Maryland’s $400 million general obligation sale to finance various state and local construction projects leads a small flurry of new-issue activity in the Northeast and is the largest deal in an otherwise fairly lackluster new-issue market. This week’s volume is expected to be $4.33 billion, up from a revised $2.76 billion last week,
The Maryland deal will arrive in the competitive market on Wednesday and will be structured to mature from 2011 to 2023. Proceeds will be used to acquire and construct state facilities, and provide capital grants for construction and improvements to public schools, community colleges, correctional facilities, hospitals, and cultural institutions.
The state, which is one of only seven to share the rare distinction of having natural triple-A ratings from all three major rating agencies, last sold a total of $700 million of new-money GOs in February 2007.
Judging by the climate of the market Friday and the recent healthy supply of Maryland paper, it might not exactly be the most opportune time to come to market, according to a Baltimore trader.
“There is no shortage of bonds here right now … There’s been enough long health care and hospital deals that retail is pretty well saturated,” he said. “There’s no pent-up demand right now.”
The Maryland Health and Higher Educational Facilities Authority in early February sold $264.3 million of revenue bonds on behalf of Washington County Hospital that was rated BBB-minus by Standard & Poor’s and BBB by Fitch Ratings. The deal ranged in yield from 3.59% in 2012 to 6.02% in the 2043 final maturity.
In January, the authority also sold $285 million on behalf of the LifeBridge Health System in a deal that was insured by Assured Guaranty and ranged in yield from 3.05% in 2008 and 4.88% in 2047.
Typically, the state GOs are priced right on top of the generic triple-A scale, but the trader said he believed that the scale was about 10 basis points overpriced on Friday. The generic, 2023 maturity — the final maturity in the Maryland deal — ended at a 4.20% yield as of the close of trading on Friday, according to Municipal Market Data.
“It’s a stellar name, but this market is so soft it doesn’t matter what the name is,” the trader said. “The only thing that works right now is a bond that fits an inquiry exactly. Other than that, no one cares right now.”
By comparison, the New York retail market should be eager to snap up a $180 million revenue financing from the Dormitory Authority of the State of New York backed by the state’s personal income tax.
“Retail seems to be the strong player in the market right now, and fortunately the Dormitory Authority is a name that is well-recognized and has a good reputation with retail because retail is king right now,” said Peter Delahunt, national institutional sales manager at Raymond James & Associates Inc.
Overall, primary market volume in 2008 is significantly lower than in recent years. Through Feb. 21, issuers sold $35.295 billion of new debt this year, compared to more than $63 billion in the first two months of last year and more than $42 billion in the same period in 2006. Some analysts have speculated that secondary market sales are satisfying some of the demand, and investors seem eager for highly rated debt in the primary.
The Dormitory Authority deal is planned for institutional pricing by Loop Capital Markets LLC tomorrow after today’s one-day retail order period.
The personal income tax is the largest source of tax revenues in the state and typically accounts for one-half of all of New York’s tax receipts, according to the deal’s official statement.
Series 2008 A consists of two tranches — $112.4 million of economic development and housing bonds and $69.5 million of health care bonds, according to the OS.
The bonds, which are expected to have a natural AAA from Standard & Poor’s and AA-minus from Fitch Ratings, are structured to mature from 2008 to 2018, with term maturities due in 2023, 2028, 2033, and 2037.
The authority is also slated to sell $94.4 million of taxable economic development and housing bonds maturing from 2008 to 2017 tomorrow for institutions, but that pricing is being done as a separate deal by lead manager M.R. Beal & Co.
Elsewhere in the Northeast, two deals in Pennsylvania and Massachusetts are on tap.
The Delaware County, Pa., Industrial Development Finance Authority will refund $150 million of pollution control revenue bonds that were originally sold for Philadelphia-based PECO Energy Co.
Morgan Stanley is expected to price the bonds on Wednesday with a structure that was unavailable by press time.
The Massachusetts Health and Educational Facilities Authority is planning to sell $145 million of revenue-backed debt on behalf of Boston College. Expected to come to market with ratings of Aa3 from Moody’s Investors Service and AA-minus from Standard & Poor’s, the deal is being priced by senior manager Lehman Brothers tomorrow.
Bonds are expected to mature in 2023, 2028, 2030, and 2035.
Beyond the Northeast, one of the only other sizable deals is a three-pronged sale from Orlando, Fla., consisting of tourist development tax revenue bonds, which underwriters intend to sell with insurance from Assured Guaranty, according to the preliminary official statement.
Series 2008A will consist of $181.7 million of senior-lien revenue bonds, and is slated to be priced by Citi on Wednesday with a structure that matures from 2009 to 2027, with term maturities due in 2032 and 2038.
Series 2008B will consist of $42.3 million of second-lien subordinate revenue bonds that are structured to mature from 2009 to 2027 with term bonds in 2032 and 2038, while Series 2008C will consist of $73.8 million of third-lien subordinate revenue bonds that consists of one term bond due in 2038. Both Series B and C are being priced by book-running senior manager Goldman, Sachs & Co.
In addition, a $215 million revenue offering from Chattanooga, Tenn., is slated for pricing tomorrow by Goldman Sachs. The deal, which is expected to be rated AA by Standard & Poor’s and Fitch, is structured with bonds maturing from 2013 to 2028 and a term bond in 2033.
Backed by an irrevocable lien and pledge on all electric system revenues of the city’s electric system, the proceeds will finance a fiber-optic broadband network for the system as well as various other improvements.
In Texas, meanwhile, the recent flurry of school district deals continues this week with $195 million of Spring Branch Independent School District bonds backed by the state’s natural triple-A rated Permanent School Fund.
The deal matures from 2009 to 2038 and is expected in the competitive market today.