The muni market continued making gains Thursday, and Morgan Stanley received the written award on $794.4 million California's State Public Works Board lease revenue bonds.
"I imagine the deal will be well received," Tom Dalpiaz, managing director at Granite Springs Asset Management, said early on Thursday. "I expect due to an improved opinion of California and the state's improved credit quality."
Rated a notch below the state's general credit rating, the deal entered the retail order period at $791 million, but demand was unusually high, and retail investors purchased 40.4% of the offering, according to Tom Dresslar, a spokesman for the California state treasurer.
"We are very pleased with the results," Dresslar said in an email.
The bonds were rated A2 by Moody's Investors Service, and A-minus by Standard & Poor's and Fitch Ratings. In its credit report Moody's explained the rating was below California's rating because the bonds are secured by lease rental payments made by state agencies, which are vulnerable to abatement risk. These payments are subject to annual state legislative appropriates.
"The A2 rating reflects strong legal mechanisms for lease payments in spite of some abatement risk, the weaker security provided by lease revenue bonds relative to the state's general obligation debt, and the credit standing of the State of California, whose general obligation debt is rated A1 with a stable outlook," Moody's said in the report.
The bonds carry a stable outlook from Moody's and Fitch, and a positive outlook from S&P.
"I was surprised by the spread for the deal," Dalpiaz said. "I recall when California state GOs were trading much wider than what they traded at this week. Two years ago the spread for California deals was much, much wider."
California bonds were the most heavily traded bonds in the market on Thursday afternoon, at about 16.76% of the market, and 28.5% above the bonds' 100-day average, according to data provided by Bloomberg.
"It seems like it will be well received, well accepted," a trader in New York said earlier Thursday.
The Public Works Board's bonds were the most highly traded California bond, accounting for 24.4% of trades, and 1,999.8% above their 100-day average, according to data provided by Bloomberg.
The bonds are being issued on behalf of the Department of Corrections and Rehabilitation, and the proceeds will be used to finance the design and construction costs of the Mule Creek State Prison in Plymouth, Calif., and the Richard J. Donovan Correctional Facility in San Diego.
Yields ranged from 0.96% with a 3% coupon in 2017 to 4.36% with a 5% coupon in 2039. The bonds are callable at par in 2024 with two sinking fund term bonds in 2039.
The largest issue this week was the city of Atlanta's three-part $852.8 million airport revenue refunding bonds priced on Tuesday, $147.2 million more than originally scheduled. Yields on the $523.6 million of subordinate lien general revenue refunding bonds ranged from 3.12% with a 5% coupon in 2024 to 4.06% with a 5% coupon in 2034.
Yields on $144.1 million of airport general revenue refunding bonds ranged from 0.87% with a 3% coupon in 2017 to 3.91% with a 5% coupon in 2033. Yields on $185.1 million of AMT airport general revenue refunding bonds ranged from 0.20% with a 2% coupon in 2015 to 3.99% with a 5% coupon in 2029. All three series of bonds are callable at par in 2024.
On Thursday $237.9 million Orlando, Fla., contract tourist development tax payment revenue bonds were priced for institutions, following Wednesday's retail period. Yields ranged from 0.59% with a 4% coupon maturing in 2016 to 4.19% with a 5% coupon maturing in 2044. The bonds are callable at par in 2024 with a lot sinking fund term bond in both 2039 and 2044. The bonds received a Aa2 rating from Moody's and AA-plus from Fitch.
Municipal bond yields weakened Thursday afternoon, with maturities ranging from 2020 to 2029 falling as much as five basis points. Yields on bonds maturing beyond 2030 slid as much as four basis points, while the short end of the curve held steady, according to the Municipal Market Advisors scale.
Treasury yields softened Thursday afternoon, as the 30-year yields and the 10-year benchmark gained three basis points each to 3.51% and 2.68%, respectively. The two-year notes inched up one basis point to 0.46%.
