Prices of top-quality municipal bonds were slightly weaker at close on Tuesday, according to traders with yields on some maturities strengthening as much as one basis point.
New issuance flowed into the primary on Tuesday, as water deals from Washington D.C. and Texas hit screens, along with a deal from the Massachusetts Development Finance Agency.
Primary Market
Citi priced and then re-priced the Texas Water Development Board's $795.62 million of state water implementation revenue bonds, which is comprised of $783.64 million for Series 2015 A Master Trust and $11.98 million of Series B taxable bonds. The Series A bonds were priced to yield from 0.23% with a 2% coupon in 2016 to 3.46% with a 4% coupon in 2035. A 2040 term bond was priced as 4s and as 5s in a split maturity to yield 3.66% and 3.26%, respectively. A 2045 term bond was priced as 4s and as 5s in a split maturity to yield 3.73% and 3.33%, respectively. A term bond in 2050 was priced as 4s to yield 3.85%.
The $11.98 million of taxable series b bonds were priced at par to yield from 0.45% in 2016 to 3.053% in 2025. The bonds were also priced at par in term bonds in 2030, 2035 and 2050, to yield 3.703%, 4.248% and 4.648%. The deal is rated triple-A by both S&P and Fitch Ratings.
Bank of America Merrill Lynch priced the District of Columbia Water and Sewer Authority's $350 million of public utility subordinate lien revenue bonds and green bonds, after a retail order period on Monday. The series 2015A green bonds for $100 million were priced to yield from 0.87% with a 3% coupon in 2018 to 2.56% with a 5% coupon in 2027. A 2045 term bond was priced as 4s and as 5s to yield 3.75% and 3.50% in a split maturity.
The $250 million of Series 2015B were priced to yield from 2.70% with a 5% coupon in 2028 to 3.28% with a 5% coupon in 2037. A 2040 term bond was priced to yield 3.36% with a 5.25% coupon. A 2044 term bond was priced to yield 3.42% with a 5.25% coupon. The deal is rated Aa3 by Moody's, AA by Standard and Poor's and AA-minus by Fitch.
Mark T. Kim, Chief Financial Officer, DC Water said both sales were successful.
"The highlight of the deal for us was the success of our second green bond issue," said Kim. "Our strategy of offering a priority order period for green portfolio and retail investors one day prior to pricing was successful and generated a strong response with almost every single maturity being oversubscribed. We lowered yields on the Series A green bonds across most maturities by 2-6 basis points, notwithstanding MMD moving higher in yields throughout the day. We believe that this is the first issue to give green portfolio investors priority order status and brought new first-time green investors to DC Water."
The deal was a follow-up to DC Water's first ever green bond last year. The proceeds will go toward the DC Clean River Project, where the proceeds of the inaugural green bond went last year. Last year's deal was a taxable century bond from the senior lien, whereas this green bond issue is tax-exempt and more of a traditional 30 year structure, from the subordinate lien.
The proceeds from the Series B bonds will be used to fund a portion of DC Water's capital improvement program.
"It was a really strong day for DC water and the rate payers, as the TIC will be less than 4% on an all in basis and will actually be closer to 3.89%, which would make it one of the lowest cost to funds DC water has ever received," said Kim. "It is a good time to access the market and we did so under favorable conditions. We are thrilled with the response, especially for the green bond and it is likely we will come to market with additional green bonds in the future."
Elsewhere, Citi priced and then re-priced the Massachusetts Development Finance Agency's $234.245 million of revenue bonds, Series 2015F for the Lahey Health System Obligated Group. The bonds were priced as 5s to yield from 2.45% in 2024 to 3.56% in 2035. Term bonds in 2040 and 2045 were also priced as 5s, but to yield 3.73% and 3.80%, respectively. The deal is rated A-plus by both Moody's and S&P.
JP Morgan priced the Industrial Development Authority of Wise Co. Va.'s $105 million of solid waste and sewage disposal revenue bonds, for the Virginia Electric and Power Company project. The bond was priced at par with a 1.875% coupon, with a mandatory put date of June 1, 2020. The deal is rated A2 by Moody's and A-minus by S&P.
In the competitive arena, Louisville and Jefferson County Metropolitan Sewer District, sold roughly $257.1 million in two separate series.
Series A of $175 million of sewer and drainage system revenue bonds was won by Bank of America Merrill Lynch with a true interest cost of 3.79%. The bonds were priced to yield from 0.52% with a 4% coupon in 2017 to 3.78% with a 4% coupon in 2040. A 2046 term bond was priced as 4s to yield 3.89%.
The Series B for $87.485 million of sewer and drainage system revenue refunding bonds was won by Hutchinson Shockey with a TIC of 3.26%. No other pricing information was immediately available.
The last time the district competitively sold bonds was Nov. 4, 2014, when it sold $80 million to Citi with a TIC of 3.81%.
Washington State sold $161.61 million of certificates of participation, Series 2015C for State and Local Agency Real and Person Property. JP Morgan won the bidding war with a TIC of 2.81%. The COPs were priced to yield from 0.24% with a 2% coupon in 2016 to 0.66% with a 5% coupon in 2017. They were also priced to yield from 0.93% with a 5% coupon in 2017 to 3.77% with a 4% coupon in 2038.
San Francisco sold $226 million of general obligation bonds, Morgan Stanley won with a TIC of 2.98%. The bonds were priced to yield from 0.19% with a 3% coupon in 2016 to 3.54% with a 3.5% coupon in 2035. The deal is rated Aa2 by Moody’s and AA-minus by S&P.
Tuesday's action preceded the mega deals that will be pricing on Wednesday and Thursday, when JPMorgan prices Chicago's O'Hare International Airport's $1.99 billion deal and Wells Fargo prices the Port Authority of New York and New Jersey's $2 billion deal.
The airport's finances are well-segregated from the troubles of the city government, but the city's general credit deterioration coupled with the mammoth size of the deal is likely to create yield penalties compared to similar revenue debt, market participants said.
"There is headline risk there: will O'Hare get hit with some of the burden? Yes. Is it fair? No, but life isn't fair. That is the way the market acts," said John Mousseau, executive vice president and director of fixed income at Cumberland Advisors. "That being said, O'Hare will be a good deal and the credit is very good, but it's an example of an issuer getting penalized at the margin for the city's problem."
According to a market source, the deal is being premarketed with a top yield of 4.53% in the $349.115 million of Series A bonds, a top yield of 3.79% in the $1.27 billion of Series B bonds and a top yield of 4.35% in the $195.14 million of Series C bonds.
Since 1995, O'Hare has come to market with roughly $12.29 billion of debt. The years of 2005 and 2012 saw the highest issuance with $1.5 billion and $1.2 billion, respectively. The international airport did not come to market at all in 1997, 2000, 2004, 2007, 2009 and 2014.
Secondary Trading
The yield on the 10-year benchmark muni general obligation closed flat on Tuesday from 2.01% on Monday, while the yield on the 30-year GO was one basis point higher to 3.06% from 3.05% on Monday, according to a final read of the Municipal Market Data's triple-A scale.
The 10-year muni to Treasury ratio was calculated on Tuesday at 98.8% versus 97.6% on Monday, while the 30-year muni to Treasury ratio stood at 106.5% compared to 105.1%, according to MMD.
Treasury prices were mostly stronger on Tuesday at the close, with the yield on the two-year Treasury staying flat 0.61% from Monday, while the 10-year yield dipped to 2.04% from 2.06% and the 30-year yield decreased to 2.88% from 2.90%.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar fell $1.929 billion to $13.045 billion on Tuesday. The total is comprised of $3.389 billion competitive sales and $9.656 billion of negotiated deals.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 32,478 trades on Monday on volume of $3.761 billion.
