Chicago’s Sales Tax Securitization Corp. sells $615M bond deal

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Chicago came to market Thursday with its two-week delayed sales tax securitization bonds.

While the roughly $615 million deal was trimmed down from the $1.3 billion slated for late last month, it was closer to the $665 million that Chicago initially intended to sell to refund outstanding general obligation bonds. The city raised the size late last month after investors showed strong interest.

The revised deal dropped a 2053 maturity which had raised concerns among some city Aldermen and market participants over the more-than-a-decade extension of maturities beyond the bonds being refunded.

“It looked like the intermediate-to-long end was just subscribed for, while the shorter maturities were multiple times over,” said one market source who participated in the deal. "For a 10-year bond, you got 5.00% at 3.56% or plus 82 basis points. Seems like a nice job given the heightened outflows and bid lists we have been seeing.”

Chicago finance chief Carole Brown had said demand was sufficient to get the full $3 billion borrowing program done before Mayor Rahm Emanuel leaves office in May. He is not seeking a third term. The deal had been set to price on Halloween, but bookrunner Loop Capital Markets moved the deal to the day-to-day calendar citing market conditions. The city faced a rocky market, rising rates and heavier demand that week for short-term paper.

On Thursday, Loop priced the Series 2018C sales tax securitization bonds. The participant particularly liked the 2043 and 2048 maturities.

“Originally, they split the 2043 maturities as 5s with a par amount of $50 million and 5 1/4s with a par of $88 million — equating a spread of seven basis points, which everyone thought was a bit cheap for the higher coupon,” he said. “They ended up moving all the 2043s to 5 1/4s at 4.08% as everyone gravitated to the higher coupon."

He also noted that the 2048s were 5 1/4s at 4.16% with a par amount of $178 million.

The bonds were issued through a bankruptcy-remote special purpose entity that insulates the debt from city operations and carry AAA ratings from Fitch Ratings and Kroll Bond Rating Agency and AA-minus from S&P Global Ratings.

Primary Market
Bank of America Merrill Lynch priced the New Jersey Economic Development Authority’s $430.51 million of Series 2018 EEE and Series 2018 FFF school facilities construction bonds. The deal is rated Baa1 by Moody’s Investors Service, BBB-plus by S&P and A-minus by Fitch.

BAML also priced the Central Florida Expressway Authority’s $221.86 million of Series 2018 senior lien revenue bonds. The deal is rated A1 by Moody’s and A-plus by S&P and Fitch.

RBC Capital Markets priced the Los Angeles Department of Water and Power’s $426.43 million of Series 2018B water system revenue bonds. The deal is rated Aa2 by Moody’s, AA-plus by S&P and AA by Fitch Ratings.

Citigroup priced Philadelphia’s $276.935 million of Series 2018A water and wastewater revenue bonds. The deal is rated A1 by Moody’s and A-plus by S&P and Fitch.

Barclays Capital received the official award on Portland, Ore.’s $102.86 million of Series 2018B limited tax revenue bonds for the Portland Building project. The deal is rated Aaa by Moody’s.

In the competitive arena, the Wentzville R-IV School District, Mo., sold $159.82 million of Series 2018 general obligation refunding and improvement bonds under the Missouri Direct Deposit program. Morgan Stanley won the bonds with a true interest cost of 3.5508%.

Proceeds will be used to finance various school improvements and to current refund some outstanding debt. The financial advisor is Stifel while the bond counsel is Thompson Coburn. The deal is rated Aa1 by Moody’s and AA-plus by S&P.

Bond sale results

New Jersey
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California
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Bond Buyer 30-day visible supply at $5.83B
The Bond Buyer's 30-day visible supply calendar decreased $3.01 billion to $5.83 billion for Thursday. The total is comprised of $1.71 billion of competitive sales and $4.11 billion of negotiated deals.

ICI: Long-term muni funds saw $909M outflow
Long-term tax-exempt municipal bond funds saw an outflow of $909 million in the week ended Nov. 7, the Investment Company Institute reported Wednesday.

This followed an outflow of $1.196 billion in the week ended Oct. 31 and outflows of $179 million, $1.310 billion, $1.653 billion, $3 million and $374 million in the previous five weeks.

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Taxable bond funds saw an estimated inflow of $1.686 billion in the latest reporting week, after seeing an outflow of $17.404 billion in the previous week.

ICI said the total estimated outflows to long-term mutual funds and exchange-traded funds were $2.436 billion after outflows of $16.353 billion in the prior week.

Secondary market
Municipal bonds were stronger on Thursday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell as much as one basis point in the one- to 30-year maturities.

High-grade munis were mostly stronger, with yields calculated on MBIS' AAA scale decreasing as much as one basis point in the five to eight-year and 11- to 30- year maturities, rising less than a basis point in the one- to four-year and nine-year maturities and remaining unchanged in the 10-year maturities.

Municipals were stronger on Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni general obligation falling two basis points and the yield on 30-year muni maturity dropping three basis points.

Treasury bonds were mixed stronger as stocks turned higher. The Treasury 10-year stood at 3.123% while the Treasury three-month bill was at 2.369%.

On Thursday, the 10-year muni-to-Treasury ratio was calculated at 86.1% while the 30-year muni-to-Treasury ratio stood at 99.4%, 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 46,601 trades on Wednesday on volume of $12.58 billion.

New York, California and Texas were the municipalities with the most trades, with the Empire State taking 15.941% of the market, the Golden State taking 15.911% and the Lone Star State taking 9.914%.

Muni money market funds see inflows
Tax-free municipal money market fund assets increased $138.5 million, raising their total net assets to $135.41 billion in the week ended Nov. 12, according to the Money Fund Report, a service of iMoneyNet.com.

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The average seven-day simple yield for the 196 tax-free and municipal money-market funds inched up to 1.18% from 1.17% last week.

Taxable money-fund assets decreased $2.56 billion in the week ended Nov. 13, lowering total net assets to $2.736 trillion.

The average, seven-day simple yield for the 826 taxable reporting funds nudged up to 1.83% from 1.82% last week.

Overall, the combined total net assets of the 1,022 reporting money funds fell $2.42 billion to $2.872 trillion in the week ended Nov. 13.

Treasury announces auction details
The Treasury Department announced these auctions:

  • $11 billion of 9-year 8-month 3/4% TIPs selling on Nov. 21;
  • $36 billion of 181-day bills selling on Nov. 19; and
  • $42 billion of 90-day bills selling on Nov. 19.

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.

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Primary bond market Secondary bond market Municipal bond funds Chicago Sales Tax Securitization Corp New Jersey Economic Development Authority City of Philadelphia, PA
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