The state of Louisiana defied the naysayers and sold $335 million of municipal bonds in the primary market on Wednesday. In secondary trading, prices of top-rated municipal bonds closed lower.
The Louisiana State Bond Commission approved the sale of the various purpose general obligation bonds. The certified winner was Wells Fargo Securities with a true interest cost of 3.296%. There were six registered bidders for the bonds, according to the Bond Commission.
The sale succeeded despite concern over the state's projected $1.6 billion deficit for fiscal 2016. Almost two pages of the preliminary official statement were dedicated to describing the state's financial problems and the measures being proposed by Gov. Bobby Jindal and Legislature to close the budget gap.
"Despite the circumstances, the sale went very well," State Treasurer John Kennedy said in an interview with The Bond Buyer. "I was very relived because it could have been a lot worse. The deal came in about 25 to 26 basis points higher than our last sale. And we had more bidders than I had expected."
But Kennedy said selling the bonds on Wednesday was not what he wanted to do in the circumstances.
"I will tell you now that the sale is over that this was not my preferred approach," he said. "I had wanted to sell bond anticipation notes now and postpone the bond sale for about six months. Then with our POS already on the shelf, we could have come right back in and sold the bonds and taken out the BANs."
He said he believed that doing a short-term loan now would have saved the state money.
"But the lawyers were disagreeing and squabbling about it so much that we went with the bond sale now," he said. "I do believe we paid a penalty for the state's fiscal problems, but that under the circumstances, I will take it gladly."
The issue was rated Aa2 by Moody's Investors Service and AA by Standard & Poor's and Fitch Ratings. Moody's and S&P assign negative outlooks.
Wells Fargo priced the $263.48 million of Series 2015A GOs to yield from 0.30% with a 5% coupon in 2016 to 3.75% with a 4% coupon in 2035; the $71.515 million of Series 2015B GOs were priced to yield from 0.30% with a 5% coupon in 2016 to 3.75% with a 4% coupon in 2035.
The last time the state sold bonds competitively was on Nov. 20, 2014, when Citi won $199.99 million of Series 2014 D-1 and D-2 GOs with a TIC of 3.03%. In that sale, the $160.09 million of Series 2014 D-1 bonds were priced as serials to yield from 0.14% with a 5% coupon in 2015 to 3.41% with a 4% coupon in 2034; the $39.9 million Series 2014 D-2 bonds were priced as serials to yield from 0.14% with 5% coupon in 2014 to 3.41% with a 4% coupon in 2034.
Since 1995, Louisiana has sold $8.47 billion of GO debt. The largest issuances came in 2012 and 2014 when the Pelican State sold $1.01 billion and $914 million of debt, respectively. The state sold no bonds in 1999 or in 2007.
Primary Market
Elsewhere in the primary, the Los Angeles Unified School District sold $330 million of Series 2015A GO refunding bonds. JPMorgan won the bonds with a TIC of 1.87%. The bonds were priced as 2s to yield 0.10% in 2015 and as 5s to yield from 1.25% in 2019 to 2.35% in 2025.
"Our sale is an economic refunding of about $330 million of the district's outstanding GO bonds," said Shannon Haber, communications and public relations specialist for the office of the chief financial officer of the LAUSD. "As a GO refunding, it will generate significant savings for the district's taxpayers -- which is very important to us. We're committed to taking advantage of favorable market conditions whenever possible to reduce debt service costs for taxpayers."
The last time LAUSD sold GOs competitively was on Sept. 22, 2004, when Bank of America Merrill Lynch won $16.9 million of 2004 Series D election of 2004 GOs with a TIC of 2.20%.
According to Haber, the district took this opportunity to diversify its method of sale of its long-term bonds. The district's recent long-term deals have been sold on a negotiated basis, but they sold have sold tax and revenue anticipation notes competitively.
"We know that many issuers successfully use the competitive method of sale for high-quality long-term bonds and we wanted to use that method of sale on this deal," Haber said. "The timing of this sale really reflects the fact that these bonds are non-advance refundable and we're doing a current refunding. The sale is timed around the bonds' upcoming July 1 call date. Current market conditions also generate strong savings."
The deal is rated Aa2 by Moody's and AA-minus by S&P.
Meanwhile, Seattle competitively sold two issues totaling $323 million. Both sales are rated Aa1 by Moody's, triple-A by S&P and AA-plus by Fitch.
Bank of America Merrill Lynch won the $156.88 million of Series 2015 unlimited tax GO improvement bonds with a TIC of 3.59%. The bonds were priced to yield from 0.45% with a 5% coupon in 2016 to 3.78% with a 4% coupon in 2040; a 2044 term bond was priced as 4s to yield 3.85%.
Citi won the $166.34 million of Series 2015A limited tax GO improvement and refunding bonds with a TIC of 2.38%. The bonds were priced to yield from 0.20% with a 5% coupon in 2015 to 1.74% with a 5% coupon in 2021 and to yield from 2.12% with a 5% coupon in 2023 to 3.65% with a 4% coupon in 2035.
The last time Seattle sold bonds competitively was on April 1, 2014, when BAML won $62.77 million of Series 2014 limited tax GO improvement and refunding bonds with a TIC of 2.4898%.
In the negotiated sector, Loop Capital Markets priced the New York Triborough Bridge and Tunnel Authority's $225 million of Series 2015A general revenue bonds for MTA bridges and tunnels for retail investors. Academy Securities was co-senior manager on the deal. The institutional pricing will be held on Thursday.
The bonds were priced to yield from 0.93% with a 3% coupon in 2017 to 3.42% with a 5% coupon in 2035; a 2040 term was priced as 5s to yield 3.55%; a 2045 term was priced as 5s to yield 3.60%; and a 2050 term was priced as 5s to yield 3.73%. The 2015 and 2016 maturities were offered as sealed bids.
The issue is rated AA3 by Moody's and AA-minus by S&P and Fitch.
Secondary Market
The yield on the 10-year benchmark muni general obligation closed up four basis points to 2.22% from 2.18% on Tuesday, while the yield on the 30-year GO rose five basis points to 3.18% from 3.13%, according to the final read of Municipal Market Data's triple-A scale.
Treasury prices were lower on Wednesday as the yield on the two-year Treasury note increased to 0.63% from 0.62% on Tuesday, while the 10-year yield rose to 2.23% from 2.18% and the 30-year yield was up to 2.99% from 2.90%.
The 10-year muni to Treasury ratio was calculated on Tuesday at 99.5% versus 100.2% on Tuesday, while the 30-year muni to Treasury ratio stood at 106.6% compared to 107.7%, according to MMD.
