Large Deals Stand Out on Skimpy Slate

Bond sales by the University of California and New York City are likely to win a favorable reception in the coming week as the primary market rallies after the unexpected decision by the Federal Reserve Board to delay tapering its $85 billion-a-month economic stimulus program.

The two deals, totaling almost $2.5 billion, will stand out on a lighter calendar as new volume dips to about $4.01 billion, according to  Ipreo LLC and Bond Buyer estimates. That compares with the $4.79 billion that actually priced last week, according to Thomson Reuters. The market rallied as much as seven basis points after the Fed postponed unwinding its stimulus program. Analysts had expected a  $10 to $15 billion reduction in monthly bond purchases.

“The municipal market feels dramatically better than it did a week to two weeks ago, and one of the reasons the municipal market is performing so well is that there is a surprisingly light new-issue calendar,” a New York underwriter said.

On Friday, the generic, benchmark triple-A GO in 2043 ended down three basis points at a 4.20% yield -- 13 basis points below where it began last Monday, according to Municipal Market Data.

The market can’t rule out future potential weakness, the underwriter said: “A lot will depend on what happens in Washington with the budget battle and the debt ceiling – there is an awful lot of uncertainty still out there.”

Still, the $1.9 billion, two-pronged revenue offering from the Regents of the University of California and New York City’s $499.2 million general obligation offering should be in high demand among investors focused on safety and quality, said the underwriter, whose firm is a member of the selling group in the syndicate for both deals.

“The market is spending a lot of time focusing on high-grade credits,” he said. “Anything high-grade is being well sought after.”

The university deal is rated Aa1 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-plus by Fitch Ratings. It will be priced on Wednesday by Barclays Capital and structured as $1.25 billion of tax-exempt bonds from 2029 to 2033, a term in 2038, and a 2048 maturity with a five-year put. In addition, the firm will price $707.8 million of taxable revenue bonds for the university on Wednesday after taking indications of interest on Tuesday. Those bonds will be structured as serials from 2014 to 2023 and a term bond in 2029.

New York City’s GOs are rated Aa2 by Moody’s and AA by the two other major rating companies and will be priced by Siebert Brandford Shank & Co. on Wednesday, following a two-day retail order period on Monday and Tuesday. The Siebert deal consists of three series of bonds that are all tax-exempt. The city on Wednesday will also issue a separate taxable competitive deal totaling $125 million -- the largest deal on next week’s competitive calendar.

In the negotiated deal, Series C matures from 2014 to 2020, Series H from 2015 to 2020, and Series D from 2015 to 2033.

While the timing, high-quality, and generic structure of the tax-exempt deal should bode well for that deal, demand will ultimately depend on the spreads compared to the MMD scale after the pricing, said Sherman Swanson, managing director of underwriting and trading at Siebert.

“It’s a good credit and the market has been performing well, so hopefully that will continue through next week,” he said on Friday.

He said he expects demand from retail investors for the shorter maturities in the New York sale, and that the tone of the market after the FOMC decision could help the deal’s pricing. “We rallied into it and afterward ... but can we hold it next week?” he wondered. “Hopefully, the ranges where we have bonds is good for investors.”

In other activity in the New York market, JPMorgan Securities will price a $163.1 million revenue offering from the Dormitory Authority of the State of New York on behalf of New York University.

The deal, which is rated Aa3 by Moody’s and AA-minus by Standard & Poor’s, consists of $130.8 million of tax-exempt debt and $32.3 million of taxable paper.

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