Build America Bonds will continue to dominate the primary market and volume will continue to seesaw this week as issuers get ready to price nearly $7 billion, down significantly from the nearly $10 billion that arrived last week.
Led by a $740 million offering from the Los Angeles County Metropolitan Transportation Authority, the new-issue market is expected be home to an estimated $6.95 billion of new issues, according to Ipreo LLC and The Bond Buyer.
A revised $9.84 billion was actually priced last week — about $800 million shy of the $10.6 billion that was originally estimated, according to Thomson Reuters.
Bill Mason, executive vice president and managing director of trading at David Lerner & Associates in Syosset, N.Y., said this week’s tax-exempt and taxable deals should command attention.
“It’s a 'win-win’ situation for issuers taking advantage of historically attractive rates, and investors who are earning attractive yields given a treacherous economy and a lack of alternative value in other securities,” he said.
Tax-exempt deals have become scarce as issuers have focused on the taxable BAB program, which is scheduled to expire at the end of this year. There is a substantial amount of BAB paper in the market — some of which has come at spreads of 200 basis points over the Treasury market — and it is widely viewed as a good investment alternative given the lack of confidence in the economy.
“Prior to the Build America Bond program, taxable yields were roughly 60 to 90 basis points over the Treasury,” Mason said. “With taxable municipal bonds, you can get a higher rating and higher yields than corporate debt with comparable ratings.”
The appetite for munis is strong both because of their scarcity and the availability of relatively attractive yields compared to Treasuries, Mason said.
The Los Angeles County transportation deal is structured with BABs in Series 2010 A, and tax-exempt Measure R senior sales tax revenue bonds in Series 2010 B. The breakdown and maturity structure for each series were not available at press time.
The deal will be priced on Wednesday by Barclays Capital. It is expected to be rated Aa2 by Moody’s Investors Service and AAA by Standard & Poor’s.
Atlanta, meanwhile, will bring a total of $589.6 million to market, priced by JPMorgan on Thursday, following a retail order period on Wednesday.
The deal consists of $413.6 million of airport passenger facility charge and subordinate-lien general revenue bonds in Series 2010B and $176 million of airport general revenue bonds in Series 2010 A.
The Series B subordinate bonds are expected to be rated A2 by Moody’s, and A by Standard & Poor’s and Fitch. The Series A general revenue bonds are expected to be rated A1 by Moody’s and A-plus by Standard & Poor’s and Fitch.
In the Northeast, Rutgers University is planning to issue a total of $508.6 million in two tranches — $400 million of GOs in Series 2010 H that are structured as BABs, and $108.6 million of tax-exempt GOs. Both are slated for pricing Thursday by Morgan Stanley after a retail order period Wednesday.
The bonds are expected to be rated Aa2 by Moody’s and AA by Standard & Poor’s.
Chicago will add a $486.4 million offering of second-lien water revenue bonds to the week’s BAB tally.
About $423.3 million of the issue is structured as BABs in Series 2010B, $29.6 million as taxable qualified energy conservation bonds in Series 2010C, and $33.5 million as project and refunding bonds in Series 2010 A.
The deal is scheduled to be priced Wednesday by Cabrera Capital Markets. It is expected to be rated Aa3 by Moody’s, AA-minus by Standard & Poor’s, and AA by Fitch,
A Chicago trader said despite the abundance of BABs in the market and Illinois paper in general, the deal’s ratings and attractive yields will be selling points.
“There is so much supply with BABs in the market,” the trader said. “Buyers have a lot to choose from. But there should be enough spread that the Chicago deal should draw some good interest.”
Fitch downgraded the city’s GO rating to AA-minus from AA last week, citing its weakened financial flexibility and accelerated use of reserves to fill budget gaps. The downgrade does not affect its water revenue debt.
Meanwhile, Texas’ Love Field Airport Modernization Corp. is planning to issue $310 million of special facilities revenue bonds. Goldman, Sachs & Co. will price the deal Wednesday. Underwriters were still hammering out its structure at press time, but the bonds are expected to be rated Baa3 by Moody’s and BBB by Standard & Poor’s.
Proceeds will finance the Love Field Airport modernization project of Southwest Airlines, which is the medium hub airport’s dominant carrier in terms of air traffic activity. Love Field is owned and operated by the city of Dallas and services both its metropolitan region and the larger Dallas-Fort Worth metroplex.
Looking back, last week’s $10 billion of new volume was led an $800 million financing from California’s Bay Area Toll Authority, half of which consisted of taxable BABs.
The longest BAB maturity in 2050 was priced with a 6.907% yield, or 4.489% after the 35% subsidy, and a spread of 285 basis points over the 30-year Treasury bond, according to an underwriter at Citi, which priced the deal last Wednesday.
An additional $410 million of tax-exempt debt also had a final term maturity in 2050 that was priced with a 5% coupon and 4.95% yield — 109 basis points higher than the generic 30-year triple-A GO scale tracked by Municipal Market Data at the time of the pricing. The bonds are rated A1 by Moody’s and A-plus by Standard & Poor’s.
On Friday, the 30-year triple-A GO bond closed at a 3.86% yield, according to MMD.