University of Massachusetts Build Americas Face Glut of Bonds: Muni Credit
The University of Massachusetts, which enrolls more than 58,000 students on its five campuses, is selling $438 million in Build America Bonds through its Building Authority as taxable issuance reached an 18-month high.
The federally subsidized securities are part of today’s record $568 million sale by the college, which will boost its debt load by 24 percent to $2.4 billion, according to preliminary offering documents. About $126 million will be sold as tax-exempts, with another $3 million in traditional taxables. The bonds, which are being sold competitively, are rated third- highest at Aa2 and AA by Moody’s Investors Service and Fitch Ratings, respectively.
More than $4.8 billion in taxable debt is being marketed this week, the highest level since April 2009, including about $2.5 in Build Americas, according to data compiled by Bloomberg. The university may need to increase yields because there is so much competition, said John Flahive, Boston-based director of fixed income for BNY Mellon Wealth Management.
“It’s a buyer’s market, no doubt about it,” said Flahive, who helps manage about $20 billion in municipal bonds. “Buyers can afford to be a lot more discerning with the types of credits and spreads, in an environment where there’s plenty to choose from.”
New York City’s Triborough Bridge and Tunnel Authority, which carries identical ratings, competitively sold $280 million in revenue-backed Build Americas yesterday, with 30-year securities priced to yield 5.55 percent, or 165 basis points above benchmark U.S. Treasuries. A basis point is 0.01 of a percentage point.
The university’s previous Build America sale, a $272 million issue in October 2009, offered 30-year debt priced to yield 6.57 percent, or 230 basis points above Treasuries due in August 2039. The so-called spread was 181 basis points Oct. 19, the most recent trade, according to Municipal Securities Rulemaking Board data.
“We’re confident it will be successful and attract a lot of attention,” Building Authority Chief Financial Officer Steve Dansby said in a telephone interview. “If it comes in anywhere close to where our financial adviser is suggesting, it will be a very attractive deal.”
Dansby declined comment on the spread forecast.
Housing, Marine Sciences
Proceeds from today’s sale will help finance a $4.5 billion capital plan university trustees approved for fiscal years 2011 through 2015, offering documents show. Projects include a new academic building at the Boston campus, new student housing in Amherst and a marine sciences building in Dartmouth, according to a report by Moody’s, which assigned a stable outlook.
“The university’s broad position within the commonwealth, status as a flagship system, and importance in the public higher education system of the commonwealth provide a strong underpinning to its market position,” Kimberly Tuby and John Nelson wrote.
Build America Bonds, the fastest-growing part of the $2.8 trillion U.S. municipal debt market, were first sold in April 2009 as part of the economic-stimulus package and include a 35 percent federal subsidy on interest-rate costs. Legislation introduced by Senate Finance Committee Chairman Max Baucus would extend the program, which expires Dec. 31, by one year with the subsidy reduced to 32 percent. Previous extension attempts stalled in Congress. About $147 billion have been issued to date.
“We targeted October for our financing, theorizing a rush to issue BABs” before the 35 percent subsidy expired, Dansby said. “Apparently a number of people had the same idea.”
Following are descriptions of pending sales of municipal debt in the U.S.:
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 offer 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 Standard & Poor’s and Fitch, and graded Aa1 by Moody’s, second-highest. (Added Oct. 19)
LOWER COLORADO RIVER AUTHORITY, which manages electricity generation in a region around the longest river to begin and end in Texas, is selling $373 million in revenue-backed tax-exempts today to refinance existing debt. Underwriters led by Goldman Sachs Group Inc. will market the debt, which is rated fifth- highest at A1 by Moody’s and A+ by Fitch, and A by S&P, one level lower. (Added Oct. 21)
MISSISSIPPI, the 15th-most indebted state per capita, plans to sell about $651 million in taxable bonds today, including $371.7 million in Build Americas and $45 million in Recovery Zone Economic Development Bonds. The debt will be used to finance highway and bridge construction and tourism projects. Underwriters led by Morgan Stanley will market the subsidized debt, while Bank of America Merrill Lynch will handle the traditional taxables. The offering is rated Aa2 by Moody’s and AA by S&P, both third-highest and one level below Fitch’s AA+ rating. (Updated Oct. 21)
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