Traders said the market is tired of the Dormitory Authority of the State of New York name, but will buy the $198.6 million of school district revenue bond financing program revenue bonds that came to market Tuesday anyway.
"A lot of people have New York State Dorms in their portfolios as an issuer," a trader in New Jersey said. "There are all sorts of different kinds of New York State Dorm bonds and people may feel like 'I can't put another dorm name in my portfolio.' However, there is not a lot of supply so people will eat it up anyway."
Market participants said they anticipate all large deals scheduled to come to market will be bought up pretty quickly because of this year's continued low supply. Supply totaled $89.34 billion as of April 30 this year compared to $122.72 billion for the same period in 2013, according to data provided by Ipreo and The Bond Buyer.
Supply for this week is expected to total $5.1 billion. The Dormitory Authority deal is the fifth biggest negotiated deal scheduled for this week, according to the Dalcomp negotiated calendar.
"It will probably get scooped up and come at a pretty tight spread," the trader in New Jersey said. "Even if the name is very common it will probably get done. I have not heard of deals having trouble getting done with the low supply."
A trader in New York said the low coupons on the largest part of the four-part deal will likely motivate investor to buy the bonds.
The biggest section of the deal totaled $153.88 million with yields ranging from 0.42% with a 2% coupon in 2016 to 4.10% with a 4% coupon in 2043.
"The 3% on the 2025s at 3.05%, those were actually brought in a bit, but there are only 300 bonds on the whole maturity," a trader in New York said. "All the discounts are on retail-type structured paper, and there are only a couple hundred of those bonds, so they will be bought pretty quickly. The places where there are millions of bonds that have 5% coupons are not the places retail looks."
In a report published on Monday Citigroup wrote that investors had starting looking at sub-5% coupons. "4-4½% coupons on new issues are now drawing demand, as some institutional investors seek to find paper 'the other guy' isn't bidding up - yet," Citi wrote.
The market's hesitance to buy lower coupons is based on fear of volatility as prices fall below de minimis, Citi wrote in the report. "However, for some investors, the extra potential to find paper on new issues is a sufficient offsetting factor," Citi wrote."
The $153.88 million part of the issuance is rated A-plus by Standard & Poor's and Fitch Ratings. It has two sinking fund schedules. The first fund's starts in 2035 and the second begins in 2039.
The $7 million part of the issuance was priced to yield from 0.48% with a 3% coupon in 2016 to 3.58% with a 3.50% coupon in 2029. The $29 million part of the issuance was priced to yield from 0.48% with a 3% coupon in 2016 to 3.99% with a 5% coupon in 2042. It also has a two-part sinking fund schedule starting in 2035 for the first fund, and beginning in 2038 for the second one.
The $8.7 million portion of the issuance has yields ranging from 0.48% with a 3% coupon in 2016 to 3.53% with a 3.375% coupon in 2029.
All sections of the issuance are callable at par in 2024.
The second series earned a Aa3 rating from Moody's Investors Service and A-plus from Fitch, the third received a AA from S&P and an A-plus from Fitch, and the fourth got a Aa2 from Moody's and an A-plus from Fitch.
