Delaware River Authority Borrows $320 Million With Issues at 10-Month Low
Delaware River Port Authority, the Philadelphia toll-bridge operator that lost more than $60 million on derivative bets, plans to borrow $320 million as weekly issuance falls to the lowest in 10 months.
States and municipalities are scheduled to sell about $2.92 billion in debt this week, shortened by the Independence Day observance. That’s down from $4.6 billion last week and the lowest since Sept. 4, another four-day week, according to data compiled by Bloomberg.
The DRPA, jointly set up by Pennsylvania and New Jersey, may benefit from a sparse market, said John Flahive, Boston- based director of fixed income for BNY Mellon Wealth Management, which manages about $20 billion in municipal bonds.
“You won’t have a lot of competition, so it’s not a bad time to come to the market,” Flahive said in an interview. “Given the time of year, there will be people looking for well- priced deals.”
The Camden, New Jersey-based port authority owns the Benjamin Franklin, Betsy Ross, Walt Whitman and Commodore Barry bridges in the Philadelphia area as well as a commuter-rail line. Revenue in 2008 rose 4.3 percent to $271.8 million, while expenses increased 2.3 percent to $267.2 million, according to the agency’s most recent annual report.
DRPA agreed to seven interest-rate swaps with various banks in 2000 and 2001, collecting $44.6 million in upfront payments. It lost at least $62.6 million on the deals since then, including a $13.3 million payment to the bankrupt Lehman Brothers Holdings Inc. in 2008, to cancel a $66 million swap, and a $33.7 million termination fee to UBS AG on Jan. 11 to end a $108 million contract.
In a swap transaction, two parties exchange payments, typically a floating one for a fixed. State and local governments usually sold variable-rate bonds and negotiated with banks to leave them paying fixed interest that was lower than prevailing municipal rates.
This week’s offering may include taxable Build America Bonds, preliminary offering documents show. Average yields on the federally subsidized securities, the fastest-growing part of the $2.8 trillion municipal market, fell 10 basis points last week to 5.85 percent on July 1, the lowest in three weeks, according to a Wells Fargo index. A basis point is 0.01 percentage point.
“We’re looking at BABs,” John Hanson, chief financial officer for the DRPA, said in a telephone interview. “But we’re trying to gauge the strength of the market before we make a decision.”
The bi-state agency, which has no taxing power, plans to use proceeds from the debt sale to re-deck two bridges, upgrade commuter train cars for the Port Authority Transit Corp. and improve railroad tracks, Hanson said.
The total supply of available fixed-rate bonds in the next 30 days fell to about $8.6 billion last week, about 25 percent less than the daily average of $11.4 billion for the last 18 months, according to the Bloomberg Visible Supply Index.
The port authority’s credit outlook was lowered to negative from stable in March by Moody’s Investors Service. Moody’s and Standard & Poor’s rate the debt at the fourth-lowest investment grade, A3 and A- respectively.
The securities, backed by transportation revenue, will be marketed by a group led by Citigroup Inc.
Following are descriptions of pending sales of municipal debt in the U.S.:
MONTGOMERY COUNTY, Maryland, whose Aaa credit rating was put under review in April for a possible downgrade by Moody’s, will issue $325 million in bonds through a competitive sale on July 8 to refinance debt and fund capital projects. About $24 million of the offering will be taxable Recovery Zone Economic Development securities, with the remainder issued as tax- exempts. All of the obligations are backed by the full faith and credit of the county, which was top-rated by S&P, Fitch and Moody’s in its last sale. (Added July 6)
U.S. VIRGIN ISLANDS, whose rum shipments to the mainland in 2009 reached 8 million “proof gallons,” a measure for calculating federal excise taxes, plans to offer about $396 million of tax-exempt debt through its public finance authority as soon as this week. About $308 million of the issue, backed by taxes paid by rum producers on shipments to the mainland, is senior obligations rated BBB+ by Fitch, third-lowest. The remaining subordinate bonds are rated BBB, second-lowest. Underwriters led by Jefferies & Co. will market the securities. (Updated July 6)
MISSISSIPPI DEVELOPMENT BANK, created in 1986 by the state legislature to issue bonds on behalf of local and county governments, plans to offer about $165 million in tax-exempt municipal bonds as early as this week to refinance debt. The bonds, rated AA- by S&P, fourth-highest, and AA by Fitch, one level higher, will be marketed by a group led by Morgan Stanley. (Updated July 6)
MONROE COUNTY, New York, on the shore of Lake Ontario with about 735,000 residents, will issue $85 million in tax-exempt municipal bonds through a competitive sale tomorrow. The debt, rated BBB+ by S&P, third-lowest, and A2 by Moody’s, fifth- lowest, will be used for public projects including bridges, highways and parks. (Updated July 6)