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Washington Airport Sells as Transportation Muni Bonds Widen Over Utilities
Metropolitan Washington Airports Authority led about $1.5 billion in transportation-bond sales this week as the risk premium on the municipal securities is at an 18-month high relative to debt backed by utility payments.
Twenty-five-year transportation-revenue debt yielded about 7 basis points more than utility notes for comparably rated issues, the biggest difference since January 2009, according to Bloomberg Fair Market Value indexes. A basis point is 0.01 percentage point. The group yields about 57 basis points more than top-rated, tax-exempt muni debt, the most in more than nine years, according to data from Municipal Market Advisors.
“Airports are subject to airlines, looked at as more volatile than say a water-revenue bond,” said Anthony Greco, a trader at Boston-based Breckinridge Capital Advisors, which manages about $12.5 billion in municipal debt.
Washington’s $577 million sale for Dulles and Reagan National airports was the week’s largest muni sale and its biggest segment was a 25-year maturity. Florida’s Miami-Dade County issued $503 million to finance an expansion at Miami International, and Port Authority of New York and New Jersey, whose debt is backed by system revenue including airport fees and bridge tolls, borrowed $400 million, Bloomberg data show. All three deals priced with yields below the comparably rated Bloomberg Fair Market Value transportation indexes.
Airlines, which pay airports landing and passenger conveyance fees, are regaining the pricing power they lost during the recession, according to the Air Transport Association trade group. Domestic yields, or average fare per mile, rose each month this year through June after falling every month in 2009, the group said.
Airline Recovery
Delta Air Lines Inc., AMR Corp.’s American Airlines and the other seven largest U.S. carriers posted a combined 4.5 percent increase in traffic for June, the biggest gain in a year-and-a- half, according to data provided by the airlines. Traffic, measured in miles flown by paying passengers, had fallen every month of 2009 when businesses curbed travel spending and leisure travelers postponed trips.
The Metropolitan Washington Airports Authority, which had about $530 million in revenue in 2009, forecasts that to increase to more than $825 million by 2016, according to preliminary offering documents. Miami-Dade, Florida’s largest county, had almost $604 million in revenue last year, which is projected to surpass $1 billion by 2016, the documents show.
‘Essential Services’
“The major metropolitan area airports are certainly essential services,” said Philip Condon, head of municipal bond portfolio management for DWS Investments, which oversees about $10 billion in its municipal bond funds. “They trade cheap as a sector compared with other essential services” even though “Miami certainly won’t decide to give up its airport and New York certainly won’t decide to give up its airport,” he said.
Next week’s issuance will include bond sales for Minneapolis Metropolitan Airport and San Francisco Airport, Bloomberg data show.
The sales this week came as yields on top-rated, tax-exempt general obligations due in 10 years fell 2 basis points this week to an average of 2.86 percent, the lowest in at least nine- and-a-half years, according to Concord, Massachusetts-based MMA data since January 2001.
Following are descriptions of pending sales of municipal debt in the U.S.:
NEW YORK CITY, the third-largest U.S. municipal borrower, plans to sell $800 million in general-obligation bonds as early as next week to refinance debt. The bonds, rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings, all third-highest, will be marketed by a group led by Barclays Plc. (Updated July 20)
TEXAS TRANSPORTATION COMMISSION, which oversees the department that manages highway, rail, port and rural transit systems in the second-largest U.S. state, plans to sell $1.5 billion in securities including $1.38 billion of Build America Bonds and $116 million in tax-exempt debt on July 26 to pay for highway improvements. Goldman Sachs Group Inc. will lead the marketing of the bonds, which have top ratings from S&P and Moody’s. Alaska is the biggest U.S. state by area. (Added July 21)
To contact the reporters on this story: Brendan A. McGrail in New York at bmcgrail@bloomberg.net; Esmé E. Deprez in New York at edeprez@bloomberg.net
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