Muni traders had a mixed reaction to a $473.6 million sale of San Francisco International Airport second series revenue bonds because of what some called aggressive pricing.
Traders said the bonds were expensive because they were subject to the alternative minimum tax. They said this would affect the deal's performance because California is a high tax state, and in-state retail investors typically account for a large portion of the buyers for Golden State credits.
Since these bonds were AMT, many investors who typically buy California would think twice or simply not buy the San Francisco Airport bonds, traders said.
"We actually thought [the deal] was a bit aggressive, we did not see anything in it that looked appropriate for our retail customers," a trader on the west coast said. "We thought it was a little high priced."
The trader said the deal probably was downsized because of the lack of retail buyers. The deal was originally scheduled to be $474.8 million and come in two parts, a $377.2 million portion subject to the AMT tax, and the $97.6 million non-AMT. The parts were reduced to $376.3 million and $97.3 million.
The trader said that AMT California deals typically have problems when they come to market.
"We've seen very few [AMT California issuances] come to market, and those that do come as new issues come in terms of odd lots," he said. "It's been a long time since we have seen a [large AMT] deal come and be priced."
A trader in Chicago said the deal's aggressive pricing is a sign of strength.
"It's priced aggressively for the name, so for me that's a good result," he said. "As a borrower you don't want to be massively oversubscribed, because that means the deal came too cheaply to begin with. It's a strong deal."
Yields on the $376.3 million part of the deal ranged from 3.82% with a 5% coupon in 2039 to 3.91% with a 5% coupon in 2044. The $97.3 million section had a yield of 3.58% with a 5% coupon on a single 2044 maturity.
Both portions of the deal were rated A1 by Moody's Investors Service and A-plus by Standard & Poor's and Fitch Ratings. The bonds are callable at par in 2024.
New York Water Outshines Chicago:
An issue of $275.3 million of New York Municipal Water Finance Authority water and sewer general resolution revenue bonds entered their institutional order period on Tuesday.
The deal came with a limited amount of intermediate maturities in 2028, 2029, and three 2036 maturities. Yields ranged from 2.93% with a 5% coupon in 2028 to 4% with a 3.77% in 2036.That 2036 maturity had a total of $5.8 million available.
The other two 2036 maturities had yields of 3.49% with a 5% coupon for $149.3 million and 3.39% with a 5% coupon for $25.3 million.
The trader in Chicago said the New York Water deal was the top essential service issuance in the primary market on Tuesday, beating the $183.1 million Augusta, Georgia Water and Sewer bonds and the Chicago second lien wastewater transmission revenue project bonds.
The bonds were rated Aa1 by Moody's and AA-plus by S&P and Fitch.
"New York is clearly the best; there's heavy demand for all New York bonds because of the tax and because they are highly rated," the trader in Chicago said.
The Chicago wastewater bonds' yields ranged from 0.40% with a 3% coupon to 2016 to 3.92% with a 5% coupon in 2044. Most of the bonds on the long end had a 5% coupon. The 2021 maturity had a 3% coupon.
The deal was rated A3 by Moody's, AA-minus by S&P and AA by Fitch. Moody's gave the bonds a negative outlook, and the other two rating agencies said they were stable.
The bonds are callable at par in 2024 and have sinking funds on two term bonds in 2039 and 2044.
"It's a standard structure for this market; it's clearly one of the higher rated Chicago names," the trader said. "Moody's has been really hard on [Chicago's pension issues] in my opinion, that explains the A3 negative."
Citigroup won the bid for the Augusta water and sewer revenue refunding and improvement bonds, pricing them with yields ranging from 0.20% with a 3% coupon in 2015 to 3.52% with a 4.50% coupon in 2039. The bonds can be called at par in 2024, and were rated A1 by Moody's and A-plus by Fitch.
Other Primary
Citigroup won the bid for the $156.4 million Wichita, Kansas GOs and priced them from 0.13% with a 4% coupon in 2015 to 3.44% with a 3.75% coupon in 2034.
The bonds are rated Aa1 by Moody's and can be called at par in 2023.
Bank of America Merrill Lynch won the verbal award for the $165.1 million Indianapolis local public improvement bank refunding bonds that are subject to the alternative minimum tax. Yields of the bond were from 0.30% with a 2% coupon in 2016 to par with a 4% coupon in 2034.
The bonds earned ratings of A1 from Moody's, and A from S&P and Fitch.
Market Stays Stable
The market held steady on Tuesday with only the slightest bump in the intermediate part of the curve, with maturities six to 15 years yields dropping by one basis point, according to Municipal Market Data's triple-A scale.
The 10-year's yield fell by one basis point to 2.22%, according to Municipal Market Advisors' data. The two-year and the 30-year held steady at 0.31% and 3.37% respectively.
The 10-year and 30-year Treasuries continued to rise with the 10-year's yield increasing by six basis point to 2.60% and the 30-year's by two basis points to 3.36%. The two-year note strengthened by two basis points to 0.54%.
