Prices of top-quality municipal bonds closed stronger on Friday, traders said, with yields on some maturities falling by as much as three basis points.
The market was digesting the week's supply, which totaled a revised $5.33 billion, according to Thomson Reuters. The total consisted of a revised $4.06 billion of negotiated deals and $1.14 billion of competitive sales.
But that total didn't include the one deal the market had wanted to see the most - the Puerto Rico Aqueduct and Sewer Authority's $750 million senior lien revenue bond sale.
"We are not pricing today in order to provide investors with the time they need to adequately review and analyze the materials so they can make the most informed decision about their potential investment," a spokesperson for the Puerto Rico Government Development Bank said in a statement released late Thursday.
Earlier on Thursday, PRASA released a second supplement to its official statement, which added a section on the limited rights of the bondholders; the disposition of operating revenues upon acceleration and maximum interest rate provisions.
"I heard the PRASA pricing was $300 million short of getting the deal done with an 8% coupon priced at a 10% yield to maturity," a New York source told The Bond Buyer on Friday. "Supposedly, more hedge funds would care, but were pressing for stronger covenant protections."
Lead underwriter Bank of America Merrill Lynch had no comment on the timing on the deal or details of the sale.
While the offering is now listed on the day-to-day calendar, some traders were hearing talk of a possible Tuesday date for the sale.
PRASA's President Alberto Lázaro-Castro last month told The Bond Buyer that the authority had "alternative financing options, but we are concentrating on getting the bond sale done."
When asked if the U.S. Environmental Protection Agency might fine PRASA for not building the facilities it asked for, he said that the EPA was "aware, and in our opinion is sensible to, our financial situation."
The PRASA sale is rated Caa3 by Moody's Investors Service, CCC-minus by Standard & Poor's and CC by Fitch Ratings.
On Tuesday, S&P placed PRASA's rating on negative CreditWatch. "The CreditWatch action reflects our expectation that events could unfold within the next three months that could expose PRASA to greater restructuring efforts," according to S&P.
PRASA has about $3.3 billion in outstanding senior lien revenue bonds, S&P said.
Primary Market
Outside of Puerto Rico, most of the market's attention was focused on the Detroit deal.
Detroit's finance director told The Bond Buyer that he had no complaints about the steep premium the city paid to access the municipal market for the first time since exiting Chapter 9.
"We are very pleased with the results," John Naglick said of the Motor City's $245 million sale of local government loan program revenue bonds. The deal was priced by Barclays Capital and issued through the Michigan Finance Authority.
The $134.73 million tax-exempt series of Detroit financial recovery income tax revenue and refunding local project bonds were priced with yields ranging from 3.40% in 2020 to 4.50% in 2029. The yield on the deal's longest tax-exempt maturity landed 194 basis points over the Municipal Market Data's top-rated benchmark and 133 basis points over an A-level credit.
The tax-exempt tranche was oversubscribed, allowing the city to lower yields as much as 25 basis points on its longest maturity.
The $110.28 million taxable series was priced at par to yield 4.60%, or about 300 basis points above the comparable Treasury security.
The offering was enhanced with a statutory lien and intercept feature on the city's income taxes, which landed the deal an A rating from Standard & Poor's, which rates Detroit itself deep in speculative-grade territory.
Naglick said the finance team calculated the average weighted interest at 4.44%, an improvement over the 5.75% rate assumed in the plan of adjustment that paved the way for the city's Chapter 9 exit late last year.
Proceeds from the deal will largely be used to repay Barclays for a $275 million loan that financed the city's bankruptcy exit.
Elsewhere, Goldman, Sachs & Co. priced the New York Metropolitan Transportation Authority's $407.7 million of Series 2015D transportation revenue refunding bonds. The issue was rated A1 by Moody's, AA-minus by S&P, A by Fitch and AA-plus by Kroll Bond Rating Agency.
Barclays Capital priced $558.74 million of tax-exempt and taxable bonds from the Illinois Finance Authority for the University of Chicago. The issue was rated Aa2 by Moody's, AA by S&P and AA-plus by Fitch.
Citigroup priced the New York Convention Center Development Corp.'s $581.13 million of Series 2015 hotel unit fee secured revenue refunding bonds. The issue was rated Aa3 by Moody's. Citi also priced the Hillsborough County, Fla., Aviation Authority's $383.4 million of tax-exempt and taxable bonds for the Tampa International Airport. The issue was rated A3 by Moody's, A-minus by S&P and Fitch and A-plus by Kroll.
In the competitive arena, Portland, Ore., sold $329.81 million of Series 2015A first lien sewer system revenue refunding bonds and $63.3 million of Series 2015B second lien sewer system revenue refunding bonds in two separate sales.
Wells Fargo Securities won the Series 2015A bonds with a true interest cost of 2.16%. The Series 2015A bonds were rated Aa2 by Moody's and AA by S&P. BAML won the Series 2015B bonds with a TIC of 2.75%. The Series 2015B bonds were rated Aa3 by Moody's and AA-minus by S&P.
Secondary Trading
Prices of top-rated munis finished higher on Friday. The yield on the 10-year benchmark muni general obligation weakened three basis points to close at 2.13% from 2.16% on Thursday, while the yield on the 30-year GO was off two basis points to 3.00% from 3.02%, according to the final read of Municipal Market Data's triple-A scale.
In contrast, the 10-year muni yield stood at 2.20% on Friday, Aug. 14, while the 30-year yield stood at 3.07%.
Treasury prices were higher on Friday, with the yield on the two-year Treasury note falling to 0.63% from 0.67% on Thursday, while the 10-year yield fell to 2.06% from 2.08% and the 30-year yield decreased to 2.74% from 2.75%.
The 10-year muni to Treasury ratio was calculated on Friday at 103.9% versus 103.8% on Thursday, while the 30-year muni to Treasury ratio stood at 109.3% compared to 109.8%, according to MMD.
Municipal Bond Funds See Inflows
Municipal bond funds saw inflows in the latest week, according to Lipper data released on Thursday.
Funds which report weekly saw $43.656 million of inflows in the week ended Aug. 19, after seeing inflows of $11.087 million in the previous week, Lipper reported. The latest inflow brings to 18 out of 34 weeks this year that the funds have seen a cash infusion. Inflows for the year to date are still in the green, totaling $3.008 million.
The four-week moving average remained negative at $81.719 million after being in the red at $61.280 million in the previous week. The moving average has now been negative for 13 weeks in a row. A moving average is an analytical tool used to smooth out price changes by filtering out fluctuations.
Long-term muni bond funds also experienced inflows, gaining $289.019 million in the latest week, after seeing inflows of $134.829 million in the previous week. Intermediate-term funds saw outflows of $6.790 million after seeing inflows of $8.368 million in the prior week.
And high-yield muni funds saw inflows of $182.789 million in the latest reporting week, after seeing an inflow of $60.437 million the previous week. In the past 17 weeks, high-yield funds have seen outflows 11 times totaling $1.775 billion and inflows six times totaling $322.011 million.
Exchange traded funds saw outflows of $19.800 million, after experiencing inflows of $49.071 million in the previous week.
The Week's Most Actively Quoted Issues
New York and Ohio were some of the most actively quoted names in the week ended Aug. 21, according to data released by Markit.
On the bid side, the Port Authority of New York and New Jersey tax 5.647s of 2040 were quoted by 11 unique dealers. On the ask side, the New York City GO 5s of 2028 were quoted by 18 dealers. And among two-sided quotes, the Buckeye Tobacco Settlement Financing Authority, Ohio 5.875s of 2047 were quoted by seven dealers, Markit said.
The Week's Most Actively Traded Issues
Some of the most actively traded issues in the week ended Aug. 21 were in the District of Columbia, California and Oregon, according to Markit.
In the revenue bond sector, the District of Columbia hospital 4s of 2040 were traded 67 times. In the GO bond sector, the Mount Diablo Unified School District, Calif. 0s of 2030 were traded 34 times. And in the taxable bond sector, the Port Morrow Transmission Facilities, Ore., revenue 2.937s of 2022 were traded 13 times, Markit said.
