Illinois came to market on Wednesday with almost $1 billion of bonds as Texas sold a massive note deal in the competitive arena.
Primary market
JPMorgan Securities priced and repriced Illinois’ $968.31 million of Series of September 2018AB GO refunding bonds.
At the repricing, the state saw a 175 basis point spread to the AAA Municipal Market Data benchmark scale on the 10-year maturities. The yields marked an improvement from the $500 million April sale when the state’s 10-year landed at a 200 basis point spread.
With attractive initial yields set above recent secondary levels, the deal drew strong demand and was five to seven times oversubscribed, market participants said.
Sources said the deal was well received by investors as the size of the issue was increased from the originally expected $920 million and the deal tightened up by five to seven basis points at the repricing.
“It was talked about at [price] levels cheaper than where it had been trading” and that helped gauge interest and build an order book, said Lyle Fitterer, head of tax-exempt fixed income at Wells Capital Management. “I think they did a nice job distributing that amount of debt.”
According to one market source, “They tightened up substantially and upsized the issue. Sounds like a successful deal to me.”
Bank of America Merrill Lynch, Loop Capital Markets, Siebert Cisneros Shank & Co. and PNC Capital Markets served as co-senior managers. Columbia Capital Management was advisor and Swap Financial Group was swap advisor. Chapman and Cutler and Burke, Burns & Pinelli were bond counsel.
The issue will help the state shed $600 million of floating-rate paper and cover the $74 million cost of swaps that synthetically fixed a 2003 issue.
The deal is rated Baa3 by Moody’s Investors Service, BBB-minus by S&P Global Ratings and BBB by Fitch Ratings.
Since 2008, the state has sold about $35 billion of debt, with the most issuance occurring in 2010 when it sold $8.7 billion of bonds. It did not come to market in 2015.
Jefferies priced for retail investors the Triborough Bridge and Tunnel Authority’s $156.395 million of Series 2018C general revenues refunding bonds for the New York Metropolitan Transportation Authority’s bridges and tunnels. The deal will be priced for institutions on Thursday.
The deal is rated Aa3 by Moody’s, AA-minus by S&P and Fitch and AA by Kroll Bond Rating Agency.
RBC Capital Markets priced the Rhode Island Housing and Mortgage Finance Corp.’s $105.27 million of homeownership opportunity bonds, consisting of Series 69A bonds subject to the alternative minimum tax, Series 69B non-AMT bonds and Series 69T taxable bonds after holding a one-day retail order period.
The bonds are rated Aa1 by Moody’s and AA-plus by S&P
In the short-term sector, Texas sold $7.2 billion of Series 2018 tax and revenue anticipation notes.
The TRANs were won by 11 groups, including UBS Financial Services, Wells Fargo Securities, Piper Jaffray, Morgan Stanley, JPMorgan, RBC, FTN Financial, Goldman Sachs, Citigroup, Barclays Capital and TD Securities.
The TRANS received a net interest rate of 1.84%, Texas Comptroller Glenn Hegar announce late Wednesday.
“The tremendous demand for these notes is directly related to Texas’ conservative cash management and solid fiscal policies, which allowed the state to earn the highest possible short-term ratings ahead of this sale,” Hegar said in a statement. “With bids totaling nearly four times the amount offered, it’s clear the market is confident that Texas remains a solid investment.”
The deal is rated MIG1 by Moody’s, SP1-plus by S&P, F1-plus by Fitch and K1-plus by Kroll.
The Comptroller's office said it received 65 bids worth $27.4 billion, 3.8 times the amount offered for sale. Proceeds from the sale will be used to help fund expenditures such as public-school payments made early in the fiscal year before the arrival of tax revenues later in the year. The notes are due Aug. 29, 2019.
The financial advisor was George K. Baum and the bond counsel was Orrick Herrington.
On Thursday, Massachusetts will sell $1.5 billion of general obligation revenue anticipation notes in three sales consisting of $500 million each of Series 2018A, Series 2018B and Series 2018C RANs. The financial advisor is Public Resources Advisory Group and the bond counsel is Mintz Levin. The deal is rated MIG1 by Moody’s, SP1-plus by S&P and F1-plus by Fitch.
Attractive levels on two new issues Wednesday morning piqued the interest of a California trader who has been hard-pressed to find comparable paper in the secondary market as the dog days of summer and a general supply drought continue to plague the municipal market.
He pointed to a pair of offerings -- the mammoth Texas note sale and a smaller local school deal in California -- as appealing for characteristics ranging from size and quality to attractive yields and local recognition.
The $7.2 billion Texas tax and revenue anticipation note sale as well as a $120 million Santa Monica-Malibu Unified School District general obligation sale were highly sought after given their attractive yields. One series of the TRANS the trader participated in was priced at 1.79% in 2019 with a 4% coupon and were attractive due to the sheer size and quality of the deal, the trader said.
Meanwhile, the $120 million Santa Monica-Malibu Unified School District deal priced by Raymond James & Associates had the 5% coupon the trader prefers, with a 2043 maturity and a 2023 call. The deal was three times oversubscribed due to the extreme demand for California paper, he said, and noted he heard underwriters added a 2029 maturity with a 5% coupon to feed the hearty demand. The final scale for the deal was not available at press time.
“We still think these deals are attractive, even with some maturities being bumped, compared to what we have been seeing in the secondary market,” the trader said. He said the deals are still considered 10 basis points cheaper than comparable secondary inventory with the same structure and quality.
With the supply drought ongoing, he said new deals of size and solid structure and quality don’t last long. “Volume continues to be down and I think the market is thirsty for supply,” he said.
As the summer doldrums wind down in a couple of weeks, he is hoping to see issuance pick up in September and October. Until then, new deals are getting snapped up at a swift pace -- especially in states like California, New York, and Texas, he said.
Wednesday’s bond sales
Illinois
Texas
New York
Rhode Island
Bond Buyer 30-day visible supply at $8.58B
The Bond Buyer's 30-day visible supply calendar decreased $756.7 million to $8.58 billion for Thursday. The total is comprised of $3.82 billion of competitive sales and $4.77 billion of negotiated deals.
Secondary market
Municipal bonds were mostly stronger on Wednesday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell less than one basis point in the one- to nine-year, 12- to 20-year and 26- to 30-year maturities, rose less than a basis point in the 10-year maturity and remained unchanged in the 11-year and 21- to 25-year maturities.
High-grade munis were mostly stronger, with yields calculated on MBIS’ AAA scale falling less than one basis point in the one- to five-year and 14- to 18-year maturities, rising less than a basis point in the seven- to 12-tyear, 20- to 27-year and 29-year maturities and remaining unchanged in the six-year, 13-year, 19-year, 28-year and 30-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 the yield on 30-year muni maturity remaining unchanged.
Treasury bonds were stronger as stock prices turned mixed.
On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 86.5% while the 30-year muni-to-Treasury ratio stood at 100.3%, 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 40,821 trades on Tuesday on volume of $9.17 billion.
California, New York and Texas were the municipalities with the most trades, with Golden State taking 14.733% of the market, the Empire State taking 13.048% and the Lone Star State taking 10.01%.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation.
