As the municipal bond market prepared for this week's $9 billion of new supply, it now appears uncertain whether the Chicago deals will come to market.
The timing of the Chicago re-offerings was up in the air early Monday as market participants said the city was weighing putting off the transactions — originally slated for as soon as Tuesday — that would shift nearly $400 million of floating-rate paper to fixed-rate as part of the city's efforts to shed bank credit support risks.
The reofferings include a $201 million series from 2002 led by Ramirez & Co. and a $181 million 2003 series led by Siebert Brandford Shank & Co.
Last week, Moody's Investors Service cut the city by two notches to Ba1 with a negative outlook after the Illinois State Supreme Court ruled the state's pension reforms were unconstitutional. Standard & Poor's then lowered Chicago GOs two notches to A-minus and placed the rating on CreditWatch with negative implications. And Fitch Ratings followed, cutting Chicago GOs and sales tax bonds one notch to BBB-plus and placing the credit on negative watch. Kroll Bond Rating Agency recently, but before the new downgrades, affirmed Chicago at A-minus with a stable outlook.
The Moody's downgrade triggered a series of swap terminations and defaults on bank agreements, giving credit providers the ability to demand payment on $2.2 billion of floating-rate paper, interest-rate swaps, and short-term credit lines. The city is in negotiations with its banks to reach either forbearances or new terms.
Successful GO conversions of floating rates to fixed, followed by a sales tax bond conversion later this year, would resolve $900 million of the liquidity problem and an additional $200 million in swap terminations.
Secondary Market
Meanwhile, prices of top-shelf municipal bonds were lower at mid-session traders said, as yields on some maturities were up as much as two basis points.
The yield on the 10-year benchmark muni general obligation was up as much as two basis points from 2.25% on Friday, while the yield on the 30-year GO was up as much as two basis points from 3.23%, according to a read of Municipal Market Data's triple-A scale.
Treasury prices were lower on Monday as the yield on the two-year Treasury note rose to 0.56% from 0.53% on Friday, while the 10-year yield increased to 2.21% from 2.14% and the 30-year yield rose to 3.02% from 2.92%.
The 10-year muni to Treasury ratio was calculated on Friday at 105.2% versus 100.8% on Thursday, while the 30-year muni to Treasury ratio stood at 110.4% compared to 106.5%, according to MMD.
Primary Market
Atlantic City, N.J., will be in the market on Tuesday with a $41 million sale - but that deal is backed by a state enhancement program. S&P rated the deal A-minus based on the state's Municipal Qualified Bond Act program. Bank of America Merrill Lynch is expected to price the Series 2015A taxable GO refunding bonds.
The Garden State's MQBA is intended to facilitate distressed municipal issuers' access to the capital markets. For this deal, the program instructs the state Treasurer's office to withhold qualifying state aid from Atlantic City and directs the funding to be paid to bondholders.
Atlantic City, which is under an emergency manager's control as it faces a $101 million budget gap, will use the program to issue debt that will pay off a $40 million state loan, for which it received a 60-day extension in late March, and $12 million of maturing bond anticipation notes.
Atlantic City revenue director Michael Stinson said the city is on track to issue separate transactions through the MQBA program before Memorial Day. A taxable bond deal will be used to pay off the $40 million state loan Atlantic City owes by the end of May. A tax-exempt bond deal not exceeding $12 million will let city retire its maturing BANs.
Stinson said without New Jersey's credit enhancement program, accessing the municipal bond market would be very difficult at a time when payments are due.
"It's certainly a major help," said Stinson of the MQBA. "It does not appear we would be able to go to market without this program."
The city's GO debt is rated Caa1 by Moody's, while S&P rates the city BB.
Elsewhere on Tuesday, Barclays Capital is slated to price the Port Authority of New York and New Jersey's $500 million of consolidated bonds, 191st Series. The issue is rated Aa3 by Moody's and AA-minus by S&P and Fitch.
Also, Jefferies is expected to price Miami-Dade County, Fla.'s $481.79 million of Series 2015 water and sewer system revenue refunding bonds. The bonds are rated Aa3 by Moody's and A-plus by S&P and Fitch.
And the New York City Municipal Water Finance Authority's $435 million of water and sewer system second resolution revenue bonds, Fiscal 2015 Series HH, will be priced by Barclays Capital on Tuesday after a retail order period on Monday. The bonds are rated AA-plus by S&P and AA by Moody's.
In the competitive arena on Tuesday, the Virginia Public Building Authority will sell $368.39 million of public facilities revenue bonds. The issue is comprised of $230.31 million of Series 2015A bonds and $138.08 million of Series 2015B refunding bonds. The issue is rated Aa1 by Moody's and AA-plus by S&P and Fitch.
The last time the Virginia PBA sold bonds competitively was on Aug. 27, 2014, when Wells Fargo Securities won $29.74 million of Series 2014B taxable public facilities revenue bonds with a true interest cost of 3.23%.
Topping the calendar this week is a $750 million issue from Florida's Citizens Property Insurance Corp. Bank of America Merrill Lynch is expected to price the Series 2015A-1 coastal account senior secured bonds on Wednesday. The issue is rated A1 by Moody's, A-plus by S&P and AA-minus by Fitch.
The state of Connecticut is back in the market, this time with $481.62 million of Series 2015C and Series 2015D bonds. Loop Capital Markets is slated to price the issue on Wednesday, which will consist of $200 million SIFMA-indexed bonds and $281.62 million of general obligation bonds. The issue is rated Aa3 by Moody's and AA by S&P, Fitch and Kroll Bond Rating Agency.
Back in the competitive sector, Springfield, Mo., is selling $515 million of Series 2015 public utility refunding revenue bonds on Wednesday. The bonds are rated AA-plus by S&P and AA by Moody's. The last time Springfield was in the competitive market was on Sept. 14, 2006, when it sold $615 million of Series 2006 public utility revenue bonds to UBS Securities with a true interest cost of 4.54%.
Seattle, Wash., will offer $229.15 million of Series 2015 water system improvement and refunding revenue bonds on Wednesday. The issue is rated Aa1 by Moody's and AA-plus by S&P.
The last time the city sold bonds competitively was on May 15, 2012, when Citi won $238.77 million of Series 2012 water system refunding revenue bonds with a TIC of 2.62%.
Nassau County, N.Y., is selling $168.90 million of Series 2015 B general improvement bonds on Wednesday. The issue is rated A1 by Moody's, A-plus by S&P and A by Fitch.
The last time the county sold bonds competitively was on Jan. 21 when FTN Financial Capital Markets won $29.64 million of Series 2015A general improvement bonds with a TIC of 2.99%.
The Santa Clara Finance Authority, Calif., is selling $103.37 million of Series 2015P refunding lease revenue bonds for multiple facilities projects on Wednesday. The issue is rated AA-plus by S&P and AA by Fitch.
The last time the authority competitively sold bonds was on April 8, 2014, when Morgan Stanley won $11.72 million of Series 2014 O refunding lease revenue bonds for multiples facilities projects with a TIC of 1.92%.
Some Actively Traded Issues
Among some of the most actively traded issues in the week ended May 15, were issuers from New Jersey, Connecticut, and Chicago, according to Markit.
Broken down by market sector, revenue bonds comprised 55.53% of new issuance, up from 54.83% in the prior week. General obligation bonds comprised 36.75% of total issuance, down from 36.70%, while taxable bonds made up 7.72%, down from 8.47%.
In the revenue bond sector, the New Jersey Transportation Trust Fund Authority 5 1/4s of 2036 were traded 235 times. In the GO bond sector, the Connecticut 3 3/8s of 2029 were traded 118 times. And in the taxable bond sector, the Chicago Board of Education 6.519s of 2040 were traded 44 times, according to Markit.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $550.9 million to $14.401 billion on Monday. The total is comprised of $5.443 billion competitive sales and $8.958 billion of negotiated deals.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 37,881 trades on Friday on volume of $11.375 billion.
The most active bond, based on the number of trades, was the Florida Mid-Bay Bridge Authority's 2015 Series A first senior lien revenue 4s of 2040, which traded 161 times at an average price of 98.434 with an average yield of 4.101%. The bonds were initially priced at 96.14 to yield 4.25%.
Andrew Coen and Yvette Shields contributed to this report.
