings and A-minus by Fitch Ratings.
Barclays Capital priced the California Health Facilities Financing Authority's $677.41 million of Series 2016A revenue bonds and Series 2016B refunding bonds for the Cedars-Sinai Medical Center.
The $268.51 million of Series 2016A bonds were priced to yield from 0.73% with a 4% coupon in 2017 to 2.84% with a 5% coupon in 2036. The $408.9 million of Series 2016B bonds were priced to yield from 1.11% with 3% and 5% coupons in a split 2020 maturity to 3.24% with a 4% coupon in 2036; a 2039 split maturity was priced as 3 1/4s to yield 3.50% and as 4s to yield 3.32%.
The deal is rated Aa3 by Moody's and AA-minus by Fitch.
Citigroup priced the Grand Dam Authority, Okla.'s $491.04 million of Series 2016A revenue refunding bonds and Series 2016B taxable revenue refunding bonds.
The $470.12 million of Series 2016A bonds were priced to yield from 1.07% with 3% and 5% coupons in a split 2019 maturity to 3.26% with a 4% coupon in 2039. The $20.92 million of Series 2016B taxables were priced at par to yield from 1.828% in 2020 to 3.503% in 2033.
The deal is rated A1 by Moody's, AA-minus by S&P and A-plus by Fitch.
Piper Jaffray priced the Denver Convention Center Hotel Authority's $273.2 million of Series 2016 senior revenue refunding bonds. The issue was priced to yield from 1.69% with a 4% coupon in 2019 to 4% at par in 2037; a 2040 maturity was priced as 5s to yield 3.72%. The deal is rated Baa2 by Moody's and BBB-minus by S&P.
JPMorgan priced Raleigh, N.C.'s $193.21 million of Series 2016A combined enterprise system revenue bonds and Series 2016B combined enterprise system revenue refunding bonds.
The $100.53 million of Series 2016A bonds were priced to yield from 0.96% with a 5% coupon in 2019 to 3.07% with a 4% coupon in 2036; a 2041 maturity was priced as 4s to yield 2.96% and a 2046 maturity was prices as 4s to yield 3.02%.
The $92.68 million of Series 2016B bonds were priced to yield from 1.25% with a 5% coupon in 2022 to 3.12% with a 3% coupon in 2037; a 2040 maturity was priced as 3 1/2s to yield 3.06%. The deal is rated triple-A by Moody's, S&P and Fitch.
In the competitive arena, the Maryland Department of Transportation auctioned $627.53 million of bonds in two separate offerings.
BAML won the $385 million of Series 2016 consolidated transportation bonds with a true interest cost of 2.31%. The issue was priced to yield from 0.95% with a 5% coupon in 2019 to 2.80% with a 3% coupon in 2031.
JPMorgan Securities won the $242.53 million of refunding Series 2016 consolidated transportation bonds with a TIC of 1.56%. The issue was priced as 4s to yield from 0.93% in 2019 to 2.02% in 2027.
Both deals are rated Aa1 by Moody's, triple-A by S&P and AA-plus by Fitch.
Since 2006, MDOT has issued roughly $3.7 billion of securities, with the largest issuance occurring in 2015, when it sold $961 million. The Old Line State's DOT saw a low year of issuance in 2014, when it issued $100 million.
The California Public Works Board sold $147.39 million of Series 2016E lease revenue bonds for the Department of Corrections and Rehabilitation's RJ Donovan Correctional Facility's various buildings.
BAML won the deal with a TIC of 2.77%. The issue was priced to yield from 0.80% with a 5% coupon in 2017 to 3.24% with a 3% coupon in 2036. The deal is rated A1 by Moody's and A-plus by S&P and Fitch.
The South Broward Hospital District, Fla., sold $150.93 million of Series 2016A hospital refunding revenue bonds for the South Broward Hospital District Obligated Group. JPMorgan won the deal with a TIC of 3.79%. Pricing information was not available. The deal is rated Aa3 by Moody's and AA by S&P.