Michigan, South Carolina bond deals dominate as municipal tone improves

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The municipal bond market saw several large deals hit the screens on Wednesday, led by issuers in Michigan and South Carolina.

Signs of demand for munis in both the primary and secondary market were evident Wednesday, according to a Florida trader. “It feels like the customer demand component is starting to strengthen,” he said.

The trader said dealers showed a willingness to pay up for customer bid wanted lists in the face of tax and redemption-related selling. In addition, he pointed to growing customer support for new issues — particularly high-grade competitive deals — as well as improved liquidity as a result of more flows from dealer to dealer.

This week's new issues have drawn strong buyer interest, including a California deal and a New York City Environmental deal, he said. In the competitive market, an Ohio certificate of participation deal was well received for its relatively short structure out to 2028, which generated multiple customer requests.

Chicago deal coming
Chicago late Wednesday said it would jump into the market Thursday with a scaled-down version of its isales tax securitization bonds to refund outstanding general obligation bonds.

“The Sales Tax Securitization Corporation will sell approximately $624.6 million of tax-exempt bonds tomorrow, Nov. 15,” finance department spokeswoman Kristen Cabanban confirmed in a statement.

The revised deal drops the 2053 maturity that had raised concerns among some aldermen and market participants over the more than decade extension of maturities beyond the bonds being refunded.

While the deal is trimmed down from the $1.3 billion slated for late last month, it’s close to the $665 million the city initially intended to sell. The city raised the size late last month after investors showed strong interest. Chicago finance chief Carole Brown said demand offered the city a chance to get the full $3 billion borrowing program done before Mayor Rahm Emanuel leaves office in May as he is not seeking a third term.

The deal was set to price on Halloween but bookrunner Loop Capital Markets LLC moved the deal to the day-to-day calendar citing market conditions. The city faced rocky market conditions, rising rates, and heavier demand that week for short-term paper.

The bonds, issued through a bankruptcy-remote special purpose entity that insulates the debt from city operations, carry AAA marks from Fitch Ratings and Kroll Bond Rating Agency and AA-minus from S&P Global Ratings following a recent one-notch downgrade due to newly published revised criteria on “priority lien” credits. The city’s GOs are rated from a low of junk Ba1 to a high of A with two ratings in the triple-B category.

The sale tentatively offers serials from 2022 to 2038 with term bonds of $50 million and $88 million due in 2043 and $178M due in 2048.

The last version at $1.3 billion offered a tax-exempt series for $917.6 million with serial maturities from 2022 to 2038 and term bonds in 2043 for $57 million, 2048 for $72 million, and two in 2053 for $311 million and $250 million. A taxable series for $388.6 million is offered in a 2053 term bond.

Loop, Ramirez & Co. Inc. and Stifel Nicolaus & Co. Inc. are the joint bookrunners. It was not immediately known if there were any changes in the team.

Primary market
Bank of America Merrill Lynch priced the Michigan Strategic Fund’s $609.76 million of Series 2018 limited obligation revenue bonds for the I-75 improvement project.

The deal is rated Baa2 by Moody’s Investors Service and BBB by Kroll Bond Rating Agency, with the exception of the 2035, 2038 and the first half of the 2048 split maturity, totaling $190.55 million, which are insured by Assured Guaranty and are rated A2 by Moody’s and AA by S&P Global Ratings.

Since 2008, the fund has sold about $2.50 billion of securities with the most occurring in 2008 when it sold $775 million. It did not come to market at all in 2017.
Wells Fargo Securities priced South Carolina Jobs and Economic Development’s $586.18 million of Series 2018A hospital revenue bonds for the Prisma Health Obligated Group.

The deal is rated A2 by Moody’s and A by S&P.

Siebert Cisneros Shank & Co. priced the New York State Environmental Facilities Corp.’s $259.465 million of Series 2018B state clean water and drinking water revolving funds revenue bonds, New York City Municipal Water Finance Authority projects second resolution subordinated SRF bonds.

The deal is rated triple-A by Moody’s S&P and Fitch Ratings.

Citigroup priced King County, Wash.’s $200 million of Series 2011 and 2012 junior lien variable-rate demand sewer revenue bonds as a remarketing.

The mandatory put bonds are rated Aa2 by Moody’s and AA by S&P.

Barclays Capital priced the California Educational Facilities Authority’s $175.895 million of tax-exempt and taxable revenue bonds for the University of San Francisco.

The deal is rated A2 by Moody’s.

On Thursday, the Wentzville R-IV School District, Mo., is competitively selling $159.82 million of Series 2018 general obligation refunding and improvement bonds under the Missouri Direct Deposit program.

Proceeds will be used to finance various school improvements and to current refund some outstanding debt. The financial advisor is Stifel while the bond counsel is Thompson Coburn.

Bond sale results

Michigan
Click here for the Fund pricing

South Carolina
Click here for the Jobs pricing

New York
Click here for the EFC pricing

Washington
Click here for the King County pricing

California
Click here for the EFA pricing

Bond Buyer 30-day visible supply at $8.84B
The Bond Buyer's 30-day visible supply calendar decreased $496.4 million to $8.84 billion for Wednesday. The total is comprised of $2.23 billion of competitive sales and $6.61 billion of negotiated deals.

Secondary market
Municipal bonds were mixed on Wednesday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell less than one basis point in the one- to nine-year, 14-year and 29- and 30-year maturities, rose less than a basis point in the 10- to 13-year and 17- to 28-year maturities and were unchanged in the 15- and 16-year maturities.

High-grade munis were also mixed, with yields calculated on MBIS' AAA scale decreasing less than one basis point in the one- to eight-year and 28- to 30-year maturities, rising less than a basis point in the 10- to 27-year maturities and remaining unchanged in the nine-year maturity.

Municipals were stronger on Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni general obligation declining one basis point while the yield on 30-year muni maturity fell two basis points.

Treasury bonds were stronger as stocks traded lower. The Treasury 10-year stood at 3.110% while the Treasury three-month bill was at 2.382%.

On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 86.5% while the 30-year muni-to-Treasury ratio stood at 100.9%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.

Previous session's activity
The Municipal Securities Rulemaking Board reported 50,966 trades on Tuesday on volume of $11.27 billion.

California, New York and Texas were the municipalities with the most trades, with the Golden State taking 16.058% of the market, the Empire State taking 12.358% and the Lone Star State taking 10.079%.

Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Ziad Saba at 212-803-6079 for more information.

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