The Iowa Finance Authority reduced yields on $1.2 billion of tax-exempt bonds being sold for a fertilizer plant, the largest speculative-grade issue ever in the $3.7 trillion municipal market.
The longest maturity in the tax-free sale is due in December 2025. It was priced to yield 5.3 percent yesterday, down 0.1 percentage point from earlier in the offering, according to three people familiar with the sale. That put it about 3.27 percentage points higher than benchmark munis maturing in 12 years, data compiled by Bloomberg show. Standard & Poor’s rates the securities BB-, three levels below investment grade.
Individuals and institutions placed orders for the bonds on April 30. Yields dropped by 0.075 percentage point on the portion maturing in 2019 and 0.05 percentage point on the segment due in 2022. Final pricing is expected as soon as today.
“Typically in high-yield, you’ve got senior living, hospitals, real-estate and smaller project-finance deals,” Dan Toboja, vice president of muni trading at Ziegler Capital Markets in Chicago, said before the sale. “This is something new, and people are excited.”
The borrowing is the largest this week and the biggest for an Iowa issuer since at least 1974. It is benefiting from demand for high-yield securities, which have earned 2.8 percent this year, compared with 1.3 percent for the broader municipal market, Barclays Plc data show.
Proceeds will fund a 320-acre nitrogen fertilizer plant being built by Orascom Construction Industries, Egypt’s biggest publicly traded company. The factory will be in Lee County, in the southeast corner of the state.
The plant will provide as many as 3,500 construction jobs for the county of 35,617, and 165 full-time jobs once it opens, said Gary Folluo, a member of the county’s board of supervisors. Lee County’s unemployment rate was 9 percent in February, compared with 5 percent statewide, U.S. Labor Department data show.
The deal comes two weeks after an explosion at a Texas fertilizer plant killed 14 people, wrecked two schools and destroyed a nursing home. The issuer released updated bond documents prior to the sale that said the facility won’t make solid ammonium nitrate, the most explosive type of nitrogen fertilizer.