As the first quarter begins to take shape and the municipal market faces $16.89 billion of 30-day visible supply, a handful of issuers plan to test the primary market with sizable deals amid thriving demand for attractive returns, despite last week's drop in yields.
The total volume in the competitive and negotiated markets this week is estimated at $4.85 billion, versus a revised total of $2.07 billion for last week, according to Thomson Reuters.
The activity will be anchored by a planned $750 million offering of electric system revenue bonds from the Salt River Project Agricultural Improvement and Power District in Arizona, as well as an expected $400 million sale of general obligation bonds from Minnesota.
Also in the utility sector, the Long Island Power Authority is gearing up to sell $250 million of electric system revenue bonds on Thursday, after Morgan Stanley & Co. prices for retail investors on Wednesday. The exact structure of the 30-year deal was not available at press time. Moody's Investors Service rates the bonds A3, while Standard & Poor's and Fitch Ratingsrate them an equivalent A-minus.
Strong demand continued last week even though yields decreased between five and six basis points along the curve on Thursday, and the reality of the worsening recession was made clear by Friday's news that the nation's unemployment rate rose to 7.2% in December - the highest in nearly 16 years. Demand is being fueled by the historically attractive ratio between municipals and Treasuries in the intermediate- to long-end of the curve, according to market participants.
Though the ratio has decreased from more than 200% a month ago, on Friday, 30-year municipals, for instance, were yielding 160% of 30-year Treasuries, according to Municipal Market Data. Historically, the ratio on the long end is closer to 95%, market participants noted.
So far, the market has embraced the supply that has come since the start of the year, including a $1.1 billion tax-exempt and taxable sale of state personal income tax revenue bonds from New York's Empire State Development Corp. - the largest deal in the first official full trading week of 2009.
The deal, which was rated AAA by Standard & Poor's and AA-minus by Fitch, found brisk demand when Citi priced it on Wednesday. The final tax-exempt maturity due in 2038 was structured with a 51/4% coupon and priced to yield 5.34% at a time when the generic triple-A GO bond due in 2038 was yielding 4.93%, and the generic, insured GO due in 2038 was yielding 5.20%, according to MMD.
On Friday, the generic triple-A GO bond due in 2029 ended at a 4.84% yield, after closing at a 4.88% on Thursday.
Back to this week's calendar, Goldman, Sachs & Co. is planning to offer the Salt River bonds to retail investors today, followed by an official institutional pricing tomorrow. The bonds are rated Aa1 by Moody's and AA by Standard & Poor's. The structure was not available by press time on Friday, according to the firm.
Elsewhere in Arizona, the city of Chandler is scheduled to sell a two-pronged offering in the competitive market tomorrow totaling $285 million. The larger series is $252 million of GOs maturing from 2010 to 2028 and is rated Aa1 by Moody's and AAA by Standard & Poor's and Fitch. In addition, the city will sell $32.4 million of excise tax revenue obligations also maturing from 2010 to 2028. Those bonds are rated Aa3 by Moody's, AAA by Standard & Poor's, and AA-plus by Fitch.
In the Midwest, Minnesota will sell a three-pronged GO deal tomorrow in the competitive market totaling $400 million. The deal will consist of two tax-exempt series - $325 million of various purpose GOs and $70 million of GO highway bonds - both of which mature from 2009 to 2028. There will also be a $5 million taxable tail maturing in 2013.
Minnesota's GO debt is rated Aa1 by Moody's and AAA by Standard & Poor's and Fitch.
Fairfax County, Va., and Delaware will both flaunt their natural triple-A GO quality in the market this week.
Fairfax County is planning to issue public improvement GO and refunding bonds tomorrow in the competitive market in two series - $204 million of Series 2009A new-money debt and $45 million of Series 2009B public improvement refunding bonds - both of which mature from 2010 to 2029.
Delaware will sell $225 million of GO paper in a deal that will see $115 million priced for retail by Morgan Stanley today and tomorrow, ahead of the pricing of the remaining $110 million of the deal in the competitive market on Thursday. Bonds mature from 2010 to 2029.
One of the only other sizable deals on tap this week is a $200 million natural triple-A-rated water revenue offering from the Metropolitan Water District of Southern California planned for pricing by Stone & Youngberg LLC on Thursday after a retail-order period on Wednesday. The bonds, which are structured to mature from 2012 to 2039, are rated Aa2 by Moody's, AAA by Standard & Poor's, and AA-plus by Fitch.