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Ohio Agency Taps Muni ‘Seller’s Market’ With 6-Week-Low Issuance

The Ohio Water Development Authority, whose AAA credit rating is a level higher than the state’s, plans to sell $423 million in Build America Bonds tomorrow in the agency’s largest offering of the taxable debt.

The sale comes as municipal issuance touches a six-week low, according to data compiled by Bloomberg. About $6.57 billion is scheduled to be sold this week, the lowest non-holiday weekly total since July 2. About $1.39 billion will be sold as taxable debt and $5.18 billion in tax-exempts, the lowest in a month, Bloomberg data show.

A relative dearth of munis may enable the authority to price its debt more cheaply with lower yields, said Mike Pietronico, who oversees $275 million in municipal holdings as chief executive officer of New York-based Miller Tabak Asset Management.

“The market is not generating enough tax-exempt supplies,” Pietronico said. “It continues to be a seller’s market. We’re hoping for some supply in September.”

The extra yield investors demand to buy Build Americas instead of U.S. government bonds has fallen in the last month, according to Bloomberg data. The so-called spread above 30-year Treasuries was 196 basis points yesterday, down from its peak of 207 basis points reached July 14, according to the Wells Fargo Build America Bond Index. A basis point is 0.01 percentage point.

The Ohio Water Development Authority was created in 1968 by the state to assist with financing local governments’ solid-waste, water-supply and water-pollution-control projects. The Columbus-based entity issued about $45 million in Build Americas in June, part of a larger, $70 million deal, which followed a $366 million tax-exempt offering in January, Bloomberg data show.

Taxable Sale

The agency’s June taxable sale included 20-year Build Americas priced to yield 5.74 percent, 160 basis points above 30-year Treasuries at the time. The city of Columbus, which carries the same credit rating, issued 20-year Build Americas on July 29 priced to yield 5.42 percent, about 134 basis points above benchmark Treasuries.

Other recent top-rated Build America issues include Texas Transportation Commission, which sold 20-year securities on July 27 priced to yield 5.18 percent or about 110 basis points above Treasuries.


In addition to the federally subsidized Build America debt, the Ohio authority plans to sell about $28 million in shorter-term tax-exempt revenue bonds, according to Scott Campbell, chief operating officer.

“The tax-exempts make the most sense at the short end of the curve,” Campbell said, adding that the current income stream will allow the agency to sell obligations maturing through 2034. “The long end makes a strong case for BABs. We’ll go with whichever bonds provide the greatest level of savings.”

Yields on 10-year AAA tax-exempts were unchanged yesterday at 2.83 percent, the lowest in at least nine-and-a-half-years, according to Municipal Market Advisors’ data since January 2001. Yields on top-rated general obligations have not risen since June 15.

Proceeds from this week’s sale will reimburse the authority for about $148 million already loaned for environmental infrastructure in the state and fund further lending, Campbell said. The agency requires that 30 percent of its borrowing be lent within the first year and 95 percent within three years, he said.

‘Solid Credit’

“This is a very solid credit, an essential purpose, so demand for this deal is going to be good,” Pietronico said.

The debt is being marketed by a group led by Morgan Stanley, preliminary offering documents show.

The agency is optimistic about getting low borrowing costs, Campbell said. “What we’re hearing from our underwriters is that there’s strong demand for these bonds and a limited supply.”

The Build America Bond program, under which the federal government pays 35 percent of the interest costs of taxable bonds sold to pay for public-works projects, was created last year as part of President Barack Obama’s economic-stimulus package. The program is set to expire at the end of 2010, although a bill was introduced in the U.S. House two weeks ago to extend it two years. About $126 billion of the securities have been issued.

Following are descriptions of pending sales of municipal debt in the U.S.:

PORTLAND, OREGON, the second-largest city in the Pacific Northwest by population, plans to sell $412 million in revenue bonds as early as this week to pay for capital improvements to the city’s sewer system. The securities, with maturities from 2011 to 2035, will be sold competitively, and are rated by Standard & Poor’s at AA, its third-highest grade, and one level lower by Moody’s Investors Service, at Aa3. (Updated Aug. 9)

PHILADELPHIA GAS WORKS, the nation’s largest municipally owned gas utility, plans to sell about $150 million in revenue bonds as early as this week to fund capital projects and refinance debt. The securities are rated third-lowest, at BBB+, by S&P, and second-lowest, at Baa2, by Moody’s, and will be marketed by a group led by Morgan Stanley. (Added Aug. 10)

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