The $1.7 billion Los Angeles Unified School District general obligation bonds that J.P. Morgan is scheduled to price on Thursday are captivating investors.
Investors said they find the week's largest expected deal attractive because the L.A. Unified School District is an infrequent issuer and because the deal's size gives the GOs liquidity in the market.
"It's a good name that does not come terribly frequently," a trader in New York said. "It's large, so it has lots of liquidity, a plus in the market at the right price."
The bonds received an Aa2 rating from Moody's Investors Service, and a AA-minus from Standard & Poor's.
Some investors said demand for the deal may not be as strong as anticipated because there is a lot of California paper in the market already, including the $900 million L.A. County tax and revenue anticipation notes issued last week.
The trader in New York said the amount of California bonds already out there will not be an issue since it's not the school district's paper.
"I think the name stands strong, and [the bonds] will be perceived by investors as something different," he said.
This is the first time the L.A. Unified School is selling bonds since April 2012, when it issued $156 million GO refunding bonds. The school district issued notes in 2013 and in 2012 after the April bond sale.
"Investors will see the L.A. school district name and say 'I haven't seen this school district, I haven't seen this name' and buy the bonds," a second trader in New York said.
Investors also said the deal will go well because the state's high taxes will ramp up demand for the bonds.
"It's a big deal, California has got a ton of investors so I'm not terribly worried about how it is going to go," the second trader in New York said.
Goldman Sachs priced $536.9 million of Houston combined utilities system first lien revenue and refunding bonds.
Yields ranged from 0.48% with a 3% coupon in 2016 to 3.81% with a 5% coupon in 2044. The bonds are callable at par in 2024.The deal is rated Aa2 by Moody's and AA by both S&P and Fitch Ratings.
Treasuries were mostly steady Thursday morning, with the 30-year yield and the two-year note remaining at 3.47% and 0.43%, respectively, from Wednesday's market close. The 10-year benchmark fell two basis points to 2.63%.
