The municipal bond market saw an avalanche of new supply from a variety of issuers hit the screens on Wednesday as New Jersey sold $525 million of general obligation bonds in the competitive arena and two issuers from Texas came to market with almost $2 billion of debt in the negotiated sector.
Bank of America Merrill Lynch won the Garden State's $525 million GOs with a true interest cost of 3.3190%. The bonds were priced as serials to yield from 0.375% with a 5% coupon in 2016 to 3.73% with a 4% coupon in 2035. The issue is rated A1 by Moody's Investors Service and A by Standard & Poor's and Fitch Ratings.
Shortly after the sale, Moody's released two credit reports on New Jersey.
The first report looks at the revised unfunded pension liability numbers New Jersey recently issued under new accounting rules from the Governmental Accounting Standards Board.
"With the new rules, New Jersey's pension liabilities more than doubled to $83 billion for the fiscal year ended June 30, 2014, and in line with Moody's adjusted net pension liability for the state of $77 billion, released in our Nov. 20 report," the report states. "The state's new disclosures, as well as our ANPL calculation, underscore the significant pension funding challenges that New Jersey faces."
Moody's cited the state's new forecasts for its two largest pension plans - the Public Employees Retirement System and the Teachers Pension and Annuity Fund.
"The plans could fully expend their assets as soon as 2024 and 2027, respectively, even assuming the funds meet assumed investment returns. This projection, which under new accounting rules must incorporate employer contribution assumptions that give weight to actual funding in the past five years, indicates New Jersey's limited time to identify structural solutions to its pension liabilities," Moody's stated.
In the second report, Moody's says despite the lagging economic recovery and the state's ongoing fiscal challenges, most of the state's local government credit strength will be stable in 2015.
"While New Jersey's cities and counties share the same economy as the state, local governments benefit from a number of factors, including far better funded pension plans, the stability of property tax revenues, the low amount of state aid, and a strong institutional framework," Moody's said.
Primary Market
Bank of America Merrill Lynch priced the Texas Transportation Commission's $1.76 billion general obligation mobility fund bonds, a combination of new money and refunding. The $1.51 billion Series 2014A bonds were priced to yield from 0.65% with a 5% coupon in 2017 to 3.22% with a 5% coupon in 2044. The $250 million Series 2014B SIFMA Index floating rate bonds were priced to yield 38 basis points above the SIFMA Index in a bullet maturity of 2041 with a mandatory tender date in 2018 and an optional call in 2018. The issue is rated triple-A by Moody's, S&P and Fitch.
The TTC is also planning a $1.6 billion refunding early in 2015, which will retire most of the outstanding debt for the Central Texas Turnpike System. The two issues could refund a $900 million Transportation Infrastructure Finance and Innovation Act loan.
The Texas Department of Transportation built and manages the turnpike system and issues bonds under the name of TTC. TxDOT is expected to end this year with record issuance of $5 billion of bonds, making it the largest issuer in the Southwest.
Another Texas transportation issuer that came to market on Wednesday was the North Texas Tollway System.
Morgan Stanley & Co. priced the $224.33 million first tier variable-rate revenue refunding bonds (SIFMA Index floating rates). The bonds were priced at par to yield 70 basis points above the SIFMA Index in a bullet maturity of 2038 with a mandatory put in 2020 and an optional call in 2019. The issue is rated A2 by Moody's and A-minus by S&P.
Also on Wednesday, Bank of America Merrill Lynch priced the Phoenix, Ariz., Civic Improvement Corp.'s $600 million junior lien water system revenue bonds. The $153.89 million Series 2014A bonds were priced to yield from 1.13% with a 2% coupon in 2019 to 3.37% with a 4.75% coupon in 2044. The $446.21 million Series 2014B bonds were priced to yield from 0.30% with a 5% coupon in 2016 to 3.03% with a 4% coupon in 2029.
J.P. Morgan Securities priced $301.96 million Illinois Finance Authority revenue refunding bonds. The issue was priced to yield from 1.36% with a 5% coupon in 2019 to 3.45% with a 5% coupon in 2038. The bonds are rated Aa2 by Moody's and double-A by S&P and Fitch.
Late Tuesday, Wells Fargo Securities priced the $766.16 million Miami-Dade County, Fla., aviation revenue refunding bonds, AMT and non-AMT for institutions. The $602.34 million AMT bonds were priced to yield from 0.25% with a 1% coupon in 2015 to 3.77% with a 5% in 2036. The $163.815 million non-AMT bonds were priced to yield from 0.20% with a 1% coupon in 2015 to 3.45% with a 5% coupon in 2037. The issue is rated A2 by Moody's and A by S&P and Fitch Ratings.
On Tuesday, Goldman, Sachs & Co. priced $740.7 million New York State Thruway Authority general revenue refunding bonds for retail investors. The bonds were priced to yield from 1.17% with a 3% coupon in 2019 to top yields in a 2032 split maturity with a 3.52% yield with a 3.5% coupon and with a 3.21% yield with a 5% coupon. The issue is rated A2 by Moody's and A by S&P.
Secondary Market
The secondary market took a back seat to the primary on Wednesday, with high-grade municipal bond prices remaining flat. The yield on the benchmark 10-year general obligation was unchanged at 2.08% from Tuesday's close while the yield on 30-year GOs was also flat, at 3.02% from Tuesday, according to a preliminary read of Municipal Market Data's triple-A scale.
Treasury prices were slightly lower, with the two-year note yield rising to 0.55% from 0.53% on Tuesday. The 10-year yield increased to 2.30% from 2.28% while the 30-year gained to 3.01% from 3.00% on Tuesday.
On Tuesday, the 10-year muni-to-Treasury ratio closed at 91.1% versus 92.8% on Monday. The 30-year muni to Treasury ratio closed at 100.6%, compared with 101.1% on Monday. The ratio is calculated by taking the yield on a triple-A rated muni and comparing it to the yield on a Treasury of the same maturity. The higher the ratio, the more attractive munis are to Treasuries.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 40,799 trades on Tuesday for volume of $8.458 billion.
Most active on Tuesday, based on the number of trades, was the New Jersey State Trust Fund Authority Transportation Program's 2014 Series AA 4¼s of 2044 which traded 264 times with an average price of 99.233 for an average yield of 4.275%. This same issue was the most actively traded on Wednesday, trading 102 times at a high/low price of 100.625/98.057 and a high/low yield of 4.368%/4.17%.
Richard Williamson contributed to this report.
