On the heels of a mostly steady to stronger tone and brisk demand for deals, the municipal market is anticipating the arrival of a $5.5 billion California revenue anticipation note deal this week as well as more than $4 billion in new long-term paper — all of which should see strong demand, municipal experts said.
The mammoth note deal is expected to be well received by buyers looking for a safe haven on the short end of the market, while the $4.26 billion of long-term deals expected by Ipreo LLC and The Bond Buyer should appeal to retail investors looking for a good combination of quality and diversity, according to sources. The expected volume compares to the revised $6.41 billion that actually came to market last week, according to Thomson Reuters.
Alan Schankel, managing director at Janney Montgomery Scott, said he is constructive on this week’s long-term calendar because of its manageable size and the fact that dealer inventories are on the light side.
“The cloud of Detroit has made retail investors cautious as illustrated by elevated muni to Treasury ratios, and that may contribute to continued fund outflows, which is a problem, but I see no barriers to a decent week,” he told The Bond Buyer late Friday.
Meanwhile, California’s note deal will be offered to retail investors on Wednesday ahead of the official pricing by JPMorgan on Thursday.
The notes are rated MIG-1 by Moody’s Investors Service, SP-1-plus by Standard & Poor’s Ratings, and F1 by Fitch Ratings. The state sold $10 billion of RANs in 2012.
While nominal yields are expected to be lackluster, a California municipal trader said the deal should still see strong demand nonethless.
Although the notes are secured by unapplied monies of the state’s general fund — and not the GO pledge — the fact that Fitch recently upgraded the state’s GO rating to A from A-minus citing improved fiscal standing and revenue and economic recovery adds strength and marketability, he said.
“Everything looks much more positive, so I don’t see any problem whatsoever finding demand for it,” he explained.
“The short end is where the demand is. With all the chatter about rates rising, a lot of people are going to look at it as a defensive place to be in the next few months until we see rates out higher,” he added.
In addition, the deal will likely absorb available cash on the sidelines.
“You will have strong demand because people are looking for a place to spend the money from recent rolls that haven’t been invested,” the trader said.
In other large deals expected this week, the Dallas-Fort Worth International Airport plans to navigate a $415 million offering of bonds subject to the alternative minimum tax on Thursday, however senior book-runner Citi was still arranging the structure at press time.
The bonds are rated A2 by Moody’s, A-plus by Standard & Poor’s, and A by Fitch.
The arrival of a $500 million Connecticut GO deal slated for pricing by M.R. Beal & Co. on Wednesday will boost supply in the Northeast region.
Retail investors will get first crack at the bonds on Monday and Tuesday, and the structure will include $165 million of Series D Securities Industry & Finance Markets Association index bonds maturing serially from 2014 to 2023, as well as $235 million of Series E bonds maturing serially from 2014 to 2023.
An additional $100 million of taxable GO bonds will maturing from 2014 to 2023 and will be priced by Loop Capital Markets.
All the series are rated Aa3 by Moody’s, and AA by the two other major rating agencies.
Last week, the primary activity was led by two large deals — chiefly a $673.1 million Puerto Rico Electric Power Authority revenue sale priced last Wednesday priced by Morgan Stanley that was twice oversubscribed.
The deal received $1.5 billion in orders and its final 2043 maturity with a 7% coupon was lowered three basis points at the repricing to 7.12%. The bonds are rated Baa3 by Moody’s Investors Service, BBB by Standard & Poor’s, and BBB-minus by Fitch Ratings.
In addition, a $1.2 billion South Carolina Public Service Authority financing made a successful appearance, even though it was downsized from $1.78 billion due to higher than expected market yields at the time of pricing.
The 2043 maturity in the Series A new-money portion was priced on Wednesday with a 5.75% coupon and yielded 4.90%, while the 2043 maturity in the Series B refunding portion was priced with a 5.125% coupon and 5.30% yield.
At the time of the pricing, the generic triple-A GO scale in 2043 was unchanged at a 4.28% yield for a second day in a row, according to Municipal Market Data. The same bond was unchanged on Thursday and Friday, according to MMD.
