San Diego, Midway Bonds Price as Market Absorbs Deals Early

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Top-quality municipal bonds finished steady to weaker on Wednesday, according to traders, as issuers looked to complete deals ahead of time before the Memorial Day holiday weekend.

The busiest day of the week came and went, as traders said getting more deals done Wednesday might allow the market to go into "sleep mode" a little early.

JPMorgan Securities priced the San Diego Public Facilities Financing Authority's $566.65 million of Series 2016A and 2016B subordinated water revenue bonds.

The $40.69 million of Series 2016A subordinated water revenue bonds were priced to yield from 0.64% with a 4% coupon in 2017 to 2.50% with a 2.5% coupon in 2036; a 2041 split maturity was priced as 4s to yield 2.95% and as 5s to yield 2.64%; a 2045 maturity was priced as 5s to yield 2.66%.

The $525.96 million of Series 2016B subordinated water revenue refunding bonds were priced as 5s to yield from 0.49% in 2016 to 2.58% in 2039.

The bonds, which are payable solely from subordinated installment payments secured by net system revenues of the water utility fund, are rated Aa3 by Moody's Investors Service and AA-minus by Fitch Ratings.

Barclays Capital priced the city of Chicago's $348.36 million of Series 2016A AMT and Series 2016B Non-AMT second lien revenue and revenue refunding bonds for Midway Airport.

The $121.50 million of Series 2016A bonds were priced to yield from 0.75% with a 2% coupon in 2017 to 3.21% with a 4% coupon in 2033. The $221.86 million of Series 2016B bonds were priced to yield from 0.69% with a 2% coupon in 2017 to 1.46% with a 5% coupon in 2022. The bonds were also priced to yield from 3.14% with a 3% coupon in 2033 to 2.90% with a 5% coupon in 2037. A term bond in 2041 was priced to yield 2.99% with a 5% coupon and a term bond in 2046 was priced to yield 3.04% with a 5% coupon.

The bonds are rated A by S&P Global Ratings, Fitch and Kroll Bond Rating Agency.

City finance officials said the deal was oversubscribed by 3 times, allowing the syndicate to lower yields on some maturities by up to 10 basis points. The paper was purchased by 75 investors – including many buyers who do not currently hold Midway debt. The true interest cost landed at 3.65%, which the city said was its lowest borrowing cost of borrowing when compared to similar Midway paper. The city achieved a present value savings of $4.3 million or about 10% on the refunding piece of the sale.

Traders said the Midway deal was oversubscribed by "a few times," adding that no deals today were as oversubscribed as they'd been in the past few weeks.

"[A few times oversubscribed] is a little light for these days, but I do think there is some pre-holiday flight going on and that will continue the rest of this week," said one New York trader.

Bank of America Merrill Lynch priced the Los Angeles Department of Water and Power's $265.17 million of Series 2016B water system revenue bonds for retail investors.

The issue was priced as 5s to yield from 1.09% in 2021 to 2.45% in 2038; 2.51% in 2042 and 2.55% in 2046. The deal is rated Aa2 by Moody's, AA-plus by S&P Global Ratings and AA by Fitch.

BAML also priced the Washington Metropolitan Area Transit Authority, D.C.'s $220 million of Series 2016A gross revenue transit bonds. The issue was priced to yield from 0.83% with a 4% coupon in 2017 to 1.11% with a 4% coupon in 2019. The deal is rated A2 by Moody's and AA-minus by S&P.

"There continues to be decent demand out there, and deals are getting done and getting done at reasonable levels," said another New York trader.

In the competitive sector on Wednesday, Fort Worth, Texas, sold $258.53 million of bonds in three separate offerings.

Morgan Stanley won the $165.11 million of Series 2016 general purpose refunding and improvement bonds with a true interest cost of 2.38%. Pricing information was not available. The bonds are rated Aa2 by Moody's and AA-plus by S&P and Fitch.

Wells Fargo Securities won the $75.27 million of Series 2016 water and sewer system revenue refunding and improvement bonds with a TIC of 2.81%; the bonds are rated Aa1 by Moody's, AA-plus by S&P and AA by Fitch. Frost Bank won the $17.53 million of Series 2016 drainage utility system revenue refunding bonds with a TIC of 2.48%; the bonds are rated AA-plus by S&P and Fitch.

The Metropolitan Council of the Minneapolis-St. Paul Area in Minnesota competitively sold $164 million of bonds in three separate offerings.

Citigroup won the $123.13 million of Series 2016C GO wastewater and refunding bonds with a TIC of 2.28%. The issue was priced to yield from 0.54% with a 5% coupon in 2017 to 2.80% with a 3.50% coupon in 2036.

Barclays Capital won the $36.17 million of Series 2016A GO transit and refunding bonds with a TIC of 1.31% and Morgan Stanley won the $4.7 million of Series 2016B GO park bonds with a TIC of 0.82%. The bonds are rated triple-A by Moody's and S&P.

The Santa Clara County Financing Authority, Calif., competitively sold $160.85 million of Series 2016Q refunding lease revenue bonds for multiple facilities projects.

Morgan Stanley won the bonds with a TIC of 2.84%. The bonds were priced to yield from 0.70% with a 5% coupon in 2018 to 3.35% with a 3% coupon in 2035. A term bond in 2037 was priced to yield 3.65% with a 3% coupon. The deal is rated AA-plus by S&P and AA by Fitch.

Since 2006, the authority has issued about $1.2 billion of bonds with the largest issuance occurring in 2008 when it sold $382.4 million of debt. The authority did not come to market in 2011 or 2013.

Citi won the Los Angeles County Metropolitan Transportation Authority's $86.57 million of Series 2016A Proposition C sales tax revenue refunding bonds with a TIC of 1.93%. The issue was priced to yield from 0.58% with a 5% coupon in 2017 to 2.24% with a 4% coupon in 2030. The bonds are rated Aa2 by Moody's and AA-plus by S&P.

Secondary Market

The yield on 10-year benchmark muni general obligation was one basis point higher to 1.66% from 1.65% on Tuesday while the 30-year muni yield was steady from 2.45%, according to the final read of Municipal Market Data's triple-A scale.

U.S. Treasuries were weaker. The yield on the two-year Treasury increased to 0.91% from 0.90% on Tuesday, while the 10-year Treasury yield rose to 1.86% from 1.83% and the yield on the 30-year Treasury bond increased to 2.67% from 2.64%.

The 10-year muni to Treasury ratio was calculated at 88.8% on Wednesday compared to 88.8% on Tuesday, while the 30-year muni to Treasury ratio stood at 91.8% versus 92.7%, according to MMD.

Conn. Treasurer: Bond Sale Saved $75.5M

This week's sale by Connecticut of $501.44 million general obligation refunding bonds produced a savings of $75.5 million in debt service costs over the life of the refinanced bonds, according to State Treasurer Denise Nappier.

The rates on the deal were lower than in the state's last sale in March due to lower overall interest rates, the treasurer's office said. The interest rate on the five-year maturity was six basis points lower than in March while the rate for the 10-year maturity was 19 basis points lower. The total interest cost on the 11-year bond issue was 2.11%.

"While recent ratings actions certainly impacted the bond sale, Connecticut still sold its bonds at relatively low interest rates, and by that measure, the transaction can fairly be described as a success," Nappier said in a press release. "That said, the spreads on these bonds are somewhat higher than what we saw in March, which is attributable to a number of factors beyond the ratings action, including the Federal Reserve's comments last week that interest rates are on track to increase this year."

Ahead of the sale, S&P and Fitch cut the state's credit rating to AA-minus with stable outlooks. Moody's and Kroll affirmed their ratings of Aa3 and AA, respectively, both with negative outlooks.

During the one-day retail order period, individual investors ordered over $57.4 million of the bonds. The state received a total of $518.8 million in orders from institutional investors. BAML and Williams Capital Group were co-senior managers on the deal.

"With interest rates close to historic lows, this debt refinancing transaction lowers the state's debt costs and is consistent with our ongoing commitment to proactively manage the state's debt," Nappier said.

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