Munis End Stronger as Chicago BOE Prices

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The Chicago Board of Education deal remained the hot topic of the municipal market on Wednesday, as bookrunner JP Morgan released pricing on the deal that was originally scheduled to hit the market last week.

Munis ended Wednesday stronger, as yields on some maturities were as many as three basis points lower, according to traders.

Primary Market

Hit hard with negative headlines over its solvency, labor troubles, and state GOP takeover threat, the Chicago Board of Education completed its delayed bond issue Wednesday after trimming the offering's size by $150 million.

The $725 million of unlimited tax general obligation with dedicated revenues bonds were priced to yield 7.75% with a 7% coupon in 2026 and to yield 8.5% with a 7% coupon in 2044. The deal was downsized, as it was originally set for $875 million, then got dropped to $795 million and ended up even lower at $725 million.

The 8.50% yield is 580 basis points over the Municipal Market Data's top-rated benchmark of a similar maturity and nearly 500 basis points over a BBB credit. The yield on the 10-year maturity landed 607 basis points over a similar top-rate maturity and 515 basis points over a BBB credit.

The issue also offered a bigger discount than seen in the initial pricing talk ahead of last week's sale date and shifted some maturities. Call features remained the same. It was unclear what, if any, bonds JP Morgan might have taken into its own inventory.

"The dollar price speaks for itself, just tells you who the participants are," said a Midwest trader. "This has the feel of a rescue financing. It feels eerily similar to that Puerto Rico GO deal."

One New York trader said based on the book they had last week that had a higher level, he assumes that this would attract some buyers.

"The tax exempt side is doing ok and the taxable piece from what I heard won't get done," he said.

As of press time, no official confirmation or statement was made about the taxable portion of the deal.

It's unclear how the size cut or the discount which will lower proceeds stands to impact the district's financial plans. The district was relying on the sale for cash flow relief to manage through the fiscal year that ends June 30.

Elsewhere on Wednesday, Bank of America Merrill Lynch priced and then re-priced Hawaii County's $236.315 million of Series 2016 A, B, C, D E, and F taxable general obligation bonds.

The $99.935 million of series A bonds were priced to yield from 1.04% with a 5% coupon in 2020 to 2.94% with a 4% coupon in 2035.

The $27.02 million of series B refunding bonds were priced to yield from 0.67% with a 3% coupon in 2017 to 1.95% with a 4% coupon in 2026.

The $44.95 million of series C refunding bonds were priced to yield from 0.79% with a 5% coupon in 2018 to 2.05% with a 5% coupon in 2027.

The $28.90 million of series D refunding bonds were priced to yield from 0.91% with a 5% coupon in 2019 to 2.13% with a 5% coupon in 2028.

The $25.465 million of series E refunding bonds were priced to yield from 1.04% with a 5% coupon in 2020 to 2.60% with a 2.5% coupon in 2029.

The $10.04 million of series F taxable bonds were priced at par to yield 1.20% in 2017, 1.30% in 2018 and 1.55% in 2019. The deal is rated Aa2 by Moody's Investors Service and AA-minus by Standard & Poor's.

In the competitive arena, the Florida State Board of Education sold $118.43 million of public education capital outlay refunding bonds to Wells Fargo at a true interest cost of 1.74%. The bonds were priced to yield from 0.45% with a 5% coupon in 2017 to 1.94% with a 5% coupon in 2028. The deal is rated Aa1 by Moody's and triple-A by both S&P and Fitch Ratings.

Secondary Market

On Wednesday, The yield on the 10-year benchmark muni general obligation was two basis points lower to 1.66% from 1.68% on Tuesday, while the 30-year muni yield was unchanged from 2.72%, according to a final read of Municipal Market Data's triple-A scale.

Treasuries were mixed at Wednesday's close. The yield on the two-year Treasury was down to 0.72% from 0.75% on Tuesday, while the 10-year Treasury yield increased to 1.88% from 1.86% and the 30-year Treasury bond yield was higher at 2.71% from 2.67%.

The 10-year muni to Treasury ratio was calculated on Wednesday at 85.8% compared to 90.3% on Tuesday, while the 30-year muni to Treasury ratio stood at 99.6% versus 101.7%, according to MMD.

Bond Buyer Visible Supply

The Bond Buyer's 30-day visible supply calendar rose $1.21 billion to $11.21 billion on Thursday. The total is comprised of $4.44 billion of competitive sales and $6.77 billion of negotiated deals.

 

 

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