The New York City Municipal Water Finance Authority plans to begin retail sales on a $200 million fixed-rate deal today with institutional pricing beginning tomorrow.
The first resolution tax-exempt deal is smaller than the $450 million indicated on the state comptroller's forward issuance calendar, though it not unusual for deals to change size, and many issuers have downsized or delayed deals in recent weeks in response to weak demand.
"We're sort of being cautious in the market and hopefully we'll be able to grow the deal, but we wanted to start with a number that we feel more confident with," said MWFA executive director Thomas Paolicelli.
Last week New York City sold $550 million of general obligation bonds after initially offering $200 million of tax-exempts in a retail order period. Strong demand spurred the city to increase the size of the deal to meet $432 million of retail orders and add a $50 million taxable piece.
The Metropolitan Transportation Authority also last week sold $550 million of revenue bonds after offering $200 million. The MTA filled $90 million of retail orders and was oversubscribed on the institutional side with $671 million of orders. Paolicelli said he expects the MWFA's deal to attract institutional investors.
"They appear to be starting to show up based on at least what we saw with the MTA last week, so that was a good sign," he said. "We're working with our underwriters and they have been premarketing the deal and talking with institutions, so we expect to have their participation."
Retail sales have traditionally been a small part of the authority's sales because the bonds' maturities tend to be long, according to Paolicelli. The MWFA was still working out the deal's structure yesterday, he said.
Evan Rourke, portfolio manager at MD Sass, said the deal is likely to be well received.
"I think there will be good appetite, especially in New York, where you're talking about a good credit in a state with high tax bracket," he said. "Munis as a whole have cheapened dramatically in the last couple months, so relative to other securities they're attractive, and certainly available yields are higher than they have been in quite some time."
Institutional investors have been on the sidelines in recent weeks but that's starting to change, Rourke said.
"The end of last week was the first time we had seen real institutional interest in a way that had been absent," he said. "It's still skittish, and you could lose that bid again if your faced with another wave of selling or if the calendar gets too big."
M.R. Beal & Co. is book-runner on the deal and Merrill Lynch & Co., Siebert Brandford Shank & Co. and Depfa First Albany are senior managers on the deal.
Lamont Financial Services Corp. and Samuel A. Ramirez & Co. are financial advisers on the deal. Orrick, Herrington & Sutcliffe LLP is bond counsel.
The MWFA plans to bring another deal to the market in late November or early December.
Standard & Poor's upgraded the first-resolution bonds to AAA with stable outlook in July. Moody's Investors Service assigns its Aa2 rating with stable outlook to the credit, while Fitch Ratings rates it AA.
The MWFA finances the capital program for the city's water system and provides 1,185 million gallons of water per day to nine million people in the metropolitan area.
