N.Y.C. Agency’s $750 Million Issue Leads Week’s Deals: Muni CreditBrendan A. McGrail and Alexandra Harris
The New York City Transitional Finance Authority, which funds capital projects in the most-populous U.S. city, leads this week’s municipal issuance with a $750 million offering, including $620 million in Build America Bonds.
States and local governments are poised to sell about $13 billion in municipal debt in the next five days, the second-highest weekly total since March 26, according to data compiled by Bloomberg. As much as $3.2 billion in taxable Build America Bond sales are scheduled, the most since Sept. 24, Bloomberg data show.
This week’s offerings will bring TFA’s total Build America issuance this year to more than $1.8 billion, Bloomberg data show. The increased supply of the federally subsidized debt still hasn’t saturated the market, and investor interest in the agency’s debt remains strong, said Neil Klein, senior managing director at New York-based Carret Asset Management.
“There’s a healthy demand for this issue,” said Klein, who oversees $860 million of investment-grade fixed-income assets. “The name is great.”
TFA debt carries top credit scores from Standard & Poor’s and Fitch Ratings, and Aa1 from Moody’s Investors Service, second-highest. The bonds, which are subordinate to the agency’s senior debt, are backed by New York City personal-income and sales-tax revenue, according to preliminary offering documents.
“Although senior bonds have a first claim on statutory revenues, Fitch does not make a rating distinction between the liens due to the high coverage levels,” Laura Porter and Douglas Offerman wrote in an Oct. 21 report.
The authority today will be taking orders from individual investors, the so-called retail period, with sales to institutional buyers, such as mutual funds and insurance companies, tomorrow. TFA also plans to sell $100 million of traditional taxable bonds via competitive bid as well as $30 million in tax-exempts tomorrow.
The extra yield above U.S. Treasuries investors demand to hold the agency’s Build America debt has risen almost 10 percent in the last two months, Bloomberg data show.
The authority last sold Build Americas in August, with the bulk of the $614 million deal, due in August 2037, priced to yield 5.51 percent, or 145 basis points above 30-year U.S. Treasuries. The so-called spread reached 160 basis points on Oct. 22, according to Municipal Securities Rulemaking Board data. A basis point is 0.01 percentage point.
Build America Spread
In the same period, the spread between Treasuries and average Build America yields has fallen 11 percent to 178 basis points on Oct. 21 from 200 basis points on Aug. 2.
Retail and institutional demand for this week’s Build Americas may get a boost from the agency’s credit rating as well as overseas interest in the debt, according to Comptroller John Liu’s office.
“We expect very strong demand, including from international buyers who we know are looking at it,” said Carol Kostik, deputy comptroller of public finance.
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 $149 billion have been issued to date.
Foreign investors boosted their holdings of U.S. municipal bonds by 15 percent in the second quarter, according to Federal Reserve data released Sept. 17.
“We have made steady progress with international investors, and we expect that to continue,” said Alan Anders, executive director of the TFA. “We’re hopeful to have our normal, successful sale.”
Following are descriptions of pending sales of municipal debt in the U.S.:
PHILADELPHIA, the sixth most-populous U.S. city, plans to sell $619 million in airport-revenue bonds today, including $327 million subject to the alternative-minimum tax, to refinance debt and fund terminal improvements. Underwriters led by Bank of America Merrill Lynch will market the issue, which is rated A2 by Moody’s, sixth-highest, and A+ by S&P, one level higher. (Updated Oct. 25)
DALLAS-FORT WORTH INTERNATIONAL AIRPORT, the world’s eighth-busiest by passenger traffic last year, plans to sell $301 million in tax-exempt deal as soon as this week to finance its improvement program. The revenue-backed bonds are rated A1 by Moody’s, fifth-highest. Underwriters led by Jefferies & Co. will market the securities to investors. (Added Oct. 25)
SAN ANTONIO, the seventh most-populous U.S. city, plans to sell $500 million in Build America Bonds to fund the capital improvement plan of CPS Energy, the nation’s largest municipally owned energy utility. The bonds will be backed by electric and gas system revenue, and are rated Aa2 by Moody’s, and AA by S&P, third-highest, and AA+ by Fitch, one level higher. JPMorgan Chase & Co. and Bank of America will lead underwriters marketing the debt. (Added Oct. 25)
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