The Puerto Rico Aqueduct and Sewer Authority's $750 million bond deal will be coming to market on Thursday, according to a trader at Bank of America Merrill Lynch.
In the secondary, prices of top-rated municipal bonds finished weaker on Tuesday, traders said, with yields on some maturities strengthening by as much as two basis points. In the primary, Portland, Ore., sold almost $400 million of bonds in the competitive sector.
PRASA Pricing Thursday
It had been originally reported that PRASA's Series 2015A senior lien revenue bonds would be pricing on Tuesday. However, the BAML trader told The Bond Buyer the deal had always had a target date of Thursday.
The offering is the first deal by a Puerto Rico public sector agency since the commonwealth's $3.5 billion general obligation bond sale in March of 2014. Since that time, a lot has changed. Puerto Rico Gov. Alejandro Garcia Padilla said in June that the Commonwealth's debt was unpayable and then the Puerto Rico Public Finance Corp. defaulted on 99% of a $58 million debt payment in August. Looking ahead, the Commonwealth will face $370 million in GO debt service payments on Jan. 1, 2016.
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," S&P credit analyst Theodore Chapman said in a press release. "Should decision makers include PRASA after all in creditor discussions, or should the Commonwealth take negative extraordinary intervention measures by looking to any available option for emergency liquidity, the ratings on PRASA debt would remain associated with the Commonwealth's GO and related ratings and would likely eventually reflect a default."
Before the upcoming sale, PRASA had about $3.3 billion in outstanding senior lien revenue bonds, according to S&P.
Fitch said on Tuesday that it is expecting some high-yield municipal closed-end funds (CEF) will consider participating in the deal.
"We believe that PRASA's recent price stability relative to other Puerto Rican issuers may lure some managers," Fitch said in a release.
"If the PRASA offering is successful, a return of municipal CEF managers as investors in Puerto Rico would be a benefit to the Commonwealth as they could be an important source of liquidity and signal that market participants are more willing to estimate recoveries post default of Puerto Rican issuers," Fitch said. "However, even a successful offering does not mean there are not significant risks ahead."
Fitch added that Puerto Rico has very high speculative risks, "and until a clear pathway for an orderly restructuring of debt occurs, purchasers today face the risk of being part of a future restructuring."
As of May 31, Fitch said that 57 of the 192 municipal CEFs that it rates still had some Puerto Rico holdings. The 57 funds held an average 1.1% of exposure, and funds holding higher allocations to Puerto Rico ranged between 2.5% to 6.0% of exposure to the Commonwealth.
Moody's said earlier when assigning its rating that "proceeds of the current issue will finance elements of PRASA's capital improvement program for the five years ending with fiscal 2019, and will also repay $67 million owed to the GDB and refinance $90 million of short-term bank-held senior debt. As much as $288 million of the proceeds will reimburse the authority for past operating revenue spent on capital improvements."
Meanwhile, early price talk on the deal indicated that "the anticipated single maturity of 2045 will carry an 8% coupon and yield to maturity in the 9.5% to 10.00% range," according to Janney Municipal Strategist Alan Schankel.
Bloomberg quoted a person familiar with the deal as saying the 30-year bonds would have a preliminary yield of 9.50%.
And a New York trader told The Bond Buyer that comparable price talk was circulating on the Street.
"Yes, we are hearing similar yields," he said, "I would be surprised if it came inside 10%."
On Tuesday, the PRASA Series 2012A senior lien revenue 5s of 2033 were trading at a low price of 64.582 cents on the dollar, a high yield of 9.029%, in 21 trades totaling $780,000, according to the Municipal Rulemaking Board's EMMA website. On Monday, the bonds were trading at a low price of 65.05, a high yield of 8.956%, in 18 trades totaling $550,000, according to EMMA.
The PRASA Series 2012A senior lien revenue 5 1/4s of 2042 were trading on Tuesday at a low price of 65.283 cents on the dollar, a high yield of 8.574%, in 15 trades totaling $395,000. On Monday, the bonds were trading at a low price of 64.53, a high yield of 8.676%, in six trades totaling $2.88 million, according to EMMA.
Primary Market
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 bonds were priced as 5s to yield from 0.24% in 2016 to 1.69% in 2021, and priced to yield from 2.25% with a 5% coupon in 2024 to 3.18% with a 4% coupon in 2031.
BAML won the Series 2015B bonds with a TIC of 2.75%. The bonds were priced to yield from 0.24% with a 5% coupon in 2016 to 3.18% with a 3% coupon in 2031.
The Series 2015A bonds were rated Aa2 by Moody's and AA by S&P while the Series 2015B bonds are rated Aa3 by Moody's and AA-minus by S&P.
Since 1995, the city of Portland has issued roughly $6.91 billion of debt. The years of 2008 and 2010 saw the most issuance with $807 million and $633 million, respectively. The city saw low years of issuance in 2002 and 2009, when it issued just $74 million and $69 million, respectively.
Citigroup priced the Hillsborough County, Fla., Aviation Authority's $383.4 million of tax-exempt and taxable bonds for the Tampa International Airport.
The $89.11 million of Series 2015A non-AMT customer facility charge revenue bonds were priced as 5s to yield 3.85% in 2044. The $294.29 million Series 2015B taxable customer facility charge revenue bonds were priced at par to yield from 2.587% in 2019 to 4.751% in 2030; a 2035 maturity was priced at par to yield 5.17% and a 2041 maturity was priced at par to yield 5.25%. The issue was rated A3 by Moody's, A-minus by S&P and Fitch and A-plus by Kroll Bond Rating Agency.
Wells Fargo priced the District of Columbia's $145.41 million of Series 2015 taxable Southwest Waterfront Project revenue bonds.
The issue was priced at par to yield from 2.824% in 2020 to 4.582% in 2030; a 2035 maturity was priced at par to yield 4.931% and a 2040 maturity was priced at par to yield 5.041%. The bonds were rated Aa3 by Moody's, A-plus by S&P and AA-minus by Fitch.
JPMorgan priced the Pennsylvania Housing Finance Agency's $150.42 million of Series 2015-117 single-family mortgage revenue bonds. The issue was priced at par to yield from 0.50% and 0.75% in a split 2016 maturity to 3.55% in 2026; a 2030 maturity was priced at par to yield 3.95%, a 2033 maturity was priced at par to yield 4.10% and a 2040 maturity was priced as 3 1/2s to yield 2.35%. The bonds were rated Aa2 by Moody's and AA-plus by S&P.
Citi priced the New Jersey Educational Facilities Authority's $109.31 million of Series 2015G revenue refunding bonds for the College of New Jersey. The bonds were priced to yield from 1.69% with a 4% coupon in 2019 to 3.80% with a 3.5% coupon in 2031. The deal was rated A2 by Moody's and A by S&P.
Also attracting a lot of interest this week is Detroit's first post-bankruptcy bond sale. Scheduled for sale on Wednesday, Barclays Capital will price the $245 million of local government loan program revenue bonds, which are being issued through the Michigan Finance Authority.
The deal consists of Series 2014F 1 and 2 bonds consisting of $134.73 million tax-exempts and $110.28 million of taxables.
The issue is enhanced with a statutory lien and intercept feature on Detroit's income tax, which will pay off the bonds. The protections, combined with debt-service coverage levels of 6.5 times, helped the deal get an A rating from S&P.
Secondary Trading
The yield on the 10-year benchmark muni general obligation on Tuesday rose one basis point to 2.21% from 2.20% on Monday, while the yield on the 30-year GO strengthened by two basis points to 3.08% from 3.06%, according to the final read of Municipal Market Data's triple-A scale.
Treasury prices were mostly lower on Tuesday, with the yield on the two-year Treasury note remaining unchanged from 0.71% on Monday, while the 10-year yield rose to 2.19% from 2.15% and the 30-year yield increased to 2.86% from 2.80%.
The 10-year muni to Treasury ratio was calculated on Tuesday at 100.6% versus 102.2% on Monday, while the 30-year muni to Treasury ratio stood at 107.6% compared to 109.1%, according to MMD.
