The municipal market focused on taxable bonds in the primary and secondary markets on Tuesday, as $350 million of California Earthquake Authority revenue bonds came to market.
Market participants said they got heavy demand for the California Earthquake bonds from their clients as investors looked to taxable bonds for yield after the market strengthened in October. The 10-year benchmark triple-A general obligation bond's yield fell by 12 basis points to 2.10% from October 1 to Monday, according to MMD Interactive. The 30-year's yield dropped by nine basis points to 2.95% during the same time.
"These [taxable California] bonds also are a diversification tool," a trader in Chicago said. "And where can you get decently rated, diversification California credits these days? California issuance has been so low this year and everything that comes is a big name, and you never get the amount of bonds you put in for."
A trader in New York said that his clients were calling him about the California deal saying they wanted more bonds.
"These [California Earthquake] bonds have not come in years, these short maturity deals get lots of interest out in California, and it looks relatively cheap," he said.
Goldman Sachs priced $350 million California Earthquake Authority revenue bonds at par, with coupons from 1.194% on a 2016 maturity, to 2.805% on a final 2019 maturity.
The bonds are rated A3 by Moody's and A by Fitch, and are not callable. There is a sinking fund of a 2019 term bond.
He also said that his group was looking at taxable bonds in the secondary, focusing on those maturing from 2030 to 2035 with calls around 2019.
Both the Chicago and the New York traders said that even though the bonds are taxable, they expected retail investors participated actively in this deal.
WTC a $1.6 Billion Blip
New York Liberty Development Corporation's sale of $1.6 billion of revenue bonds for the 3 World Trade Center project were a blip on the market's radar on Tuesday because they were sold through a private placement agreement.
"We don't know who's buying them," according to the trader in New York, noting that the sale was limited to "qualified" investors.
"Qualified investor" is a legal term, defined in SEC's Rule 501 of Regulation D. It refers to banks, insurance companies, registered investment companies, or employment benefit companies. It also includes a person with their spouse with a joint net worth of over $1 million, a person with income of over $200,000, or joint income over $300,000, and a trust with assets of over $5 million whose purchases are made by 'a sophisticated person', as well as other market participants and entities.
"I don't think the bonds will ever be very liquid," the trader said.
Because the $1.6 billion deal was privately placed, it will not have an impact on municipal market scales, traders said.
The deal is two parts totaling $1.36 billion and $231 million respectively, with the $1.36 billion portion divided into $1.1 billion class 1 and $278.1 million class 2 bonds.
The class 1 bonds had a 5% coupon on a 2044 maturity. The bonds contain an option to call the at par in 2014, and a sinking fund on a 2044 term bond.
The class 2 bond have a 5.15% coupon on a 2034 maturity and a 5.375% coupon on a 2040 maturity. These coupons were dropped during repricing from coupons of 5.30% on 2034 and 5.50% on 2040 according to the deal's preliminary pricing wire.
The bonds can also be called at par in 2024, and have sinking funds on 2034 and 2040 term bond.
The $231 million section, which are class 3 bonds, of the deal had a 7.25% coupon on a 2044 maturity, and the bonds contain an optional par call in 2024.
There is a sinking fund on a 2044 term bond.
A source close to the deal told The Bond Buyer that the 3 World Trade Center bonds were "successfully priced."
"[This deal] means that we have now secured all the financing necessary to complete 3 WTC and open the building in 2018, making it the fourth tower to open at the WTC," Silverstein Properties Chairman Larry A. Silverstein said in a statement. "7 WTC opened in 2006 and is fully occupied. The first office workers began moving into 4 WTC on Monday and will be followed next week by the first tenants at One WTC."
More than five million square feet of office space in the new towers already leased, he said.
Primary
The Metropolitan District of Hartford County, Conn. Issued $140 million clean water project revenue "green" bonds with yields from 0.13% with a 3% coupon in 2015 to 3.30% with a 5% coupon in 2042.
The bonds were priced by JP Morgan Securities, which was also the underwriter on the June New York State Environmental Facilities Corp.'s $213 million bond sale. The June deal was the first green bond deal to comply with the green bond principles, a set of environmentally sustainable issuance guidelines that have been endorsed by about 25 banks since they were announced earlier this year
The bonds can be called at par in 2024, and earned ratings of Aa2 from Moody's, and AA from S&P. There is a sinking fund on the 2042 term bond.
Scales
Municipal bonds weakened on Tuesday with yields rising by one basis points for bonds maturing in 27 to 30 years, according to Municipal Market Data's triple-A scale. The rest of the curve was unchanged.
Treasuries were mixed with the two-year note's yield dropping by one basis point to 0.40% from market close on Monday. The 10-year's rose by two basis points to 2.29%, and the 30-year's increased by three basis points to 3.07%
