Market Close: Calif. RDA Hits Primary; Secondary Sputters

A California Redevelopment Agency was able to sell refunding bonds Thursday, even after recent reports revived the specter of dissolution of the state’s RDAs.

Southwest Securities priced $22.1 million of tax allocation refunding bonds for the Successor Agency to the Upland Community Redevelopment Agency, rated A by Standard & Poor’s. The bonds were insured by Assured Guaranty Municipal Corp. with a AA-minus rating.

Redevelopment Agencies have been under fire since December 2011 when the state supreme court upheld the law allowing their dissolution. Moody’s recently said it was considering whether to discontinue rating the bonds of successor agencies to California’s 427 redevelopment agencies.

Upland appeared to come to market unscathed. Yields ranged from 0.60% with a 2% coupon in 2013 to 2.75% with a 5% coupon in 2023. Yields were lowered two and three basis points on 2017 to 2019 maturities from preliminary pricing.

Robin Thomas, managing director at Southwest Securities, said insurance from Assured Guaranty Municipal Corp. was added to the deal to provide security and broaden the investor base. “My impression is it’s certainly added value,” she said. “What we are finding with the dissolution process is the lawsuits and arguments are not involved in the recognized bonds. The bonds are getting paid.”

Thomas said Upland has never tapped into its reserves to pay bond holders. “This upland deal had interesting financing in that it was especially clean both from a rating and investor standpoint,” she said.“They have good coverage and recognized obligations are limited to mostly bonded debt. This is a nice big project area, good coverage, and low taxpayer concentration base.”

Also in the primary market, Wells Fargo won the bid for $300 million of sales tax revenue Build Illinois Bonds, rated AAA by Standard & Poor’s and AA-plus by Fitch Ratings. The deal was sold at a true interest cost of 3.29%.

Yields ranged from 0.30% with a 1% coupon in 2014 to 3.88% with a 3.88% coupon in 2037.

“The spreads seem aggressive to me but that’s where the taxable market is at right now,” a Chicago trader said. “Not a lot has changed in a year, but the state did get tighter spreads.”

The taxable Build Illinois Bonds sale was one of several Illinois deals this week.

Wednesday, Wells Fargo priced $205 million of Illinois Finance Authority taxable debt for the University of Chicago after Morgan Stanley priced $149 million tax-exempt portion Tuesday for the university.

Also Wednesday, Ramirez & Co. priced $127.6 million of Illinois Housing Development Authority federally taxable housing bonds, rated Aa3 by Moody’s and AA by Standard & Poor’s.

“I’m looking at this market, looking at projected issuance, looking at Treasuries, and I don’t see any huge compelling reasons not to own paper,” a second Chicago trader said. While yields are still near their relative lows, investment is better than holding cash, this trader said.

Outside the primary, the tax-exempt secondary was very quiet. “The secondary is dead,” a New York trader said. “There are some big blocks out for the bid but otherwise it’s pretty flat.”

Trades compiled by data provider Markit showed strengthening. Yields on Ohio’s Buckeye Tobacco Settlement Financing Authority 5.125s of 2024 and Ohio State University 5s of 2038 dropped three basis points each to 6.01% and 3.20%, respectively.

Yields on Dallas Independent School District 4s of 2016 slid three basis points to 0.48% and New Jersey State Turnpike Authority 5s of 2038 dropped two basis points to 3.47%.

Yields on Port Authority of New York and New Jersey 3.25s of 2033 and California 5s of 2029 slid two basis points each to 3.78% and 2.40%.

Yields on a separate CUSIP of California 5s of 2033 and Southwest Higher Education Authority 5s of 2031 dropped one basis point each to 3.18% and 3.01%, respectively.

Municipal bond scales ended stronger Thursday after posting mostly losses throughout the week.

Yields on the Municipal Market Data triple-A GO scale finished as much as three basis points lower. The two-year yield fell one basis point to 0.28% and the 30-year yield slid two basis points to 2.87%. The 10-year finished steady at 1.75% for the third session.

Yields on the Municipal Market Advisors 5% scale ended as much as two basis points lower. The 30-year yield dropped one basis point to 3.01%. The 10-year was steady at 1.80% for the second session and the two-year finished unchanged at 0.32% for the 25th session.

Treasuries steepened in the belly of the curve as the benchmark 10-year yield jumped five basis points to 1.82%. The two-year yield slid one basis point to 0.23%. The 30-year was flat at 2.99%.

Treasury prices were initially pressured by positive economic news Wednesday morning. Initial jobless claims fell 4,000 to 323,000 in the week ending May 4. Claims were lower than the expected 335,000.

“The labor market appears to be improving as the rate of job losses continues to decline,” wrote economists at RDQ Economics. “The four-week average of jobless claims has now fallen to the level that prevailed at the onset of the Great Recession. Claims would appear to be pointing to a pick-up in the rate of job creation and, if this lower level of jobless claims holds for another two weeks, we would be likely expect to see a nonfarm payroll gain in excess of 200,000 for May.”

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