Oct. 20 (Bloomberg) -- The Port Authority of New York and New Jersey paid 60 percent more than similarly rated Wal-Mart Stores Inc. on an $850 million taxable-bond sale to finance rebuilding the World Trade Center, the week’s largest such deal.
States and local governments are poised to sell about $11 billion in debt this week, with about $4.8 billion coming as taxable, the highest since April 24, 2009, according to data compiled by Bloomberg. About $1.8 billion, including today’s Port Authority deal, is so-called traditional taxables, carrying no federal subsidy on interest costs.
The Port Authority, which slashed its 10-year capital spending plan by 17 percent, is targeting international investors to boost demand for its debt, said Howard Cure, director of municipal research at Evercore Wealth Management LLC in New York.
“They’re deliberately marketing overseas because they’re trying to convince investors that their debt is nearly as safe as Treasuries but the yield is better,” said Cure, who oversees about $2 billion. “There’s still a high demand for U.S. securities.”
The yield on the Port Authority’s 30-year bonds was set at 175 basis points, or 1.75 percentage points, above U.S. Treasuries, Bloomberg data show. A 30-year corporate bond from Wal-Mart sold yesterday at a yield of 4.98 percent, 107 basis points above benchmark Treasuries.
The world’s largest retailer’s $1.25 billion of 5 percent securities due October 2040 were the most-traded corporate bonds yesterday and rose more than those Wal-Mart sold with shorter maturity dates. They climbed 1.7 cents to 100.46 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The Port Authority’s offering is rated Aa2 by Moody’s Investors Service, third-highest, and AA- by Standard & Poor’s and Fitch Ratings, both fourth-highest. Wal-Mart’s bonds are rated Aa2 by Moody’s and AA by S&P.
Its obligations will be backed by revenue from facilities as well as the full faith and credit of the agency, offering documents show. The 89-year-old Port Authority operates two tunnels and four bridges between New York and New Jersey, five airports, six marine terminals and the Trans-Hudson ferry service, as well as the World Trade Center site, according to the preliminary documents. The agency is able to set tolls and other fees. Citigroup Inc. is marketing the issue.
Mike Percival, debt manager for the authority, declined to comment on the sale.
World Trade Center
Proceeds from the sale will help fund construction of One World Trade Center, with 2.6 million square feet (241,547 square meters) comprised of commercial office space, an indoor observation deck and skyline restaurant, according to preliminary offering documents. Since today’s offering involves nonpublic space, it was ineligible for tax-exempt debt or Build America Bonds, Steve Coleman, a Port Authority spokesman, wrote in an e-mail.
Four office towers, a transit center designed by Santiago Calatrava, a memorial and museum at the downtown Manhattan site of the World Trade Center may be completed by 2014, city and state officials said last month.
The agency owns the site and is responsible for building Tower One, formerly called the Freedom Tower, the signature building that will stand 1,776 feet high.
Use of the authority’s commercial airports was up 1.8 percent from January to June after a 4.7 percent decline in fiscal 2009, Maria Matesanz and Kurt Krummenacker wrote in an Oct. 18 Moody’s report. “Aviation enterprises provided approximately 58 percent of authority net operating revenues” or 61 percent of net operating income in 2009, they wrote.
“The authority’s near-monopoly over strategic transportation systems in the largest metropolitan area of the U.S. ensures a stable, diverse revenue stream that has demonstrated resilience during economic downturns as well as external stresses such as 9/11,” Moody’s said.
The $6.3 billion 2010 budget approved in December reduced the authority’s 10-year capital spending plan to $24.5 billion from $29.5 billion as a result of the longest recession since the Great Depression. A 150-position reduction in the current budget has reduced employment to the lowest level in 40 years, according to preliminary offering documents.
Following are descriptions of pending sales of municipal debt in the U.S.:
DISTRICT OF COLUMBIA WATER AND SEWER AUTHORITY, which serves about 2 million customers in the district and the surrounding area, plans to sell $300 million of Build America Bonds today. The obligations are backed by revenue from consumer water bills and will be used to preserve and upgrade the district’s water and wastewater systems. Underwriters led by JPMorgan Chase & Co. will market the issue, which is rated Aa3 by Moody’s and AA- by both S&P and Fitch Ratings, all fourth-highest. (Updated Oct. 20)
UNIVERSITY OF MASSACHUSETTS BUILDING AUTHORITY, the organization that oversees the buildings of the state university system and its five campuses, plans to sell $567 million taxable and tax-exempt bonds in a competitive bid tomorrow, including $438 million in Build America Bonds. The debt, backed by state appropriations and student fees, will be used to build an academic building in Boston, new student housing in Amherst and a marine sciences building in Dartmouth, according to a Moody’s report. The securities are rated Aa2 by Moody’s and AA by Fitch, both third-highest. (Updated Oct. 20)
TRIBOROUGH BRIDGE AND TUNNEL AUTHORITY, the Metropolitan Transportation Authority unit that operates nine tolled river crossings, will offer $347 million in taxable and tax-exempt bonds in a competitive bid today. The debt, which includes $280 million in Build America Bonds and is backed by tolls collected from the bridges and tunnels, will be used to finance construction projects. The securities are rated AA by Fitch, third-highest, one level above S&P’s AA-rating. (Updated Oct. 20)
NEW YORK CITY TRANSITIONAL FINANCE AUTHORITY, the agency that funds a portion of the city’s capital projects, will sell $750 million in taxable and tax-exempt debt next week. The sale includes $620 million in Build America Bonds, which will be issued in a negotiated sale. Underwriters led by Morgan Stanley will market the issue. TFA also plans to sell $100 million of taxable bonds via competitive bid. The securities are top rated by S&P and Fitch, and Aa1 by Moody’s, second-highest. (Added Oct. 20)
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