The $1.4 billion California Bay Area Toll Authority revenue bond deal Bank of America Merrill Lynch is scheduled to price on Tuesday appeals to investors because it offers buyers a place to park their cash for the short-term.
The $1.2 billion bulk of the deal is composed of fixed-rate short soft put bonds, with a 2047 final maturity and three-, four- and five-year puts.
"The Bay Area Toll Authority deal is a put deal, so it will be short, and there has not been enough short California lately so it will do well," a trader in Florida said.
California, which has sold $19.6 billion of long-term debt so far this year, ranks second to Texas in state issuance as of June 30, according to data provided by The Bond Buyer.
However, the short-term debt has generally come from note deals, such as $1.36 billion June L.A. tax and revenue note deal. Short-term note deals are not included in The Bond Buyer volume number.
"Investors are interested in short California in general," the trader in Florida said. "There's too much cash out there and people want to park it inside of 10 years."
Investors have a good amount of cash on hand from payments they have received during the June and July reinvestment period. During reinvestment period market participants get cash from coupon payments and bonds maturing.
Investors are particularly starved for larger deals this week because issuance has remained low the past two weeks, totaling $2.84 billion and $3.3 billion in the weeks sandwiching the July 4th holiday, according to data provided by The Bond Buyer and Ipreo.
Potential volume for this week is $5.9 billion.
A trader in Dallas also said the BATA bonds will receive demand because the structure is "unique" for such a large deal.
"You see the structure down in Texas on some school district bonds, but don't see it in the general market much," he said. "And Bay Area Toll Authority is a good name, so it will get attention. Bay Area Toll Authority has never come with that structure before."
The other $200 million portion of the deal is fixed-rate, and does not carry the soft put option.
The deal is rated Aa3 by Moody's Investors Service and AA-minus by Fitch Ratings.
Morgan Stanley will bring $250 million of Kansas Department of Transportation revenue bonds. The deal is rated Aa2 by Moody's and AA-plus by Fitch.
In the competitive market, the Colorado General Fund will auction $500 million of tax and revenue anticipation notes on Tuesday. The deal is rated MIG1 by Moody's and SP-1-plus by Standard & Poor's.
