Refunding bonds

In the first half of 2024, winding-down federal aid, a resurgence of Build America Bond refundings and election uncertainty have contributed to the surge in issuance, said James Welch, a portfolio manager at Principal Asset Management.

The authority is refunding its 2014A bonds to gain debt service savings.

The Metropolitan Washington Airports Authority plans to refund about $400 million and sell $429 million of new money for its capital construction program.

Alaska's efforts to manage its cyclical revenues brought an upgrade from S&P Global Ratings and positive outlook from Moody's Ratings.

The pace of the issuance and the increase of refundings, surging 59.6% in the first quarter of 2024, have also led some firms to up their overall 2024 issuance projections.

The city gave no reason for the cancellation of its redemption plans or bond issuance, but reserved the right to call the 2010B BABs for redemption in the future.

Two mega deals recently priced with make-whole calls for bonds due in 2034 and shorter where the market does not appear "to be penalizing issuers for including an optional make whole call feature in the short maturity tax-exempt bonds," said Pat Luby, head of Municipal Strategy at CreditSights, in a report.

March issuance came in at $36.405 billion, above the $34.579 billion 10-year average, according to LSEG Refinitiv data. 

The UC Regents will close the books on its $1.1 billion refunding deal that included the refunding BABs Wednesday. Investors do not appear to be penalizing the issuer in secondary trading as spreads have stayed at or near the original pricing.

The Washington refunding deal is built on an extraordinary optional redemption of Build America Bonds despite criticism from investors who hold them.

The extraordinary redemptions being used to call Build America Bonds "are based on a creative but flawed legal argument driven by the current change in interest rates," said Kramer Levin partner Amy Caton.

Market participants said it is yet to be seen whether issuers will pull back their BABs refundings due to concerns after several bondholders sent a letter to the trustee on a Regents of the University of California deal, saying it was "prohibited" from executing the redemption.

The Chicago Park District Board of Commissioners unanimously approved three ordinances laying the groundwork for up to $37 million new money bonds and a tender.

Most tax-exempt tenders saw low participation, which is good news to the taxpayers. The poorer the participation in the tender, the less is the waste from these premature refundings prior to the call date.

Issuance for the month is slightly above the $27.666 billion 10-year average, according to LSEG Refinitiv data.

The trend toward paying down debt, as opposed to tender offers or refundings, to save money cuts across Red state/Blue state lines. New Jersey retired $500 million of debt to produce $160 million of savings.

The state of Wisconsin is embarking on a flurry of debt-related activity as the year begins, with a cash defeasance and three refunding deals on the table.

Lansing's Board of Water and Light is issuing $350 million of tax-exempt bonds in a deal that would fund a tender offer for $232.6 million of outstanding debt.

Participants are mixed on whether there will be continued growth in 2024, but some still see a universe of taxable bonds that still can be tendered.

The municipal bond rally has brought two big Illinois issuers into the market with plans to sell refunding bonds this week.