Buyer’s choice: Denver, Golden State, Conn. deals all come to market
Action was brisk in the municipal bond market on Tuesday as several big deals were priced in the primary, led by a multi-billion dollar airport offering.
Bank of America Merrill Lynch priced and repriced the city and county of Denver’s $2.525 billion of airport system subordinate revenue bonds on Tuesday. The offering consisted of $2.341 billion of Series 2018A bonds subject to the alternative minimum tax and $184.355 million of Series 2018B non-AMT bonds. The deal was upsized from the originally planned $2.28 billion.
Kim Day, CEO of Denver International Airport, told The Bond Buyer on Tuesday afternoon there were about $5.5 billion in orders for the bonds, with around $40 million of the deal going to retail investors.
Gisela Shanahan, DIA's CFO, said the airport is 23 years old and is planning several big improvements including adding 39 gates at the request of airlines, and revitalizing the airport's Great Hall.
The deal is rated A2 by Moody’s Investors Service, A by S&P Global Ratings and A-plus by Fitch Ratings. Fitch upgraded the bonds ahead of the sale. All three ratings agencies assign stable outlooks to the credit.
Since 2008, the city and county of Denver has issued over $9 billion of bonds, with the most issuance prior to this year coming in 2008 when it sold $1.45 billion. It sold the least amount in 2014 when it issued $16 million.
Jefferies priced and repriced the Golden State Tobacco Securitization Corp.’s $710.91 million of Series 2018A-2 tobacco settlement asset-backed turbo bonds. The deal is unrated.
Siebert Cisneros Shank & Co. priced Connecticut’s $639.135 million of Series 2018E and Series 2018F tax-exempt general obligation bonds for retail on Tuesday the ahead of the institutional pricing on Wednesday.
The deal is rated A1 by Moody’s, A by S&P, A-plus by Fitch and AA-minus by Kroll Bond Rating Agency.
Citigroup priced the Arizona Transportation Board’s $261.19 million of Series 2018 transportation excise tax revenue bonds for the Maricopa County Regional Area Road Fund.
The deal is rated Aa1 by Moody’s and AA-plus by S&P.
JPMorgan Securities priced the Trinity River Authority of Texas’ $219.01 million of Series 2018 regional wastewater system revenue improvement and refunding bonds.
The deal is rated AAA by S&P and AA-plus by Fitch.
BAML priced Boston University’s $300 million of taxable revenue corporate CUSIP bonds, SERIES CC. The deal is rated Aa3 by Moody’s and A-plus by S&P.
New issuance is driving the primary market in a big way this week -- as municipal traders said the nearly $12 billion slate caused investors to sit up and take notice.
“I think the story is the big calendar this week is the customer focus,” said a New York trader on Tuesday afternoon.
He cited the week’s largest deal -- the Denver airport sale -- as eye catching for the spreads on the bonds subject to the alternative minimum tax.
Meanwhile, he said there was decent demand in the retail order period for the state of Connecticut general obligation sale -- despite its lower credit quality and fiscal hurdles.
“That deal will be interesting given the state’s current situation with its financial status … they are one of the states with the highest income per capita but they put themselves in a fine kettle of fish with its myriad of deficit funding and pension issues and their low credit ratings,” the trader said.
He noted that the state’s fiscal dilemmas have caused spreads on its general obligation bonds in the secondary market to widen out over the last year -- but yet the state is set to bring a $900 million sale of GOs this week -- $640 million of which is tax-exempt.
The trader said it will be a big gamble for the state, however, the demand in the one-day retail order period Tuesday was promising. “It’s going to have to be priced attractively to get done,” he said, adding that the structure is a typical serial structure with bonds out to 19 years.
Click here for the state retail pricing
Almost $12 billion of volume hits the market this week, and retail and institutions were snapping up the new deals as they hit the screens, according to some market participants. Municipal sources continued to be elated that volume this week is approaching $12 billion, with some diverse structures and financings that have been in short supply lately.
"This week will be instructive because it is the biggest challenge for the muni market in the post-tax reform environment," George Friedlander of Court Street Group Research said. He said it could take a couple of days to see how the deals are priced and received, and will be "useful" to see how the mammoth $2 billion city and county of Denver AMT bonds price on spread to non-AMT bonds in the current environment.
Meanwhile, others agreed the boost in volume is feeding the healthy demand — even if that appetite is insatiable and more supply is needed.
"It is nice to finally see an uptick in supply after things have been so light coming off of the record issuance we saw at the end of 2017," Shaun Burgess, portfolio manager and analyst at Cumberland Advisors said. "The calendar is somewhat concentrated though so I don’t think this is the broad relief the market was looking for." However, Burgess said the deals his firm has been involved in have been well received and "are getting oversubscribed, which speaks to the demand side."
Bond Buyer 30-day visible supply at $16.65B
The Bond Buyer's 30-day visible supply calendar increased $338.6 million to $16.65 billion for Tuesday. The total is comprised of $2.82 billion of competitive sales and $13.83 billion of negotiated deals.
Municipal bonds were little changed on Tuesday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell less than a basis point in the two- to 13-year and 19- to 22-year maturities while yields rose less than a basis point in the one-year, 14- to 17-year and 25- to 30-year maturities and remained unchanged in the 18-year and 23- and 24-year maturities.
High-grade munis were mostly stronger, with yields calculated on MBIS’ AAA scale falling less than a basis point in the two- to 13-year and 17- to 30-year maturities while yields rose less that a basis point in the one-year and 14-year maturities and remained unchanged in the 15- and 16-year maturities.
Municipals were steady on Municipal Market Data’s AAA benchmark scale, which showed the yield on both the 10-year muni general obligation and on the 30-year muni maturity remaining unchanged. Intermediate maturities were as much as one basis point higher.
“Tax-exempt trading was off to another slow and mixed start on Tuesday, although it did appear pockets of weakness were beginning to develop in spots,” MMD muni research analyst Greg Saulnier said on Tuesday morning. “Meanwhile, U.S. equities were posting modest gains as Turkey tensions eased while softer-than-expected import/export data helped Treasuries to pare earlier losses.”
Treasury bonds were firm as stock prices traded higher.
On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 84.7% while the 30-year muni-to-Treasury ratio stood at 99.3%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.
Previous session's activity
The Municipal Securities Rulemaking Board reported 36,478 trades on Monday on volume of $8.31 billion.
California, New York and Texas were the municipalities with the most trades, with Golden State taking 13.001% of the market, the Empire State taking 10.978%, and the Lone Star State taking 10.722%.
Treasury auctions bills
The Treasury Department Tuesday auctioned $26 billion of 364-day bills at a 2.365% high yield, a price of 97.608722. The coupon equivalent was 2.442%. The bid-to-cover ratio was 3.21.
Tenders at the high rate were allotted 99.07%. The median yield was 2.350%. The low yield was 2.320%.
Treasury also auctioned $70 billion of four-week bills at a 1.910% high yield, a price of 99.851444. The coupon equivalent was 1.939%. The bid-to-cover ratio was 2.66.
Tenders at the high rate were allotted 61.41%. The median rate was 1.885%. The low rate was 1.850%.
Gary Siegel contributed to this report.
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 Ziad Saba at 212-803-6079 for more information.