Top-rated municipal bonds strengthened on Tuesday, according to traders, as long-term yields tumbled into record low territory.
Issuers in the primary benefitted, with sources saying that LaGuardia Airport's $2.3 billion bond deal netted over $20 billion of orders.
Citigroup priced the New York Transportation Development Corp.'s $2.29 billion of Series 2016A tax-exempt bonds and an additional $150 million of Series 2016B taxables for the LaGuardia Special Facilities Terminal B Redevelopment Project.
The tax-exempts, which are subject to the alternative minimum tax, were priced to yield from 2.69% with a 5% coupon in 2030 to 3.11% with a 4% coupon in 2037. A split 2041 maturity was priced as 4s to yield 3.55% and as 5s to yield 3.22%; a split 2046 maturity was priced as 4s to yield 3.60% and as 5s to yield 3.27%; a 2050 maturity was priced as 5 1/4s to yield 3.30%; and a 2051 maturity was priced as 4s to yield 3.41%.
The tax-exempts are rated Baa3 by Moody’s Investors Service and triple-B by Fitch Ratings except for the 2035-2037 and 2051 maturities which are insured by Assured Guaranty Municipal and rated A2 by Moody’s, AA by S&P Global Ratings, and AA-plus by Kroll Bond Rating Agency. Assured wrapped roughly $421.06 million on this deal.
The $150 million of Series 2016B taxables were priced at par to yield from 3.023% in 2024 to 3.673% in 2030. The taxables were rated Baa3 by Moody's and triple-B by Fitch.
"It was a complete blowout," said a New York trader. "It was mainly a lot on the end type of deal and all the dominos fell into place," he said.
The trader said that with net negative supply in the market and positive cash flow for the past six months into bond funds, municipals are starting to attract the crossover buyer.
"People are starved for yield. With this deal they are putting their reputation on the line and it is a marquee name," he said. "At the end of the day, it's one of the busiest airports in the world. Eighty percent of the revenue will be from the airlines, so even without selling one doughnut or cup of coffee it's going to generate a lot of revenue, there are a lot of positives going into it."
He said that there used to be a great fear of new supply, but "I've always said that it's the anticipation of the deal weakens the market and the actual deal hitting the market that strengthens it. This was a good deal for the market and not making any ripple."
Another New York trader said that while he was not surprised how many orders were sold and how oversubscribed it was, he said it did exceptionally well despite the triple-B credit.
"It certainly didn't hurt that we will most likely see another record low for the 30-year MMD scale and this deal goes back 35 years, plus the fact people are chasing what there was a lot of -- and that is yield," he said.
Overall, traders said the deal garnered widespread interest and excitement, with one source saying that over $20 billion of orders had come in for the offering. Although the exact number of orders that were received was not available, one source said that it was the largest airport and largest AMT transaction ever.
On Monday, underwriters sent around a pre-marketing notice around on the offering, which contained no insurance. According to the pre-marketing scale, the bonds were yielding from 2.91% with a 5% coupon in 2030 to 3.60% with a 4% coupon in 2037; a split 2041 maturity was priced as 4s and 5s to yield 3.77% and 3.47%; a 2046 maturity was priced as 5s to yield 3.52%; and a split 2051 maturity was priced as 4s and 5 1/4s to yield 3.97% and 3.57%.
Also on Tuesday, Bank of America Merrill Lynch held a second day for retail orders on New York City's $800.13 million of Fiscal 2016 Series E and F GOs ahead of the institutional pricing on Wednesday.
The $774.04 million of Series E bonds were priced on Tuesday for retail to yield from 0.86% with a 5% coupon in 2019 to 2.90% with a 3% coupon in 2036; the 2017 and 2018 maturities were offered as sealed bids. No retail orders were taken in the 2027-2032 maturities.
The $26.10 million of Series F bonds were priced for retail on Tuesday to yield from 0.86% with a 3% coupon in 2019 to 2.79% with a 3% coupon in 2034; the 2016-2018 maturities were offered as sealed bids.
The NYC GOs are rated Aa2 by Moody's and AA by S&P and Fitch.
BAML also priced the Municipal Electric Authority of Georgia's $355.55 million bond offering.
The $277.01 million of Series 2016A Project One subordinated bonds were priced to yield from 0.65% with a 5% coupon in 2017 to 2.36% with a 5% coupon in 2030. The $78.55 million of Series 2016A general resolution projects subordinated bonds were priced to yield from 0.65% with a 5% coupon in 2017 to 2.36% with a 5% coupon in 2030. The issue is rated A2 by Moody's, A by S&P and A-plus by Fitch.
Since 2007, MEAG has issued about $6 billion of debt, with the largest issuance year occurring in 2010 when the authority sold $2.79 billion of securities. MEAG did not come to market at all in 2013 or 2014.
Raymond James priced Henrico County, Va.'s $125.33 million of Series 2016 water and sewer revenue and refunding bonds. The issue was priced to yield from 0.65% with a 2% coupon in 2018 to 2.36% with a 5% coupon in 2038; a 2042 maturity was priced as 5s to yield 2.46% and a split 2046 maturity was priced as 5s to yield 2.50% and at par to yield 3.125%. A 2017 maturity was offered as a sealed bid. The deal is rated Aa1 by Moody's and triple-A by S&P and Fitch.
Piper Jaffray priced the Metropolitan Government of Nashville and Davidson County, Tenn.'s $346.93 million of Series 2016 GO refunding bonds. The issue was priced to yield from 0.76% with a 2% coupon in 2018 to 2.25% with a 5% coupon and 2.48% with a 4% coupon in a split 2033 maturity. The deal is rated Aa2 by Moody's and AA by S&P.
In the competitive arena on Tuesday, the state of New Mexico sold $303.78 million of severance tax bonds in two separate sales.
BAML won the $261 million of Series 2016A severance tax bonds and Series 2016B refunding severance tax bonds with a true interest cost of 1.38%. The $79.02 million of Series 2016A bonds were priced as 5s to yield from 1.14% in 2021 to 1.80% in 2026. The $181.98 million of Series 2016B bonds were priced as 4s to yield from 0.89% in 2019 to 1.51% in 2024. Robert W. Baird won the $42.78 million of Series 2016C taxable severance tax bonds with a TIC of 1.27%. The bonds are rated Aa2 by Moody's and AA-minus by S&P.
The Washington Suburban Sanitary District, Md., competitively sold $183.63 million of bonds in two separate sales.
Wells Fargo Securities won the $145 million of consolidated public improvement bonds of 2016 with a TIC of 2.81%. The issue was priced to yield from 0.57% with a 5% coupon in 2017 to approximately 3.109% with a 3% coupon in 2046.
BAML won the $38.63 million of consolidated public improvement refunding bonds of 2016 with a TIC of 1.08%. The issue was priced to yield from 0.61% with a 4% coupon in 2017 to 1.39% with a 4% coupon in 2025. Both deals are rated triple-A by Moody's, S&P and Fitch.
Loudoun County, Va., competitively sold $144.99 million of Series 2016A GO public improvement and refunding bonds. JPMorgan won the deal with a TIC of 1.86%. The issue was priced to yield from 0.50% with a 3% coupon in 2016 to 2.65% with a 3% coupon in 2035. The deal is rated triple-A by Moody's, S&P and Fitch.
Secondary Market
The yield on the 30-year general obligation scale fell three basis points on Tuesday to a record low of 2.39% from its previous low of 2.42% set last week, according to the final read of Municipal Market Data's triple-A scale.
The yield on the 10-year benchmark muni was unchanged from 1.54% on Monday, according to MMD. Its all-time low of 1.47% was set in November 2012.
U.S. Treasuries were narrowly mixed on Tuesday. The yield on the two-year Treasury rose to 0.82% from 0.78% on Monday, while the 10-year Treasury yield inched up to 1.76% from 1.75% and the yield on the 30-year Treasury bond was unchanged from 2.59%.
The 10-year muni to Treasury ratio was calculated at 87.6% on Tuesday compared to 87.9% on Monday, while the 30-year muni to Treasury ratio stood at 92.4% versus 93.2%, according to MMD.
