N.Y. MTA's $2B advance refunding prices as calendar builds

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Underwriters priced the New York Metropolitan Transportation Authority’s $2 billion advance refunding deal for institutions on Tuesday, the last big offering of the week, as the calendar of year-end deals grew.

The municipal new issue calendar for the rest of 2017 is expanding as issuers eye the possible passage of tax reform legislation, according to John Miller, co-head of fixed income at Nuveen Asset Management.

“New issuance for the balance of the year is estimated at $50 to $60 billion, as issuers rush to meet the year-end deadline before proposed tax laws take place in 2018,” Miller wrote in a market comment on Tuesday. “However, this is offset by approximately $72 billion expected to return on Dec. 1 and Jan. 1 via bond calls, maturities and coupons.”

Miller said high-yield muni issuance was $2.5 billion last week, one of the biggest weeks of 2017.

“Issuers are looking to lock in the ability to advance refund existing municipal debt or issue private activity bonds,” he wrote. “This issuance would reduce potential supply in 2018, and would likely put short term upward pressure on municipal yields and cause a temporary increase in municipal-to-Treasury ratios.”

But he said, “fundamentally, fixed income has a firm tone, and we believe any municipal market volatility will not be a long-term trend.”

It’s still unclear what effect the Congressional tax reform proposals involving advance refundings and private activity bonds are having on upcoming issuance, Gerard Faulkner, director of operations for CUSIP Global Services, said on Tuesday.

“We have seen an uptick in advance refundings, but are unsure if this is directly related to the tax reform legislation being debated in Washington or if it’s the result of the ongoing low interest rate environment,” Faulkner said.

“We haven’t got a heads up from issuers letting us know there would be a large increase in private activity bond or advance refunding issuance,” he said, “but we stand ready to handle any amount that may be coming.”

The increase in municipal bond issuance is occurring when the market would normally be quiet, ICE Data Services said in a Tuesday market report. "The potential for tax reform affecting the muni market in general and restricting particular segments is pushing issuer to sell prior to the end of December,” ICE said. “Citigroup raised their issuance estimate by $15 billion to $380 billion for the full year 2017.”

The Bond Buyer's 30-day visible supply calendar increased $6.34 billion to $16.92 billion on Wednesday. The total is comprised of $4.14 billion of competitive sales and $12.78 billion of negotiated deals.

Primary market
Bank of America Merrill Lynch priced and then repriced and restructured the N.Y. MTA’s $2.11 billion of Series 2017C transportation revenue refunding green bonds for institutions on Tuesday.

“We were very pleased able to get this advance refunding into the market before the effective date for proposed tax reform legislation that would eliminate our ability to execute these types of transactions that help the us manage the MTA’s debt portfolio,” said MTA spokesman Aaron Donovan. “We were pleased with Tuesday’s broad investor reception, which included retail investors as well as large institutional investors.”

The $1.913 billion of Series 2017C-1 current interest bonds were repriced to yield from 1.88% with a 5% coupon in 2023 to 3.32% with a 4% coupon in 2039.

The $201.550 million of Series 2017C-2 capital appreciation bonds were repriced to yield 2.91% in 2027, 3.09% in 2029, 3.28% in 2032, 3.34% in 2033, 3.57% in 2039 and 3.58% in 2040.

The deal is rated A1 by Moody’s Investors Service, AA-minus by S&P Global Ratings and Fitch Ratings and AA-plus by Kroll Bond Rating Agency.

Since 2007, the MTA has sold about $35.76 million of debt, with the most issuance occurring in 2012 when it sold $6.69 billion. It sold the least amount of bonds in that period in 2007, when it issued $1.27 billion of securities.
Also on Tuesday, Wells Fargo Securities priced the Virginia Transportation Board’s $483.39 million of Series 2017 federal transportation grant anticipation revenue and refunding notes.

The Garvee notes were priced to yield from 1.14% and 1.21% with 5% coupons in a split 2018 maturity to 2.61% with 5% coupons in a split 2032 maturity.

The deal is rated Aa1 by Moody’s and AA-plus by S&P and Fitch.

RBC Capital Markets priced Colorado’s $268.87 million of Building Excellent Schools Today tax-exempt certificates of participation.

The $153.04 million of Series 2017J COPs were priced to yield from 2.70% with a 5% coupon in 2032 to 2.96% with a 5% coupon in 2037; a 2042 maturity was priced as 5s to yield 3.03%.

The $115.83 million of Series 2017K refunding COPs were priced to yield from 1.15% with a 2% coupon in 2018 to 2.65% with a 5% coupon in 2031.

The deal is rated Aa2 by Moody’s and AA-minus by S&P.

JPMorgan Securities priced the Louisiana Local Government Environmental Facilities and Community Development Authority’s $250 million of revenue refunding bonds, not subject to the alternative minimum tax, for Westlake Chemical Corp. projects (GO Zone).

The issue was priced at par to yield 3.50% in a 2032 bullet maturity.

The deal is rated Baa3 by Moody’s and BBB by S&P and Fitch.

The competitive arena saw the biggest deal of the week when Orange County, N.Y., sold $73.23 million of public improvement serial bonds in three separate offerings.

Citigroup won the $55.51 million of Series 2017A bonds with a true interest cost of 2.5097%; Citi also won the $13.21 million of Series 2017B bonds with a TIC of 1.6159%; and Robert W. Baird won the $4.52 million of Series 2017C taxable bonds with a TIC of 2.5097%. The deals are rated Aa3 by Moody’s.

Secondary market
Top-rated municipal bonds finished weaker on Tuesday. The yield on the 10-year benchmark muni general obligation rose three basis points to 2.04% from 2.01% on Monday, while the 30-year GO yield increased three basis points to 2.73% from 2.70%, according to the final read of Municipal Market Data’s triple-A scale.

U.S. Treasuries were mixed on Tuesday. The yield on the two-year Treasury rose to 1.77% from 1.75% on Monday, the 10-year Treasury yield fell to 2.36% from 2.37% and the yield on the 30-year Treasury decreased to 2.76% from 2.79%.

On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 86.4% compared with 84.9% on Monday, while the 30-year muni-to-Treasury ratio stood at 98.9% versus 96.8%, according to MMD.

MBIS 10-year muni at 2.297%, 30-year at 2.809%
The MBIS municipal non-callable 5% GO benchmark scale was weaker in late trading.

The 10-year muni benchmark yield rose to 2.297% on Tuesday from the final read of 2.291% on Monday, according to Municipal Bond Information Services, a national consortium of municipal interdealer brokers. The MBIS 30-year benchmark muni yield increased to 2.809% from 2.806%.

The MBIS benchmark index is a yield curve built on market data aggregated from MBIS member firms and is updated hourly on the Bond Buyer Data Workstation.

Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Vanessa Kim at 212-803-8474 for more information.

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Primary bond market Secondary bond market Metropolitan Transportation Authority Orange County, NY Louisiana Government Environmental Facilities & Community Development Authority Virginia Commonwealth Transportation Board State of Colorado