Market Post: Sell-Off Makes $1.4B San Joaquin Deal Yields Rise

The municipal market's rising yields have starting impacting the pricing of lower-rated deals coming to market, traders said.

A trader in New York said the difference between the premarketing and preliminary pricing yields on the $1.404 billion San Joaquin Hills Transportation Corridor Agency' senior lien toll road refunding revenue bonds' series A current interest bonds demonstrates the sell-off is now affecting lower-rated credits' pricing. Yields on the series A bonds maturing from 2029 to 2050 were raised between eight and 20 basis points from premarketing to preliminary pricing, according to documents given to The Bond Buyer.

On Tuesday the sell-off caused some aggressively priced triple-A deals to reprice at higher yields, but had less of an impact on lower rated credits. The triple-B-rated $236.2 million Maryland Health and Higher Educational Facilities Authority deal did raise its yields on its longer maturities, but repriced shorter bonds at lower yields.

Investors said even the lower yields proposed during the San Joaquin bonds' premarketing pricing were surprising.

"The [San Joaquin] deal's yields feel like its signaling a bit of a weak market," a trader in Chicago said.

The bonds consist of senior lien toll road refunding revenue bonds and junior lien toll road refunding revenue bonds.

The senior lien bonds are rated BBB-minus by Standard & Poor's and Fitch Ratings, and are current interest bonds, convertible capital appreciation bonds, and capital appreciation bonds. The junior liens are rated BB-plus by S&P and Fitch and are current interest bonds.

Yields on the $1.11 billion series A bonds ranged from 0.70% with a 5% coupon in 2016 to 4.45% with a 5% coupon in 2050.

The 2029, 2034, 2044, and 2050 term bonds have sinking funds. There is an optional call at par in 2025.

The $294 million series B bonds were priced with yields ranging from 4.55% with a 5.25% coupon in 2044, to 4.80% with a 5.25% coupon in 2049.

The trader in Chicago said the 5% and 5.25% coupons indicate the deal was being heavily marketed toward institutional investors

Goldman and Barclays Capital are joint bookrunners on the deal, with Goldman running the series A and Barclays the series B.

The trader in New York did note that the deal was upsized from an originally scheduled $1 billion, meaning the underwriting team probably believed, despite the weakening market, there would be demand for the bonds.

Primary
The $500 million Metropolitan Transportation Authority transportation revenue bonds were priced for retail to yield from 2.73% with a 5% coupon in 2026, to 3.55% with a 5% coupon in 2044. The bonds have an optional call at par in 2024.

The deal has sinking funds on the 2039 and 2044 term bonds, and the bonds are rated A2 by Moody's Investors Service, AA-minus by S&P and A by Fitch.

Wells Fargo Securities won the bid for $258.7 million Seattle Municipal Light and Power improvement and refunding revenue bonds with yields ranging from 0.13% with a 5% coupon in 2015 to 3.60% with a 4% coupon in 2044.

The bonds carry ratings of Aa2 from Moody's and AA from S&P. The bonds can be called at par in 2024.

Bank of America Merrill Lynch won the bid for the $500 million Massachusetts general obligation bonds, and JP Morgan won the $200 million section.

The $500 million bonds have yields from 2.02% with a 5% coupon in 2023 to 2.98% with a 4% coupon in 2031. The bonds have an optional call at par in 2022.

The $200 million section is federally taxable with a 0.25% coupon in 2015, and a 1.85% coupon in 2019.

Bank of America Merrill Lynch won the bid for the $186.2 million Virginia College Building Authority bonds, which were priced to yield from 0.13% with a 3% coupon in 2015 to 3.29% with a 3.25% coupon in 2035. The bonds can be called at par in 2024.

Another $103 million part of the deal was won by JP Morgan and had a coupon of 2% on the 2015 maturity and a coupon of 5% on the 2044 maturity.

The bonds in both parts of the deal are rated Aa1 by Moody's, AA by S&P and AA-plus by Fitch.

Scales
Municipal bonds continue to sell off Wednesday with yields of bonds maturing in seven to 10 years rising as much as one basis point, according to Municipal Market Data's triple-A scale. Yields on bonds maturing in 11 to 15 years increased up to two basis points, and grew as much as one basis point for 16- to 19-year maturities.

The rest of the curve held steady.

Treasuries also experienced a yield increase on Wednesday with the 30-year rising by two basis point to 3.02% from Tuesday's market close. The 10-year yield grew by one basis point to 2.24%, and the two-year note by one basis point to 0.39%.

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