Illinois’ $4.5B GO bond deal takes 2017’s top spot
Municipal bonds finished weaker on Wednesday as Illinois came to market with $4.5 billion of general obligation bonds, the biggest tax-exempt deal of the year.
On Wednesday, Barclays Capital priced and repriced the Land of Lincoln's $4.5 billion Series of November 2017D GOs in its biggest single transaction since 2003, when it sold $10 billion of taxable pension obligations.
Yields were raised 3 to 15 basis points across the pricing.
Late in the day, the issue was repriced to yield 2.53% in 2020, 2.85% in 2021, 3.15% in 2022, 3.32% in 2023, 3.49% in 2024, 3.62% and 2.87% in a split 2025 maturity, 3.68% in both halves of a split 2026 maturity, 3.74% in 2027 and 3.77% in 2028.
The issue had been tentatively priced in the morning to yield 2.38% in 2020, 2.75% in 2021, 3.15% in 2022, 3.27% in 2023, 3.39% in 2024, 3.52% in 2025, 3.63% in both halves of a split 2026 maturity, 3.68% in 2027 and 3.74% in 2028.
All maturities carry 5% coupons except for one half of 2026 which carries a 3.25% coupon.
The bonds are rated Baa3 by Moody’s Investors Service, BBB-minus by S&P Global Ratings and BBB by Fitch Ratings except for half of the 2025 split maturity which is insured by Build America Mutual.
Moody’s and Fitch have negative outlooks on the state’s credit while S&P maintains a stable outlook.
“It is interesting that the 2024 and 2025 maturities are the cheapest part of the scale,” said one market participant. “I would think it reflects there are not as many natural buyers in that part of the curve and retail is hesitant to go that long.”
He added that the 2026 maturity with the 3.25% coupon was more retail friendly because retail doesn’t favor premium bonds.
“There’s a yield desert in the muni market and Illinois is providing a yield buffet,” said Brian Battle, director of trading at Performance Trust Capital Partners. “There were a lot of bonds and they came really cheap, about where we thought, and so once again Illinois is taking advantage of a historic time to issue a lot debt.”
At the repricing, the yield on the 2020 maturity was 141 basis points over the MMD AAA benchmark and 51 basis points more than the BBB benchmark, a rise of 15 basis points from the preliminary pricing.
The 2027 maturity was 184 basis points above the MMD AAA benchmark and 90 basis points over the BBB benchmark.
The 2028 maturity was 172 basis points over the benchmark 82 basis points over the BBB. The final yield was three basis points higher than the preliminary pricing scale.
Spreads outlined in the pre-marketing scale circulated late last week were at 115 basis points on the 2020 maturity, 175 basis points in 2027 and 170 basis points on the 2028 maturity.
Battle said the deal saw cuts in prices but that they were “not unreasonable given the deal size and the rating.”
Elsewhere, Wells Fargo Securities priced the Washington Health Care Facilities Authority’s $324.81 million of Series 2017A taxable and Series 2017B tax-exempt revenue bonds for the MultiCare Health System.
The $264.08 million of Series 2017B tax-exempts were priced to yield from 1.09% with a 3% coupon in 2018 to 3.67% with a 3.50% coupon in 2038; a 2041 term bond was priced as 4s to yield 3.72%.
The $60.73 million of Series 2017A taxables were priced to yield about 125 basis points in 2047 over the comparable Treasury security.
The deal is rated Aa3 by Moody’s and AA-minus by S&P and Fitch. All three agencies have stable outlooks on the credit.
Since 2007, the authority has issued over $8 billion of debt with the most issuance occurring in 2008 when it sold $1.57 billion and the least happening in 2016 when it sold $31.6 million.
Morgan Stanley priced the Metropolitan Government of Nashville and Davidson County, Tenn.’s $245.38 million of Series 2017B water and sewer revenue bonds and Series 2017A water and sewer revenue green bonds.
The $89.67 million of Series 2017A water and sewer revenue green bonds were priced to yield from 1.33% with a 3% coupon in 2021 to 2.85% with a 5% coupon in 2037. A split 2042 maturity was priced as 3 3/8s to yield 3.46% and as 5s to yield 2.98% and a 2046 maturity was priced as 5s to yield 3.03%.
The $155.71 million of Series 2017B water and sewer revenue bonds were priced as 5s to yield from 1.33% in 2021 to 2.85% in 2037, 2.98% in 2042 and 3.03% in 2046.
The deal is rated Aa3 by Moody’s and AA by S&P.
JPMorgan Securities received the official award on the Missouri Health and Educational Facilities Authority’s $284.7 million of Series 2017C health facilities revenue bonds for Mercy Health.
The deal was priced to yield from 3.30% with a 3.125% coupon in 2033 to 3.43% with a 4% coupon in 2037. A 2042 maturity was priced as 5s to yield 3.23%, a split 2047 maturity was priced as 3 5/8s to yield 3.85% and as 4s to yield 3.69% and a 2049 maturity was priced as 4s to yield 3.74%.
The deal is rated Aa3 by Moody’s and AA-minus by S&P.
The yield on the 10-year benchmark muni general obligation rose four basis points to 2.00% from 1.96% on Tuesday, while the 30-year GO yield increased five basis points to 2.82% from 2.77%, according to the final read of Municipal Market Data`s triple-A scale.
U.S. Treasuries were also weaker on Wednesday. The yield on the two-year Treasury gained to 1.62% from 1.58% on Tuesday, the 10-year Treasury yield rose to 2.44% from 2.41% and yield on the 30-year Treasury bond increased to 2.95% from 2.93%.
On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 82.1% compared with 81.6% on Tuesday, while the 30-year muni-to-Treasury ratio stood at 95.6% versus 94.9%, according to MMD.
AP-MBIS 10-year muni at 2.291%, 30-year at 2.879%
The Associated Press-MBIS municipal non-callable 5% GO benchmark scale exhibited weakness on Wednesday.
In late trade, the 10-year muni benchmark yield increased to 2.291% from the final read of 2.284% on Tuesday, according to Municipal Bond Information Services, a national consortium of municipal interdealer brokers. The AP-MBIS 30-year benchmark muni yield increased to 2.879% from 2.866% on Tuesday.
The AP-MBIS benchmark index is a yield curve built on market data aggregated from MBIS member firms and is updated hourly on the Bond Buyer Data Workstation.
MSRB: Previous session`s activity
The Municipal Securities Rulemaking Board reported 37,794 trades on Tuesday on volume of $8.94 billion.
Data appearing in this article from Municipal Bond Information Services, including the AP-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.