The Chicago Public Schools on Wednesday postponed its $875 million bond deal and placed it on the day-to-day negotiated calendar.
Ahead of the planned sale, traders saw yields on top-shelf municipal bonds rise by much as three basis points in spots. Several larger deals were reduced in size as the market was in a tentative mood ahead of the Federal Open Market Committee's decision on interest rates. While no one expected the Fed policy makers to boost rates at this meeting – and they did not – market observers were looking for any hints as to what action the Fed might take at its meeting in March.
The Chicago Board of Education has seen rating downgrades, state takeover talk and a cash crunch as of late. Last week, Standard & Poor's cut the CPS to B-plus while Fitch Ratings chopped its rating also to B-plus. Kroll Bond Ratings Agency rates the school district triple-B.
The Board of Ed faces a $1 billion deficit in its next budget and CPS officials have warned of layoffs, while facing the threat of a teachers strike. At the same time, the state's minority Republican legislators – backed by the governor – have begun an effort to take over the CPS. While that's unlikely to succeed, it added to the uncertainty surrounding the district's already stressed credit.
On Tuesday, JPMorgan had offered up a preliminary scale marketing the bonds, which were backed by dedicated revenues, and it had been expected to release the preliminary pricing on Wednesday.
Under Tuesday's premarketing scale, the $795.52 million of Series 2016A tax-exempt GOs were offered as 7 1/2s to yield 7.70% in 2036, as 7 1/4s to yield 7.75% in 2041 and as 7s to yield 7.75% in 2044. The $79.49 million of Series 2016B taxables were tentatively structured as a 2033 bullet as 9 1/2s to yield 9.75%.
The CPS deal joins one other offering on the day-to-day negotiated calendar, a $750 million senior lien revenue bond deal from the Puerto Rico Aqueduct and Sewer Authority. The PRASA sale was put into a holding pattern in August 2015.
Primary Market
In the competitive arena on Wednesday, the Massachusetts Clean Water Trust sold $207.81 million of Series 19 state revolving fund green bonds.
Bank of America Merrill Lynch won the issue with a true interest cost of 2.66%. The bonds were priced to yield from 0.41% with a 5% coupon in 2017 to 3.06% with a 4% in 2040; a 2046 term bond was priced as 4s to yield 3.20%.
The issue was rated triple-A by Moody's Investors Service, S&P and Fitch.
Siebert Brandford Shank & Co. priced Kansas City, Mo.'s $183.68 million of Series 2016A sanitary sewer system improvement and refunding revenue bonds.
The issue was priced to yield from 0.50% with a 2% coupon in 2017 to 3.12% with a 4% coupon in 2036; a 2040 split maturity was priced as 3 3/8s to yield 3.48% and as 4s to yield 3.36%; a 2017 maturity was offered as a sealed bid.
The bonds were rated Aa2 by Moody's and AA by S&P.
Citi priced Katy Independent School District, Texas' $267.99 million of unlimited tax school building and unlimited tax refunding bonds.
The $244.4 million of Series 2016A unlimited tax school building bonds were priced to yield from 0.45% with a 5% coupon in 2017 to 2.88% with a 5% coupon in 2040; a 2046 term bond was priced as 4s to yield 3.35%.
The $23.59 million of Series 2016b unlimited tax refunding bonds were priced as 4s to yield 1.06% in 2020 and 2.79% in 2032 and to yield from 2.57% with a 5% coupon in 2034 to 2.77% with a 5% coupon in 2038.
The deal was backed by the Permanent School Fund guarantee program and rated triple-A by Moody's and S&P.
Morgan Stanley priced the successor agency to Pittsburg Redevelopment Agency, Calif.'s $158.83 million of subordinate tax allocation refunding bonds for the Los Medanos Community Development Project. The $120.97 million of Series 2016A bonds were priced as 5s to yield from 1.58% in 2021 to 2.79% in 2029. The $37.86 million of Series 2016C bonds were priced as 5s to yield from 1.41% in 2018 to 1.90% in 2021.
The entire issue was insured by Assured Guaranty Municipal and rated AA by S&P. The issue has underlying ratings of triple-B-plus from S&P and triple-B-minus from Fitch.
On Thursday, JPMorgan is set to price the Connecticut Health and Educational Facilities Authority's $250 million of revenue bonds for Yale University in a remarketing of two- and five-year put bonds. The issue is rated triple-A by Moody's and S&P.
Waco, Texas, will competitively sell two issues totaling $104.31 million on Thursday. The sales consist of $77.75 million of Series 2016 combination tax and revenue certificates of obligation and $26.56 million of Series 2016 GO refunding bonds. Both issues are rated Aa2 by Moody's and AA-plus by S&P.
Since 2005, the city of Waco has sold about $560 million of bonds, with the most issuance occurring in 2007 and 2015 when it offered $147 million and $87 million, respectively. The "Heart of Texas" saw low years of issuance in 2007 and 2001, when the city only issued $7 million and $9.7 million. During the same time frame, Waco has issued an average of 1.2 times a year.
Secondary Market
Top-quality municipal bonds finished mixed on Wednesday, according to traders.
The yield on the 10-year benchmark muni general obligation was unchanged from 1.75% on Tuesday, while the 30-year muni yield gained two basis points to 2.77% from 2.75%, according to the final read of Municipal Market Data's triple-A scale.
Treasuries were narrowly mixed. The yield on the two-year Treasury was unchanged from 0.84% on Tuesday, while the 10-year Treasury yield gained to 2.00% from 1.99% and the 30-year Treasury bond yield increased to 2.79% from 2.78%.
The 10-year muni to Treasury ratio was calculated on Wednesday at 87.5% compared to 87.8% on Tuesday, while the 30-year muni to Treasury ratio stood at 98.2% versus 98.9%, according to MMD.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 39,752 trades on Tuesday on volume of $6.18 billion.
