In the wake of November’s hefty volume and the sell-off it helped precipitate, the market is poised for an estimated $12.11 billion of supply this week as issuers continue to race the clock against the impending expiration of the Build America Bonds program, according to Ipreo LLC and The Bond Buyer.
The market absorbed a revised $9.13 billion of new issues last week, according to Thomson Reuters. Demand was strong for the biggest deals even though Treasury weakness caused the tax-exempt market to give up some gains Thursday and Friday. The generic triple-A general obligation scale in 2040 ended at a 4.36% yield Friday, after closing at a 4.31% Nov. 29.
With Congress mulling extension of the taxable BAB program, which is set to expire Dec. 31, the tax-exempt market has rallied back nearly 30 basis points on the long end. That is a sharp rebound from the oversold condition when yields peaked Nov. 17, according to George Friedlander, senior municipal securities strategist at Citi.
He indicated in his weekly municipal market commentary that this was possible due to a combination of crossover buyers, strong retail demand, and the increased willingness of dealers to provide at least some support to the market.
“The resilience of the muni market has generally been maintained despite two straight weeks of severe outflows,” Friedlander wrote. “Outflows from muni bond funds according to Lipper/AMG were not quite as extreme as in the prior week, but were still severe. However, direct retail purchases remained extremely strong.”
This week’s activity features another mammoth sale — $1.5 billion of New Jersey Turnpike Authority revenue bonds structured as BABs. It’s part of an estimated $10.49 billion in negotiated offerings slated for pricing this week, according to Ipreo and The Bond Buyer.
The deal is rated A3 by Moody’s Investors Service, A-plus by Standard & Poor’s, and A by Fitch Ratings and is expected to be priced by Goldman, Sachs & Co. The exact pricing date and structure were still being discussed at press time.
Record BAB issuance of $14.2 billion helped expand municipal market volume to $41.7 billion in November — 8.9% more than the same month last year. BABs claimed a 34% share of new borrowing in a November that was the third most-active issuance month of 2010, behind October’s $45.6 billion and March’s $44.4 billion, according to Thomson.
In other Northeast activity, the New York Liberty Development Corp. will sell $1.3 billion of Liberty revenue bonds on behalf of the 4 World Trade Center Project in a negotiated deal that is being priced by Goldman and scheduled for Thursday.
The bonds are expected to be rated AA-minus by Standard & Poor’s and A-plus by Fitch. The structure was still being finalized at press time.
In the Southwest, the Texas Public Finance Authority expects to add to new-issue activity with $854 million of unemployment compensation obligation-assessment revenue bonds. Structured to mature from 2018 to 2020, the deal is planned for pricing Tuesday by Citi, following a retail order period Monday. The bonds are expected to be rated Aa1 by Moody’s, AAA by Standard & Poor’s, and AA-plus by Fitch.
In the competitive note market, Colorado is set to sell $325 million of tax and revenue anticipation notes Tuesday and $500 million of revenue anticipation notes Thursday. Both issues mature in 2011.
In the long-term competitive bond market, the San Francisco Public Utilities Commission will competitively issue a two-pronged water revenue deal Wednesday consisting of $173 million of tax-exempt serial bonds maturing from 2017 to 2030 and $350 million of serial bonds maturing from 2031 to 2050. They are structured as BABs.
A $350 million airport revenue refunding from the Wayne County Airport Authority on behalf of the Detroit Metropolitan Wayne County Airport will be priced by JPMorgan on Monday.
The bonds are rated A2 by Moody’s, A by Standard & Poor’s, and A-minus by Fitch. Wayne County will also issue another $283 million of refunding revenue debt Tuesday in a deal being led by Siebert Brandford Shank & Co. that includes both bonds subject to the alternative minimum tax and $8 million of non-AMT debt.
The Orange County, Calif., Local Transportation Authority is preparing $350 million of sales tax revenue bonds structured as BABs. Bank of American Merrill Lynch is pricing them Thursday. They will carry ratings of Aa3 from Moody’s, and AA from both Standard & Poor’s and Fitch.
A $300 million revenue obligation issue is also planned from the South Carolina Public Service Authority on behalf of Santee Cooper, a large municipal wholesale electric system.
The BABs are structured as a single 2050 maturity, with mandatory sinking fund redemptions beginning in 2045 through 2050. They are expected to carry ratings of Aa2 from Moody’s, AA from Standard & Poor’s, and AA-minus from Fitch and to be priced by Citi on Tuesday.
Last week’s new-issue highlights were led by a $1.5 billion securitization from the Illinois Railsplitter Tobacco Settlement Authority. The issue saw strong demand due to its high yields and conservative structure in a stressed environment that has been unfriendly to tobacco. Deal pricing was advanced a day after last Monday’s retail order period garnered substantially more than the allotted $300 million. The credit is rated A by Standard & Poor’s and BBB-plus by Fitch.
Citigroup and Barclays Capital priced the tobacco deal’s longest tax-exempt maturity in 17 years to yield 6.2% — nearly 150 basis points over the single-A scale for that maturity, according to MMD.