The municipal bond market on Tuesday was preparing for the week's biggest bond deal - the $750 million sale of senior lien revenue bonds by the Puerto Rico Aqueduct and Sewer Authority.
PRASA Pricing
Bank of America Merrill Lynch is set to price PRASA's $750 million of Series 2015A bonds. The issue is rated Caa3 by Moody's Investors Service, CCC-minus by Standard & Poor's and CC by Fitch Ratings.
The offering will be the first from a Puerto Rico public sector agency since the commonwealth's general obligation bond sale in March of 2014. Since then, Puerto Rico Gov. Alejandro García Padilla has declared the commonwealth's debt to be unpayable given the commonwealth's current levels of economic growth and the Puerto Rico Public Finance Corp. defaulted on 99% of a $58 million debt payment due Aug. 1.
PRASA said it expects to pay about 10% on the Series 2015 A senior lien bonds, which is 1.4 percentage point more than the secondary market yield on its senior bonds maturing in 30 years.
"To the Puerto Rico debt market, this week's PRASA financing is a critical point of information about the near- and long?term futures for the commonwealth's issuers," according to a research note from Municipal Market Analytics. "If PRASA cannot raise capital at an acceptable interest rate in the public market, it is unlikely that any existing Puerto Rico issuer could do so."
MMA said "Ultimately, those lenders to PRASA will be assuming that the agency can and will pay its debts in the long term. This is a basic scenario, but it would still represent, in our view, the first fully funded, long?term reliance on Puerto Rico any lender has been willing to make since last March." It added that "any subsequent debt or governmental restructuring participants will need to make similar judgments about the island's future; thus, this PRASA deal will be a critical first step in gauging how difficult those negotiations will be."
Moody's said when assigning its rating that "proceeds of the current issue will finance elements of PRASA's capital improvement program for the five years ending with fiscal 2019, and will also repay $67 million owed to the GDB and refinance $90 million of short-term bank-held senior debt. As much as $288 million of the proceeds will reimburse the authority for past operating revenue spent on capital improvements."
Fitch Ratings added that "proceeds of the current sale should provide significant cash flow relief as a portion of the proceeds will be used repay the upcoming term loan, thereby releasing the $90 million escrow back to PRASA."
Primary Market
In the competitive arena on Tuesday, Portland, Ore., will sell $341.53 million of Series 2015A first lien sewer system revenue refunding bonds and $62.39 million of Series 2015B second lien sewer system revenue refunding bonds in two separate sales.
The Series 2015A bonds are rated Aa2 by Moody's and AA by S&P while the Series 2015B bonds are rated Aa3 by Moody's and AA-minus by S&P.
Since 1995, the city of Portland has issued roughly $6.91 billion of debt. The years of 2008 and 2010 saw the most issuance with $807 million and $633 million, respectively. Stumptown saw low years of issuance in 2002 and 2009, when the rose city issued just $74 million and $69 million, respectively.
Citigroup is set to price the Hillsborough County, Fla., Aviation Authority's $386 million of tax-exempt and taxable airport revenue bonds for the Tampa International Airport on Tuesday. The bonds are rated A3 by Moody's and A-minus by S&P and Fitch.
Also attracting a lot of interest this week is Detroit's first post-bankruptcy bond sale.
Scheduled for sale on Wednesday, Barclays Capital will price the $245 million of local government loan program revenue bonds, which are being issued through the Michigan Finance Authority.
The deal consists of Series 2014F 1 and 2 bonds consisting of $134.73 million tax-exempts and $110.28 million of taxables.
The issue is enhanced with a statutory lien and intercept feature on Detroit's income tax, which will pay off the bonds. The protections, combined with debt-service coverage levels of 6.5 times, helped the deal win an A rating from S&P.
Secondary Trading
Treasury prices were lower on Tuesday, with the yield on the two-year Treasury note rising to 0.72% from 0.71% on Monday, while the 10-year yield rose to 2.19% from 2.15% and the 30-year yield increased to 2.84% from 2.80%.
The yield on the 10-year benchmark muni general obligation on Monday was unchanged from 2.20% on Friday, while the yield on the 30-year GO dropped one basis point to 3.06% from 3.07%, according to the final read of Municipal Market Data's triple-A scale. Secondary muni trading was light, according to Interactive Data.
The 10-year muni to Treasury ratio was calculated on Monday at 102.2% versus 100.3% on Friday, while the 30-year muni to Treasury ratio stood at 109.1% compared to 108.1%, according to MMD.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 32,359 trades on Monday on volume of $3.978 billion.
The most active bond, based on the number of trades, was the Washington state HealthCare Facilities Authirity Series 2015A Providence Health and Services revenue 4s of 2045, which traded 144 times at an average price of 99.652, an average yield of 4.02%. The bonds were initially priced at 97.766 to yield 4.13%.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar rose $297.9 million to $9.82 billion on Tuesday. The total is comprised of $2.96 billion competitive sales and $6.86 billion of negotiated deals.
