Following the pricing of last week's $5 billion revenue anticipation note sale by California, both the short- and long-term primary markets will be much more subdued this week, with only a handful of negotiated deals expected to be priced by issuers willing to enter the market at the prevailing higher interest rates.
Total volume in the long-term market is expected to be $3.38 billion, compared with last week's revised $1.86 billion, according to Thomson Reuters.
This week's largest anticipated deal is a $350 million revenue obligation sale from the South Carolina Public Service Authority, which is being sold on behalf of Santee Cooper, the state-owned electric and water utility.
The bonds are slated to be priced by Goldman, Sachs & Co. on Wednesday or Thursday, according to an underwriter at the firm. The structure of the deal was not available at press time on Friday.
With strong retail appetite chasing the current attractive yields, deals that do end up getting priced this week should be easily digested - especially given how retail investors devoured the California Ran deal last week, municipal participants said.
"Retail is really driving the boat right now," said a New York trader. "Brokers in our regional offices can't pick up the phone fast enough."
With regard to the notes, he said, "there was a ton of retail money chasing that deal."
The deal offered notes maturing on May 20 at a 3.75% yield and notes maturing on June 22 at a 4.25% yield. That far outshined comparable one-year, generic, tax-free triple-A-rated GO bonds, which, according to Municipal Market Data, were yielding 2.11% last Tuesday when the Rans were priced for retail investors.
While the California notes set the stage for strong retail demand for upcoming bond sales, like the $300 million revenue sale from the California Health Facilities Financing Authority on behalf of Providence Health, players said issuers will face an expensive trip to market to get deals done.
Merrill Lynch & Co. and the authority will decide tomorrow whether to price the deal Wednesday or Thursday or to delay the deal this week, according to a spokesman at the CHFFA. A source at the firm said the structure of the Providence deal was being hammered out at press time on Friday.
Steve Kelleher, managing director of the municipal department at Wedbush Morgan Securities Inc. in San Francisco, believes the Providence deal will be attractive to yield-hungry retail investors as he expects to see bonds priced in the mid-to-high 6% range - if not higher.
"It is a tenuous market," he said. "Retail is enjoying it, but issuers are still going to struggle. It will be a big challenge to get long deals done unless you are prepared to pay the penalty the market is demanding from issuers."
"I don't think the $14 billion, $15 billion, or $20 billion that was postponed since mid-September can come to market, but selective issuers who must borrow are forging ahead and deals can get done," Kelleher said. "The tone in munis has improved as a result of the retail demand; however, many institutional accounts remain firmly in a selling mode and are looking for buyers."
Meanwhile, a $350 million sale from the Massachusetts Bay Transportation Authority was shifted to the day-to-day calendar on Friday after being listed on the Dalcomp negotiated calendar for pricing by senior manager JPMorgan on Wednesday.
It joins other sizable deals, like a $368 million Michigan GO sale and a $275 million Idaho Health Facilities Authority sale on behalf of St. Luke's Regional Medical Center - two Merrill-led deals - hoping to price soon pending market conditions.
Jonathan Davis, chief financial officer of the MBTA, said the authority is poised to enter the market by sometime next month, and has enough capital to fund projects, but at the same time, it doesn't want to wait too long for interest rates to improve.
"We are positioned to go and would like to go sometime between now and the middle of November," he said. "There are a lot of people on the sidelines similar to ourselves and we don't want to get caught up in a week where there are a lot of issuances. We would like to get as much focus on our deal as possible."
While rates are high, Davis said that would not necessarily prevent the deal's arrival altogether, and said the authority will conduct a conference call with JPMorgan today to discuss its timing.
"It's possible that the rates are going to be where they are for a while, and we don't have six to eight months to wait. It has given us pause, but will not preclude us from going to market," he said.
The MBTA deal is one of a handful of upcoming negotiated deals in the Northeast, including $250 million of single-family mortgage revenue bonds from the New Jersey Housing and Mortgage Finance Agency planned for Wednesday by Banc of America Securities LLC.
The New Jersey Educational Facilities Authority is scheduled to sell $213.4 million of revenue refunding bonds on behalf of Princeton University on Wednesday via a negotiated pricing by JPMorgan. The natural triple-A-rated bonds are structured to mature from 2009 to 2023.
Connecticut, meanwhile, has a $250 million GO sale pending for Wednesday by Siebert, Brandford Shank & Co. following a two-day retail order period beginning today. The transaction is the state's first new-money GO deal for fiscal 2009, which began July 1, and will be priced by a syndicate of 13 banks led by Siebert, as well as a 16-member selling group syndicate to generate more retail business.
The bonds are structured to mature from 2009 to 2028. The bonds have underlying ratings of Aa3 from Moody's Investors Service and AA from Standard & Poor's and Fitch Ratings.
While some of this week's deals may make it to market as planned, other issuers are still opting to delay deals until the high rates subside enough for their financings to make fiscal sense.
For instance, last week the Clark County, Nev., Water Reclamation District pulled its $250 million that was originally slated for competitive pricing tomorrow as it waits for more acceptable rates.
Additionally, the Omaha Public Power District postponed its $105 million deal - possibly until 2009, officials told The Bond Buyer last week - after canceling a retail order period back in mid-September due to the unappealing rate environment.
Michelle Kaske contributed to this column.