With Labor Day behind it, the municipal market will see a big surge in new deals this week, with estimated issuance rising to $4.65 billion, close to the weekly average this year.
Issuance is more than twice the amount of last week’s revised $1.95 billion, according to Thomson Reuters. With the three largest negotiated long-term deals coming as refundings, investors may finally be taking advantage of record lows.
“We believe that today’s historically low rate environment will result in a wave of current refunding issuance that should drive at least $100 billion of volume through the end of 2011,” Chris Mauro, head of U.S. municipals strategy at RBC Capital Markets, wrote in a note.
“In the face of continued pressure on state and local budgets, issuers will utilize the current historically low rate environment to reduce total debt-service costs wherever possible,” he said. “In fact, we believe many state and local issuers have already begun the process of structuring current and advanced refunding deals.”
While “pressure on yields would be exacerbated if investors hesitate in absorbing the incremental projected increase in volume, we are comforted by the current cheapness of our market from a tax-exempt to taxable rates perspective,” he added.
The negotiated calendar will see $2.87 billion this week, almost double last week’s revised $1.49 billion. The competitive market will see the biggest increase with $1.77 billion, over four times last week’s revised $460.1 million.
The biggest deal is a short-term revenue anticipation note sale — not included in long-term weekly issuance figures — from California. The $5.4 billion issue will come Thursday on the negotiated calendar and be priced by Wells Fargo.
Next on the competitive list is JEA in Florida, which will issue $360 million of new money and $9.4 million of refunding bonds for the St. Johns River Power Park System. Underwritten by JPMorgan, the bonds are rated Aa2 by Moody’s Investors Service and AA-minus by Standard & Poor’s and Fitch Ratings.
The $360 million Series 23 issue has serial maturities ranging from 2012 to 2021. The $9.4 million Series 24 issue has serial maturities from 2013 to 2021 for its tax-exempt bonds and 2012 term bonds for federally taxable bonds.
The Hawaii Department of Transportation will issue $300 million of airport system refunding revenue bonds Wednesday. Bank of America Merrill Lynch is the lead book-runner on the deal. The serial bonds have maturities ranging from 2012 to 2024 and are rated A2 by Moody’s.
The Sacramento Municipal Utility District will issue $300 million of revenue refunding bonds Wednesday. The serial bonds have maturities ranging from 2012 to 2028 and will be priced by JPMorgan. They are rated A1 by Moody’s, A-plus by S&P, and A by Fitch.
The competitive market will also see larger-than-usual issuance with the New York City Municipal Water Finance Authority’s $457.9 million revenue bond sale on Tuesday. Prince George’s County, Md., will issue $191 million of general obligation bonds on Thursday.
Last week’s deals saw decent demand, hinting that starved investors may be able to more easily digest higher volume this week. The Harris County Metropolitan Transit Authority in Texas issued bonds Thursday that saw strong enough demand that yields were cut between two and 10 basis points, with bonds maturing in 2016 seeing the biggest cut.
Janney Capital Markets, which priced the Pennsylvania Housing Finance Agency bonds last week, saw yields cut across the board. Alan Schankel, managing director at Janney, said, “There were price changes along the way, including a cut in [October 2013] and some bumps in other maturities.”