Top-rated municipal bonds finished stronger on Thursday, traders said, as the week’s largest deal came to market — the New Jersey Economic Development Authority’s $583 million sale.
Morgan Stanley priced and repriced the New Jersey EDA’s $582.78 million of Series 2017A tax-exempt and Series 2017B taxable motor vehicle surcharges subordinate revenue refunding bonds.
The $554.34 million of tax-exempt bonds were priced to yield from 2.49% with a 4% coupon in 2022 to 2.35% with a 3% coupon in 2024 and from 2.86% with a 5% coupon in 2027 to 4.00% with a 4% coupon in 2034.
The tax-exempts are rated Baa2 by Moody’s Investors Service with the exception of the 2023, 2024, 2027, 2028 and 2031 maturities totaling $213.73 million, which are insured by Build America Mutual and rated AA by S&P Global Ratings.
The $28.44 million of taxables were priced at par to yield from 3.29% in 2019 to 3.80% in 2022.
The taxables are rated Baa2 by Moody’s and BBB-plus by S&P.
“While it is a short week, there is a serious lack of supply in the market. There already was quite a bit of money to be put to work and increasingly there is more uncertainty in the world leading to risk being taken out of the market,” said one New York trader. “This is clearly evident in the rally in the Treasury market as well as gold and other commodities -- so it is not a huge surprise that N.J. EDA can tighten in by 15 basis points on the repricing.”
He also noted that the majority of the orders coming in for the EDA’s were in the 2029-2031 maturities, with the most coming for the 2031 insured maturity.
“This was an opportunity to work with the state and its underwriters to customize our insurance premium to meet the specific needs of this transaction,” said Scott Richbourg, head of public finance at BAM. “Because the bonds are subject to early redemption from excess cash flow and may not be outstanding until their stated maturity date, we structured a split-fee premium in which the state paid for the first five years of coverage upfront and will pay an annual premium tied to the amount of outstanding debt after that. Ultimately, that means the state will only pay for the coverage it needs, and that was another way to generate savings from the transaction.”
Since 2007, the N.J. EDA has issued $21.67 billion of securities, with the most issuance in 2008, when it sold $3.22 billion. The authority saw a low of $850 million in 2009 the only year during that span it did not eclipse the $1 billion mark. Thursday’s sale puts the EDA over the $1 billion mark for this year.
“The credit analysis was interesting because we had to independently analyze and forecast revenues from each one of the pledged motor vehicle surcharges," said Howard Spumberg, managing vice president in BAM’s east region public finance group. "Then we combined the individual cash flow forecasts to see how they impact the transaction as a whole,” “Overall, we are comfortable that the structure will provide sufficient debt-service coverage across a wide range of stress-case scenarios.”
Elsewhere in the market, Goldman Sachs priced the Board of Regents of the University of Texas’ $350 million of Series 2017A taxable revenue financing system bonds.
The issue was priced at par to yield 3.354% in a 2047 bullet maturity.
The deal is rated triple-A by Moody’s, S&P and Fitch Ratings.
Goldman priced and repriced the Marin Healthcare District, Calif.’s $224 million of Series 2017A election of 2013 general obligation bonds.
The issue was repriced to yield 0.70% with a 3% coupon in 2018 and 0.77% with a 4% coupon in 2019 and to yield from 1.66% with a 3% coupon in 2026 to 2.47% with a 5% coupon in 2034. A 2037 maturity was priced as 3s to yield 3.18% a 2041 maturity was priced as 5s to yield 2.72% and a 2047 maturity was priced as 4s to yield 3.22%.
The deal is rated Aa2 by Moody’s and AAA by Fitch.
Citigroup priced the Ohio Housing Finance Agency’s $120 million of Series 2017D residential mortgage revenue bonds not subject to the alternative minimum tax issued under the mortgage-backed securities program.
The issue was priced at par to yield from 0.80% in 2018 to 2.85% and 2.90% in a split 2030 maturity, and to yield 3.05% in 2032, 3.40% in 2037, 3.55% in 2042 and 3.625% in 2047. A 2048 maturity was priced as 4s to yield 1.82%
The deal is rated Aaa by Moody’s.
The yield on the 10-year benchmark muni general obligation fell three basis points to 1.81% from 1.84% on Wednesday, while the 30-year GO yield dropped two basis points to 2.66% from 2.68%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were stronger on Thursday. The yield on the two-year Treasury dropped to 1.27% from 1.30% on Wednesday, the 10-year Treasury yield declined to 2.06% from 2.10% and the yield on the 30-year Treasury bond decreased to 2.68% from 2.72%.
The 10-year muni-to-Treasury ratio was calculated at 87.9% on Thursday, compared with 87.4% on Wednesday, while the 30-year muni-to-Treasury ratio stood at 99.5% versus 98.5%, according to MMD.
MSRB: Previous session's activity
The Municipal Securities Rulemaking Board reported 34,984 trades on Wednesday on volume of $8.2 billion.
Tax-exempt money market funds see outflows
Tax-exempt money market funds experienced outflows of $1.27 billion, bringing total net assets to $128.69 billion in the week ended Sept. 4, according to The Money Fund Report, a service of iMoneyNet.com.
This followed an outflow of $206.4 million to $129.96 billion in the previous week.
The average, seven-day simple yield for the 234 weekly reporting tax-exempt funds stayed at 0.35% from the previous week.
The total net assets of the 847 weekly reporting taxable money funds increased $6.57 billion to $2.558 trillion in the week ended Sept. 5, after an outflow of $17.21 billion to $2.551 trillion the week before.
The average, seven-day simple yield for the taxable money funds remained at 0.67% for the fourth week in a row.
Overall, the combined total net assets of the 1,081 weekly reporting money funds increased $5.30 billion to $2.686 trillion in the week ended Sept. 5, after outflows of $17.41 million to $2.681 trillion in the prior week.