Primary market hit with tsunami of issuance as tax bill takes another step
Breakneck action continued in the primary market on Tuesday as issuers flooded the market ahead of the tax overhaul vote in order to get deals closed before the end of the year.
The tax bill was passed in the House 227-203 without any democratic support. Private activity bonds including stadium financing would be untouched but advance refundings would disappear. The bill was headed to the Senate for a vote on as soon as Tuesday night.
Tuesday's volume included both advance refundings that must close before they are banned at year end under the tax overhaul and some private activity bonds that were added to the calendar because of a ban on PABs in the House version of the bill that was left out of the final bill.
The MBIS municipal non-callable 5% GO benchmark scale was weaker through trading until Tuesday’s market close.
The 10-year muni benchmark yield rose to 2.315% from Monday’s final read of 2.296%, according to Municipal Bond Information Services. The MBIS 30-year benchmark muni yield increased to 2.791% from 2.776%.
The MBIS benchmark index, which is comprised of investment-grade municipal securities, is updated hourly on the Bond Buyer Data Workstation.
Top-rated municipal bonds finished weaker on Tuesday. The yield on the 10-year benchmark muni general obligation was five basis points higher to 2.08% from 2.03% on Monday, while the 30-year GO was up six basis points to 2.68% from 2.62%, according to a final read of MMD’s triple-A scale.
U.S. Treasuries were weaker at the market close on Tuesday. The yield on the two-year Treasury inched up to 1.85% from 1.83%, the 10-year Treasury yield climbed to 2.46% from 2.39% and the yield on the 30-year Treasury rose to 2.82% from 2.74%.
On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 84.5% compared with 84.9% on Monday, while the 30-year muni-to-Treasury ratio stood at 94.9% versus 96.6%, according to MMD.
The deals were piling into the muni market early and often on Tuesday, in one of the last busy days of 2017.
The calendar was packed with private activity deals, some of which tend to have higher yields.
“It was very busy today, maybe the busiest day yet for HY munis this year,” said one market participant. “Smaller deals struggled to get attention and got cheapened, while other deals did very well and were bumped.”
One deal that did not price as anticipated was the biggest deal of the week. Barclays Capital was expected to price Houston’s $1.007 billion of pension general obligation taxable bonds on Tuesday.
As of press time, the deal was “still being worked on” according to the syndicate, which also indicated that it was are now shooting for Wednesday. The deal is rated Aa3 by Moody’s Investors Service and AA by S&P Global Ratings.
Prior to Tuesday, Houston put out a disclosure regarding a lawsuit that challenges the legality of the city's ballot language, and therefore the deal.
"The suit alleges that because of language in the election proposition, the City misled the voters as to the effect of the election on the revenue limitations of the City Charter and is therefore void," the notice states.
"Because the City is required to comply with the City Charter revenue limitations as a condition for the Attorney General to issue its approving opinion, no case or controversy is presented which would adversely affect issuance of the Bonds. Upon issuance of the Attorney General's opinion in connection with the approval of the Bonds, the Bonds are valid and incontestable under Texas law," according to the notice.
"We’re still moving forward as planned," said Max Moll, spokesman for Houston Controller Chris Brown. "There are people in New York still pricing the bonds. We’ve had over $3 billion of orders for these bonds."
Jefferies sent around a pre-marketing scale on the Railsplitter Tobacco Settlement Authority, Ill.’s $678.61 million of settlement revenue bonds on Tuesday, ahead of institutional pricing on Wednesday. The premarketing has the 2022 maturity about 85 basis points above the comparable Treasury and the 2028 maturity at about 100 basis points above the comparable Treasury. The deal is rated A by S&P with the exception of the 2028 maturity, which is rated A-minus by S&P.
Morgan Stanley priced California Health Facilities Financing Authority’s $454.99 million of refunding revenue bonds for Stanford Healthcare. The bonds are priced to yield from 1.64% with a 5% coupon in 2021 to 2.86% with a 5% coupon in 2037. A term bond in 2040 was priced to yield 3.25% with a 4% coupon. The deal is rated Aa3 by Moody’s, AA-minus by S&P and AA by Fitch.
Since 2007, the California HFFA has issued roughly $20.21 billion of bonds, with the most issuance before this year occurring in 2016 when it sold $3.21 billion of bonds. The authority saw a low year of issuance in 2014 when it issued $500 million.
Goldman Sachs priced the Riverside County, Calif., Transportation Commission’s $393.44 million of sales tax revenue refunding limited tax bonds. The bonds were priced to yield from 1.78% with a 5% coupon in 2024 to 2.79% with a 5% coupon in 2039. The deal is rated AA-plus by S&P and AA by Fitch Ratings.
Morgan Stanley priced The School Board of Broward County, Fla.’s $207.53 million of certificates of Participation. The $56.3 million of series 2017B COPs were priced to yield from 2.56% with a 5% coupon in 2028 to 2.89% with a 5% coupon in 2034.
The $151.23 million of series 2017C Cops were priced to yield from 1.95% with a 5% coupon in 2022 to 2.38% with a 5% coupon in 2026. The deal is rated Aa3 by Moody’s and A-plus by Fitch.
RBC Capital Markets sent around a pre-marketing scale on the New Jersey Economic Development Authority’s $183.215 million of revenue refunding bonds for the Montclair State University Student Housing Project.
The bonds were listed about 25 basis points above the benchmark scale with a 4% coupon in 2019 to about 95 basis points above the benchmark scale with a 5% coupon in 2032. A term bond was listed at about 90 basis points above the benchmark scale with a 5% coupon and about 120 basis points above the benchmark scale with a 4% coupon in a split maturity. A 2042 term bond with a split maturity was listed at about 90 basis points above the benchmark scale with a 5% coupon and about 120 basis points above the benchmark scale with a 4% coupon. The deal is rated Baa3 by Moody’s and AA by S&P on the majority of maturities that are insured by Assured Guaranty Municipal Corp.
Goldman priced the New Jersey Health Care Facilities Financing Authority’s $173.59 million of state contract refunding bonds for the Hospital Asset Transformation Program. The bonds were priced to yield from 2.61% with a 5% coupon in 2020 to 3.97% with a 5% coupon in 2038.
Wells Fargo priced the California Infrastructure and Economic Development Bank’s $171.5 million of refunding revenue bonds for the Los Angeles County Museum of Art Project. The $78 million of series 2017A bonds were priced at par to yield about 65 basis points above the one-month Libor in 2050 with a mandatory tender date of 2021.
The $93.5 million of series 2017B bonds were priced at par to yield about 65 basis points above the one-month Libor in 2050 with a mandatory tender date of 2021. The deal is rated A3 by Moody’s.
Morgan Stanley priced the Indianapolis Local Public improvement Bond Bank’s $150.86 million of refunding bonds for the Pilot Infrastructure Project. The bonds were priced to yield from 1.87% with a 5% coupon in 2021 to 3.39% with a 4% coupon in 2037. A term bond in 2040 was priced to yield 3.13% with a 5% coupon. The deal is rated Aa2 by Moody’s.
Citi priced Harbor Point Infrastructure Improvement District, Conn.’s $145.855 million of special obligation revenue refunding bonds for the Harbor Point Project. The deal was priced to yield 2.75% with a 5% coupon in 2022, 3.375% with a 5% coupon in 2030 and 3.75% with a 5% coupon in 2039. This deal is not rated.
JPMorgan priced the Medical Center Educational Building Corp.’s $144.22 million of revenue bonds for the University of Mississippi Medical Center. The $131.875 million of series 2017A bonds were priced to yield 1.36% with a 4% coupon in 2018 and from 2.29% with a 5% coupon in 2024 to 3.42% with a 4% coupon in 2034. A term bond in 2042 was priced to yield 3.27% with a 5% coupon and a 2047 term was priced to yield 3.72% and 3.32% with a 4% coupon and 5% coupon in a split maturity.
The $12.345 million of series 2017B taxable bonds were priced at par to yield from 2.45% in 2020 to 3.10% in 2024. The deal is rated Aa2 by Moody’s and AA by Fitch.
RBC priced the Colorado Bridge Enterprise’s $114.66 million of senior revenue private activity and alternative minimum tax bonds for the Central 70 Project. The bonds were priced to yield from 2.35% with a 4% coupon in 2023 to 3.27% with a 4% coupon in 2031. A term bond in 2051 was priced to yield 3.76% with a 4% coupon. The deal is rated A-minus by S&P.
Ramirez priced the Massachusetts Development Finance Agency’s $33 million of revenue bonds for Babson College. The bonds were priced to yield from 1.38% with a 4% coupon in 2018 to 2.95% with a 5% coupon in 2036. A term bond in 2042 was priced to yield 3.03% with a 5% coupon and a term bond in 2047 was priced to yield 3.09% with a 5% coupon. The deal is rated A2 by Moody’s.
“It was more of a challenging market today, with the 10-year Treasury up 10 points from where it was at this time yesterday, but we are very pleased with the results,” said Katherine P. Craven, chief administrative and financial officer of Babson College. “The deal was two times oversubscribed and we received $67 million in orders.”
The deal, which was accelerated when private activity bonds were put on the tax bill chopping block, received “robust demand from a lot of repeat investors.” The paper from the small private business school in Wellesley, Mass., with a 2016 enrollment of 3,057 has some scarcity value in the market.
“We put together the deal a lot quicker than usual and our team did a great job preparing for market,” she said.
Along with Ramirez, Hilltop Securities was the financial advisor. The proceeds from the sale will go towards a new gymnasium and recreational facilities. The gym has been in use since the 1980’s.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Vanessa Kim at 212-803-8474 for more information.
Richard Williamson contributed to this report.