Illinois Tollway deal, Chicago Board of Ed capital improvement tax bonds sell

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The Illinois Tollway's $300 million deal and the first part of the Chicago Board of Education’s $922 million bond offering came to market on Wednesday.

In secondary trading, municipals were stronger on the day.

Primary market
The Chicago Board of Education hit the screens as JPMorgan Securities priced its $64.9 million of Series 2017 dedicated capital improvement tax bonds.

The CITs were priced as 5s to yield from 3.95% in 2033 to 4.12% in 2037. A 2042 maturity was priced as 5s to yield 4.15% and a 2046 maturity was priced as 5s to yield 4.19%. This series is rated A by Fitch Ratings and BBB by Kroll Bond Rating Agency.

On Thursday, JPMorgan will price the BOE's $857.43 million Series 2017 unlimited tax dedicated revenue general obligation bonds. This series is rated B by S&P Global Ratings, BB-minus by Fitch and BBB by Kroll.

The BOE's spreads shrunk considerably from its last sale under the CIT credit and that bodes well for Thursday's sale, as investors rewarded the district for fiscal strides made over the summer when the state approved $300 million in new annual aid and gave the district approval for roughly $130 million property tax levy.

The short 16-year maturity in the series landed at 3.95%, a spread of 155 basis points to the AAA, 103 basis points to the single A benchmark, and 67 basis points to the BBB. The long 29-year bond on the deal's yield of 4.19% marked a 150 basis point spread to the AAA, a 99 basis point spread to the single A, and 67 basis point spread to the BBB.

The board's inaugural deal under the new credit for $729 million sold last December. The bulk -- $577 million -- came in a 30-year maturity that paid a yield of 6.25% with a coupon for 6% and price of $96.649. The 2046 yield landed 309 basis points over the AAA although that comparison is based on a 5% coupon structure. It’s also 243 basis points over the single A benchmark and 207 basis points over the BBB.

The district has also seen its short term interest rates on tax anticipation note borrowing shrink since the summer. The GOs are still a riskier bet since the CIT credit benefits from a restricted revenue stream that flows directly to the trustee.

On a smaller scale, Piper Jaffray priced the Illinois Finance Authority’s $51.31 million of Series 2017A charter school refunding and improvement revenue bonds for the Chicago International Charter School project on Wednesday.

The issue was priced to yield from 1.64% and 1.79% with 3% coupons in a spilt 2018 maturity to 3.98% with a 5% coupon in 2032. A 2037 maturity was priced as 5s to yield 4.20% and a 2047 maturity was priced as 5s to yield 4.32%. The deal is rated BBB by S&P.

Also on Wednesday, Loop Capital Markets priced the Illinois State Toll Highway Authority’s $300 million of Series 2017A toll highway senior revenue bonds. The issue was priced as 5s to yield from 2.35% in 2028 to 3.11% in 2039; a 2042 maturity was priced as 5s to yield 3.15%.

The 2.35 % yield on the 11 landed at a 25 basis point spread to the AAA benchmark of 2.10 as of the market close Tuesday and five points over the AA benchmark.

The spreads closely mirror the penalty that’s long been imposed on Illinois-based credits, even those with higher grade ratings like the tollway. It had widened as the state’s historic budget impasse dragged on earlier this year, but have narrowed and are more in-line with penalties over the last few years since a budget was adopted over the summer.

The 3.15% yield on the long 25-year bond for $200 million marked a 50 basis point spread the AAA and 29 basis points over the AA.

The deal is rated Aa3 by Moody’s Investors Service and AA-minus by S&P and Fitch.

Since 2007, the authority has sold about $6.9 billion of debt, with the most issuance occurring in 2014 when it sold $1.54 billion of securities. The authority did not come to market in 2011 or 2012.
Bank of America Merrill Lynch priced the Ohio Air Quality Development Authority’s $210 million of Series 2017 exempt facilities revenue bonds, subject to the alternative minimum tax, for the Pratt Paper LLC project.

The issue was priced at par to yield 3.75% in 2028, 4.25% in 2038 and 4.50% in 2048. The deal is unrated.

In the competitive arena, the Cook County Community College District No. 512, Ill., sold $107.12 million of Series 2017B general obligation refunding bonds.

Bank of America Merrill Lynch won the bonds with a true interest cost of 2.1738%. The issue was priced as 5s to yield from 1.31% in 2018 to 2.40% in 2028. The deal is rated Aaa by Moody’s.

The East Bay Regional Park District., Calif., sold $125.67 million of GOs in two separate offerings.

Morgan Stanley won the $80 million of Series 2017A-1 Election of 2008 GOs and Series 2017A-2 Election of 2008 GO green bonds with a TIC of 2.4785% while BAML won the $45.67 million of Series 2017B-1 GO refunding bonds and Series 2017B2 GO refunding green bonds with a TIC of 1.9123%. The deals are rated triple-A by Moody’s and S&P.

The Dublin Unified School District, Calif., sold $100 million of Series B Election of 2016 GOs.

Robert W. Baird won the bonds with a TIC of 3.3981%. The issue was priced to yield from 1.23% with a 3% coupon in 2020 to 3.03% with a 4% coupon in 2043; a 2047 term bond was priced as 4s to yield 3.08%. The deal is rated Aa1 by Moody’s and AA by S&P.

U.S. Bank: Munis may see supply constraints
Tax-exempt municipal bonds could experience supply constraints as the tax bill proposals in Washington may eliminate the tax deductions on certain kinds of muni issuance, Bill Merz, director of fixed income at U.S. Bank Wealth Management, wrote in a Wednesday market comment.

“A material reduction in supply would act as a tailwind for municipal bonds,” he wrote, adding that in the near-term issuance is expected to ramp up in anticipation of a possible interest deductability change.

“At present, it would be premature to make large reallocations based solely on tax policy, due to the fluid nature of negotiations and uncertainty around passage,” he wrote.

Secondary market
The yield on the 10-year benchmark muni general obligation fell one basis point to 1.99% from 2.00% on Tuesday, while the 30-year GO yield dropped two basis points to 2.68% from 2.70%, according to the final read of Municipal Market Data’s triple-A scale.

U.S. Treasuries were stronger on Wednesday. The yield on the two-year Treasury dipped to 1.68% from 1.69% on Tuesday, the 10-year Treasury yield declined to 2.33% from 2.38% and the yield on the 30-year Treasury decreased to 2.78% from 2.84%.

On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 85.3% compared with 84.1% on Tuesday, while the 30-year muni-to-Treasury ratio stood at 96.4% versus 95.3%, according to MMD.

AP-MBIS 10-year muni at 2.286%, 30-year at 2.793%
The Associated Press-MBIS municipal non-callable 5% GO benchmark scale was stronger in late trade.

The 10-year muni benchmark yield dropped to 2.286% on Wednesday from the final read of 2.299% on Tuesday, according to Municipal Bond Information Services, a national consortium of municipal interdealer brokers. The AP-MBIS 30-year benchmark muni yield declined to 2.793% from 2.809%.

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 39,381 trades on Tuesday on volume of $10.76 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.

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Primary bond market Secondary bond market Board of Education of the City of Chicago Illinois State Toll Highway Authority Ohio Air Quality Development Authority