The municipal bond market on Tuesday wrapped up a two-day retail order period for the New York City Transitional Finance Authority's building aid revenue bond issue ahead of the institutional pricing on Wednesday.
"We've been very pleased with the strong retail demand for this TFA Building Aid Revenue Bond sale, with over $353 million in orders from individual investors received as of mid-afternoon, including over-subscriptions," said Eric Sumberg, spokesperson for New York City Comptroller Scott M. Stringer. "Of the 15 maturities offered during the retail order period, 10 are oversubscribed based on initial orders. We believe this demand reflects the high credit quality and relative scarcity of the TFA BARB bonds, which we haven't sold since 2012, as well as overall market conditions. We expect strong institutional investor demand on Wednesday when we conclude the sale."
Ramirez & Co. tentatively priced the TFA's $750 million of building aid revenue bonds for mom and pop investors on Monday. Traders on Tuesday reported the BARBs were repriced from Monday's retail levels, with yields on many maturities now as much as four basis points stronger.
The BARBs now yield from 0.66% with a 4% coupon in 2017 to 2.41% with a 5% coupon in 2027; a 2032 term was priced as 3 1/8s to yield about 3.162%; a 2035 term was priced as 5s to yield 2.84%; and a 2044 split term was priced as 4s to yield 3.32%, while other portion was not offered for retail. The 2016 maturity was offered as a sealed bid. No retail orders were taken in the 2028-31, 2033-34, 2036-37 or 2040 maturities.
"The deal has balances on the bonds that I expected them to have them on and over-orders on the bonds that I figured they would sell out on. Overall, it did well," a New York trader said. "I wouldn't say it was a no brainer, but we need paper in the market right now. When you have decreasing yields and a deal that is always in popular demand, people are going to go for it."
The BARBs, which are payable from the state's annual appropriations of building aid to the city, are rated Aa2 Moody's Investors Service and AA by both Standard & Poor's and Fitch Ratings.
In assigning its rating to the deal, Moody's said its Aa2 rating is just "one notch below New York State's Aa1 rating and reflects the state's strong commitment to provide building aid payments to New York City (Aa2/Stable)."
Moody's added the rating reflects "the subject-to-appropriation nature of the state aid payments securing the bonds, the state's constitutional mandate to fund education aid, a statutory framework that assigns the city's state building aid to the TFA, and non-impairment provisions."
In December 2014, S&P raised its rating on the TFA to AA from AA-minus.
"We base the upgrade on our general obligation (GO) rating on New York State (AA+/Stable) and adequate debt service coverage (DSC) by direct payment state building aid," S&P said last month.
S&P said the rating also reflected strong bond provisions that were established under statute and indenture, "directing the flow of building aid directly to the trustee for the benefit of bondholders in advance of debt service due dates."
Fitch said a key factor in its credit assignment of AA was that the aid securing the bonds requires annual state legislative appropriation, so that the rating is linked to the state's general obligation rating of AA-plus.
"Appropriation risk is minimal given the constitutional mandate for, and strong history of, state support for education." Fitch said.
The TFA is a public benefit corporation created in 1997 to fund some of the city's capital programs. It was approved by the state Legislature and designed as a way to bypass the city's debt limits on GO issuance.
Since its inception, the TFA has sold more than $50 billion of long-term bonds. The TFA issued the most amount of bonds in 2011 when it sold about $6.05 billion of debt, followed by 2012 when around $5.66 billion of bonds were issued. Most of the authority's debt has been sold in the past five years. The least amount of debt offered was in 1997, the year it was created, when the TFA sold about $650 million of bonds.
As of 2013, the TFA had about $23.1 billion of debt outstanding with $6.2 billion of its BARBs outstanding, according to the Citizens Budget Commission.
Primary Market
Elsewhere on Tuesday, the Orange County Sanitation District, Calif., sold the largest competitive deal of the week. Morgan Stanley won the district's $131 million of wastewater refunding obligations with a true interest cost of 3.2963%. The bonds were priced to yield from 2.03% with a 5% coupon in 2028 to 2.50% with a 5% coupon in 2037. The issue is rated AAA by S&P and Fitch.
Secondary Market
Prices of top-quality municipal bonds were mixed on Tuesday. The yield on the benchmark 10-year general obligation was unchanged from 1.84% on Monday, while the yield on 30-year GOs was down one basis point to 2.62% from 2.63%, according to a read of Municipal Market Data's triple-A scale.
Treasury prices were higher on Tuesday, with the two-year note yield down to 0.53% from 0.55% on Monday. The 10-year yield dropped to 1.89% from 1.91%, while the 30-year yield declined to 2.48% from 2.49%.
The 10-year muni to Treasury ratio on Tuesday was at 97.6% compared to 96.3% on Monday, while the 30-year muni to Treasury ratio was at 105.7% versus 105.6%.
MSRB Reports Previous Session's Activity
The Municipal Securities Rulemaking Board reported 33,594 trades on Monday on volume of $5.926 billion. Most active on Monday, based on the number of trades, was the New Jersey Transportation Trust Fund Authority transportation program bonds, Series AA 4 1/4s of 2044, which traded 164 times with an average price of 102.714 and an average yield of 3.878%.
