California Issuers’ $2 Billion Sales Exploit Pent-up Demand: Muni Credit
California issuers plan to sell $1.8 billion of municipal bonds this week, as investor demand drives yields on the state’s 10-year debt to the lowest in 11 months.
California entities are generating about a third of this week’s total issuance even as borrowing from within the state has fallen compared with previous years. They will have sold $17 billion of long-term tax-exempt and taxable debt from January through Aug. 19, according to data compiled by Bloomberg. That’s below the $33 billion average for the fixed-rate securities for the same period since 2003.
“There’s been a real lack of California paper out here,” Bud Byrnes, chief executive officer of Encino, California-based RH Investment Corp., said in a telephone interview. “The market has rallied very strongly. There’s been a real flight to quality, or a flight to all fixed income, and the market will welcome all these new deals.”
Overall municipal issuance totals $6 billion this week following $3.95 billion last week. Sales from January through last week was $133 billion, compared with $238.5 billion during the same period in 2010.
Yields on tax-exempt debt fell this month, touching lows for the year as investors rushed to Treasury and municipal debt. Yields on top-rated 10-year tax-exempt bonds hovered at 2.29 percent yesterday. Yields on top-rated 30-year tax-exempt bonds rose 1 basis point yesterday to 3.86 percent after reaching a 2011 low of 3.85 percent Aug. 12. A basis point is 0.01 percentage point.
There will be enough appetite for the surge of California issuance this week, Alan Schankel head of fixed-income research for Janney Montgomery Scott in Philadelphia said in a telephone interview.
“The market can handle it mostly because there’s been a real dearth of California paper,” Schankel said. “There just hasn’t been much to buy out there and California is a big state with relatively high taxes so there’s lot of demand from California-specific funds and individual investors of California paper.”
Yields on top-rated 10-year California debt fell yesterday to 3.67 percent, the lowest since Sept. 1. Yields on top-rated 30-year California debt were 4.95 percent yesterday, after reaching that 2011 low on Aug. 11.
Utilities Lead Sales
The California Department of Water Resources, which provides electricity to three-quarters of the state, leads the group of 13 Golden State sales, with a $1 billion tax-exempt power-supply revenue bond deal. The offering, set to begin pricing today, includes serial maturities from 2012 through 2021, according to sale documents.
Southern California Public Power Authority is set to issue $159.4 million of tax-exempt revenue bonds as soon as Aug. 18. The deal will finance the prepayment of electricity from a wind- powered electric generating facility in Utah, according to sale documents. The transaction includes serial maturities from 2012 through 2031.
Cucamonga Valley Water District, which provides water services to 186,000 customers in Southern California, will issue as soon as today $110.9 million of tax-exempt water-revenue bonds to convert short-term debt into long-term securities, according to sale documents. Assured Guaranty Ltd. will provide credit enhancement on the sale. The deal’s structure includes serial maturities from 2012 through 2031 and a $28 million portion due in 2035.
The University of California Regents, which borrows for the University of California system’s 10 campuses, is selling at least $400 million of taxable and tax-exempt revenue bonds as soon as Aug. 18. Proceeds will help finance capital projects and refund debt, according to sale documents.
Following is a description of a pending sale of municipal debt:
Indiana Finance Authority, which issues debt to fund business development, is selling $1.06 billion of tax-exempt sewer and water revenue bonds. Proceeds will enable CWA Authority Inc., a nonprofit public benefit corporation created last year, to buy Indianapolis’s sewer system from the city. The transaction will also allow the city to sell its water system to Citizens Energy Group, a department within the city. The bonds are rated AA, Standard & Poor’s third-highest grade. Morgan Stanley will lead a syndicate of banks. (Added Aug. 16)
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