Muni Bond Sales Reach 10-Month High as New York State Borrows $1.4 Billion
States and local governments are poised to borrow $13 billion this week, the most since the period ended Dec. 11, according to data compiled by Bloomberg. That includes $1.3 billion being sold this week by New York City, the nation’s third-largest issuer.
New York state is “putting the deal into the market when there are a lot of new issues coming,” said Anthony Shields, principal in the public-finance department at Williams Capital Group in New York. The demand for the offering was “not a great showing for a deal this big.”
The competition for buyers amid the glut of supply yesterday forced the state to raise yields on its tax-exempt offering after orders from individual investors were lower than expected, said Jeff Goldstein, senior vice president of municipal trading at New York-based M.R. Beal & Co., senior underwriter on the deal.
Yields on bonds maturing in February 2015 were raised 12 basis points from preliminary pricing, while 10-year rates were increased 17 basis points, he said. A basis point is 0.01 of a percentage point.
The 2015 bonds were priced to yield 1.57 percent, 40 basis points above top-rated debt, according to a benchmark five-year Bloomberg Valuation index. In March the authority sold $366 million in comparable debt priced to yield 1.78 percent, 27 basis points above the index.
Yesterday’s sale, for which underwriters had weeks to prepare before negotiating terms with state officials, have a higher proposed yield than lower-rated, state-backed bonds sold in a competitive sale Sept. 28. The Urban Development Corp. offering was won by Citigroup Inc. after bids from eight banks, which set a yield of 1.42 percent for bonds due January 2015, or 30 basis points above the BVAL index. The debt is backed by annual appropriations and rated AA- by Standard & Poor’s and Fitch Ratings.
The $610 million in tax-exempt debt, which is backed by personal-income tax revenue, was sold through the New York State Dormitory Authority, known as Dasny, to fund projects including construction at the State University of New York and City University of New York.
The state also issued through Dasny $595 million in federally subsidized Build America Bonds and $149 million in traditional taxables. So-called PIT bonds are top-rated by S&P, and AA according to Fitch, two levels lower.
New York City, whose debt is rated third-highest by S&P, Fitch and Moody’s Investors Service, tomorrow is selling $500 million in tax-exempts. The following day it will sell $800 million in taxables, including $650 million in Build Americas.
The sales come as the extra yield investors demand for city rather than state debt has fallen to 4 basis points as of yesterday, from 45 basis points on Jan. 4, Bloomberg data show.
“New York City is getting a slight nod” from investors, said Alan Schankel, managing director of Philadelphia-based Janney Montgomery Scott LLC, which oversees $13 billion in fixed-income securities.
This week’s sales are the first of about $8.77 billion scheduled this quarter by the state, city and their authorities, according to a compilation by the Securities Coordinating Committee, headed by state Comptroller Thomas DiNapoli. Sales in the three months ended Sept. 30 totaled $4.95 billion, Bloomberg data show.
During the remainder of this month, the New York City Transitional Finance Authority, which helps raise funds for capital projects, plans to sell $750 million of personal income tax-backed bonds and the Port Authority of New York and New Jersey, the 89-year-old bridge and tunnel operator, may issue $850 million for a building on the site of the World Trade Center destroyed in the attacks of Sept. 11, 2001.
The city and its water authority plan $1.25 billion of tax- exempt or Build America Bond sales before the end of the year, while the city’s Transitional Finance Authority has scheduled $350 million. New York state plans to sell $1.3 billion of personal income tax-backed bonds in the week of Nov. 29 through Empire State Development Corp.
Susan Barnett, spokeswoman for Dasny, didn’t respond to e- mails seeking comment.
The state’s personal-income tax revenue is projected to rise 6.2 percent to almost $37 billion in fiscal 2011 after declining 5.7 percent the previous year, Fitch analysts Laura Porter and Douglas Offerman wrote in a Sept. 29 report.
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