NY MTA rejects bids, heads to the Fed

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The New York Metropolitan Transportation Authority — which has been a loud advocate for more federal aid — rejected all bids from the Street on its competitive sale of $450 million of Series 2020B transportation revenue bond anticipation notes and instead sold the deal to the Federal Reserve.

Municipals were steady to weaker on Tuesday, with yields flat on the short end to up as much as three basis points on the long end of the AAA scales.

The MTA sold $450 million of the transportation revenue BANs to the Fed through the Municipal Liquidity Facility program, the second large issuer to do so after the state of Illinois, which did so in June with a $1.2 billion offering.

For the competitive offering in the traditional muni market, average clearing true interest cost was 2.79% and the MTA received 20 bids totaling $1.6 billion from 10 different banks.

However, pursuant to its bid process, the MTA rejected to those bids and instead sold $450 million to the New York Fed's MLF at a true interest cost of 1.92%, resulting in savings of over 85 basis points compared to the public market levels, the agency said in a statement.

“This financing underscores again the MTA’s need for $12 billion of federal funding to offset projected revenue losses through 2021,” MTA Chairman and CEO Pat Foye said in a statement.

Multiple traders noted that MTA bonds have been trading at levels well above triple-A benchmarks and the prices that dealers were offering were actually market rate, showing that the backstop the Fed is providing is necessary in this increasingly volatile market. It made sense for the MTA to use the recently reduced rates the MLF is currently offering. That deal will close on Aug. 26. Proceeds of the notes will be used to retire existing BANs maturing on Sept. 1.

Others said an opportunity was missed for the dealer community in a credit that will likely rebound and the Street could have made something out of it.

"The Street let a good credit slip through their fingertips," said Municipal Market Analytics Partner Matt Fabian. "The Street was pricing that deal too cheaply."

Other traders also noted the deal was priced too cheaply and the dealer community was hedging that rates are about to rise more substantially than they have been, so they priced it in.

"The MTA isn't going away. New Yorkers are going to ride the trains and already are increasingly so," a New York trader said. "This isn't a game of dice — the largest subway system in the United States and practically the world — doesn't disappear. If I were a betting man, I'd actually likely roll the dice on the A train still running at full clip soon. It was a move on the MTA to test the market. The MLF won."

Meanwhile, the market itself is priced too richly, several sources and trading showed. Block trades of Stanford 5s of 2023 were at 0.13%, Harris County Texas 5s of 2023 were at 0.18%. Guilford County, North Carolina 5s of 2024 traded at 0.18%-0.17%.

Utah GOs, 5s of 2024 traded at 0.18%. It sold in May at 0.66%. Harvards, 5s of 2029, traded at 0.62%, yesterday about the same. But in April when that deal priced — 1.06%.

Maryland GOs, 5s of 2033, traded at 0.98%-0.96%. Early March, 1.15%.

Plain View Texas ISD 4s of 2036 at 1.23%-1.15% while in January were priced to yield 2.05%.

Fairfax County, Virginia 5s of 2036 at 1.10% while in January 1.49%.

Washington GOs, 5s of 2037, 1.24%-1.20%. On August 13 at 1.17% while being priced at 1.34% in July.

Ohio waters, 5s of 2040 at 1.33%-1.32%, Monday at 1.31% and in April when the deal priced — 2.08%.

Northwest Texas ISD 4s of 2045 at 1.50%-1.45%. April pricing was 2.22%. Last one, Texas waters, 4s of 2049 at 1.73%-1.72%. Friday at 1.75%-1.74%.

"Not one person right now can seriously look at this market and accept that retail will accept these levels. There has to be a moment when investors look at rates at absolute levels and push back," the trader said.

Meanwhile, Fabian said the MTA move isn't an indicator that other issuers will follow suit because they are not up against the same limitations and severe revenue shortfalls that the New York MTA is facing, so a deluge of issuers falling into line and using the MLF is unlikely for now.

"If New Jersey comes with $10 billion of short-term notes, perhaps, but you're not going to see a flood into the MLF market," the trader agreed.

Primary market
JPMorgan Securities priced and repriced the San Francisco Bay Area Rapid Transit District, Calif.’s (Aaa/AAA/NR/NR) $625.005 million of Election of 2016 Series 2020 C-1 general obligation bonds.

The bonds were repriced to yield from 0.10% with a 5% coupon in 2024 to 2.13% with a 2% coupon in 2042. A 2045 maturity was priced to yield 1.64% with a 4% coupon, a 2046 maturity was priced to yield 2.22% with a 2% coupon and a 2050 maturity was priced to yield 2.06% with a 3% coupon.

The bonds had been tentatively priced to yield from 0.13% with a 5% coupon in 2024 to 2.13% with a 2% coupon in 2042. A 2045 maturity was priced to yield 1.66% with a 4% coupon, a 2046 maturity was priced to yield 2.22% with a 2% coupon and a 2050 maturity was priced to yield 2.06% with a 3% coupon.

JPMorgan priced BART’s $74.995 million of Series 2020 C-2 taxable Election of 2016 short-term GO green bonds (NR/A1+/NR/NR) at par to yield 0.17% on Sept. 15.

Ramirez & Co. priced for retail the Los Angeles Department of Water and Power, Calif.’s (Aa2/NAF/AA/AA+) $118.29 million of Series 2020B water system revenue bonds.

The bonds were priced for retail to yield from 0.30% with 3% and 4% coupons in a split 2026 maturity to 0.68% with a 4% coupon in 2030.

Since 2010, Los Angeles DWP has sold nearly $16 billion of bonds, with the most issuance occurring in 2010 when it sold $2 billion. It sold the least amount of bonds in 2015 when it offered $789 million.

BofA Securities held a second day of retail orders for the New York City Transitional Finance Authority’s (Aa1/AAA/AAA/NR) $1.33 billion of tax-exempt future tax secured subordinate bonds.

The $1.253 billion of Fiscal 2021 Series A bonds were priced for retail to yield from 0.23% (+10 basis points to MMD) with a 5% coupon in 2021 to 2.08% (+95 basis points to MMD) with a 3% coupon in 2039.

The $76.63 million of Fiscal 2021 Series B1 bonds were priced for retail to yield from 0.91% (+40 basis points to MMD) with a 3% coupon in 2028 to 1.13% (+47 basis points to MMD) with a 4% coupon in 2030.

The bonds will be priced for institutions on Wednesday, the same day the TFA is competitively selling $275 million of taxables in two offerings.

The pricing of two sizable California deals continued to feed the hearty demand from supply-starved investors, according to a New York underwriter.

“Some people were concerned yesterday with the heavy supply this week, but the amount of money is winning out here,” the underwriter said Tuesday. “I don’t expect MMD to change much unless there’s a sell-off in Treasuries, but we haven’t seen that in two days, so the stability is supporting the market.”

The New York Transitional Finance Authority deal was a prime example of the strength of demand and the market — as the retail order period garnered over $350 million in orders after the first day of the retail order period.

“There is a good tone and that will continue,” he said as two of the other large deals of the week priced on Tuesday — the San Francisco BART sale and the Los Angeles DWP offering.

“I would expect demand to continue to be strong,” he said of the California deals in general, but with one caveat on the San Francisco transit deal, he said. “Transportation credits right now are challenged due to less people taking public transportation due to the COVID-19 pandemic.”

The trader said the ultimate demand for the BART deal will hinge on pricing as investors remain highly concerned about getting the most bang for their buck in this ultra-low yield climate.

“If you can offer incremental yield within the 10-year part of the curve there will be good demand,” especially for retail investors, he added.

Meanwhile, the trader said there is just as strong demand in the taxable market as evidenced by a Bangor, Maine, deal that priced on Tuesday.

“The deal saw good interest and there were aggressive spreads, but it still saw good demand,” he explained, noting that spreads ended up tighter than where the deal debuted.

The 10-year was cut by 10 basis points on some of the serial bonds, he noted.

“That just tells you the demand component continues,” in both the tax-exempt and taxable markets, he said.

Barclays Capital priced the Community Health Network Inc.’s (A2/A/NR/NR) $446.435 million of Series 2020A taxable corporate CUSIP bonds. The bonds were priced as a 2050 bullet maturity at par to yield 3.099%.

Citigroup priced the Guam Waterworks Authority’s (Baa2/A-/NR/NR) $166.075 million of taxable Series 2020B water and wastewater system revenue refunding bonds. The bonds were priced at par to yield 2.75% in 2030, 3.25% in 2034 and 3.70% in 2043.

Citigroup priced Jacksonville, Fla.’s (NR/AA/AA-/NR) $137.835 million of Series 2020A special revenue and refunding bonds and Series 2020B special revenue refunding bonds and $105.49 million of Series 2020C taxable special revenue and refunding bonds.

JPMorgan priced Trimble County, Ky.’s (A1/A/NR/NR) $125 million of Series 2016A pollution control revenue refunding bonds subject to alternative minimum tax as a remarketing for the Louisville Gas & Electric Co. The 2044 bullet maturity was priced at par to yield 1.30% with a mandatory put in 2027.

In the competitive arena Wednesday, Texas is selling $7.2 billion of tax and revenue anticipation notes (MIG1/SP1+/F1+/) while Georgia (Aaa/AAA/AAA/) sells $1.139 billion of GOs in five offerings.

In negotiated action Wednesday, Goldman Sachs is set to price the Los Angeles Department of Airports’ (Aa2/AA-/AA/NR) $1 billion of bonds for the L.A. International Airport while JPMorgan is set to price Louisiana’s (Aa2/NR/AA-/NR) $551 million of taxable gasoline and fuels tax revenue bonds.

Another New York trader agreed the market is expecting a concession on transportation credits during the pandemic.

“All airport and transportation credits are under scrutiny by institutional investors and LAX despite the historical strength will also be under credit scrutiny,” he said.

“The market is quiet and there are slightly weaker bids on long bonds by a couple of basis points,” the said.

Secondary market
Municipals were steady to weaker on the long end Tuesday, according to the final readings on Refinitiv MMD’s AAA benchmark scale.

Yields were unchanged at 0.13% in 2021 and 0.14% in 2022. The yield on the 10-year muni was up one basis point to 0.67% while the 30-year yield rose three basis points to 1.39%.

The 10-year muni-to-Treasury ratio was calculated at 100.0% while the 30-year muni-to-Treasury ratio stood at 99.2%, according to MMD.

“Muni bonds are mixed today, with the front end posting a small improvement while the back end is slipping a bit,” ICE Data Services said. “Trade volumes are inching higher from yesterday’s levels.”

The ICE AAA municipal yield curve showed the 2021 maturity unchanged at 0.120% and the 2022 maturity was steady at 0.131%. The 10-year maturity was up two basis points to 0.658% and the 30-year increased three basis points to 1.403%.

ICE reported the 10-year muni-to-Treasury ratio stood at 104% while the 30-year ratio was at 98%.

The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.12% and the 2022 maturity at 0.13% while the 10-year muni was at 0.66% and the 30-year stood at 1.38%.

The BVAL AAA curve showed the curve mostly unchanged with the 2021 maturity yielding 0.10% and the 2022 maturity at 0.12%, while the 10-year muni was at 0.64%, plus 1 basis point and the 30-year at 1.39%, plus 3.

Munis were little changed on the MBIS benchmark and AAA scales.

Treasuries were stronger as stock prices traded mixed.

The three-month Treasury note was yielding 0.099%, the 10-year Treasury was yielding 0.665% and the 30-year Treasury was yielding 1.398%.

The Dow fell 0.13%, the S&P 500 increased 0.29% and the Nasdaq gained 0.74%.

Chip Barnett contributed to and edited this report.

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Primary bond market Secondary bond market Los Angeles Department of Water & Power Los Angeles Department of Airports San Francisco BART New York City Transitional Finance Authority State of Texas State of Georgia State of Louisiana