Wayne County Airport Authority was able to distance itself from distress in the City of Detroit in its $107 million negotiated revenue bond deal on Wednesday.
The deal was multiple times oversubscribed across the curve, most notably in the long end, allowing JPMorgan, the lead manager, to cut yields on the deal's longest dated maturities, said a southern trader. The $67.94 million Series 2014B bonds were priced to yield 1.07% on a 3% coupon in 2017 up to 4.27% on a 5% coupon in 2044, according to data provided by Ipreo.
"There were crazy bumps, up in the double digits on the long end," said the trader. "There's just a lot of demand for it."
The $32.32 million Series 2014C bonds, which are subject to alternative minimum tax, priced to yield 1.32% on a 3% coupon in 2017, up to 4.67% on a 5% coupon in 2044, according to Ipreo.
The demand was notable because ratings for the deal came in lower than expected, according to Ipreo. The airport expected a double-A from Standard & Poor's but instead got an A from S&P, A minus from Fitch Ratings, and an A2 from Moody's Investors Services.
The bumps could also have been because the market was "in the dark" as to what the demand might be as the county airport is a smaller credit and issuer, the trader said.
BUMPS IN TENNESSEE
Wednesday's Tennessee deal came in with lower yields across the curve. One New York based trader said this probably reflected Citi initially pricing the bond too cheap, something he said the dealer has been known to do.
At its original pricing, the $213.5 million Tennessee State School bond was 10 times oversubscribed, according to both the New York and southern traders. The deal was then repriced at significantly lower yields and was oversubscribed again, the traders said. The deal's 2022 year tranche was bumped nine basis points, the 2023 to 2027 years bumped ten basis points and the 2032 to 2037 years bumped ten basis points as well, said the southern trader.
"The bumps were especially interesting considering it's Tennessee; everyone pretty much knew where the deal was going to price to begin with," said the southern trader.
The deal was eventually priced to yield from 0.35% on a 3% coupon in 2016 to 3.29% on a 5% coupon in 2037, according to Ipreo. A separate taxable portion totaling $132.38 million fixed its coupons so everything would price at par, the New York trader said. Coupons ranged from 0.35% in 2015 to 4.207% in 2044, according to Ipreo. Both portions were rated AA by S&P, AA plus by Fitch, and Aa1 by Moody's.
"Citi always prices its bonds cheap to make sure they get sold," the New York trader said. "You have underwriters that will overpay anyway that just sit on the bonds until you get a rally in munis."
Traders said Tennessee is a relatively infrequent issuer, contributing to the deal's popularity. The deal's large size also made it attractive to larger buyers who normally pass on the state's smaller offerings, the New York trader said.
"You just don't see that many deals like that coming from there," he said.
A strengthening treasury market probably aided the deal, the southern trader said. Treasuries were mixed, but strengthened on the long end of the curve from Tuesday's market close. The two year note rose one basis point to yield 0.48% while the 10-year benchmark was unchanged and the 30-year yield was down one basis point to 3.27%.
TRADERS CHASE TAXABLES
After Tuesday's spike in PREPA trading, Wednesday's market was lighter, with the busiest trading from midmorning to two in the afternoon, the New York trader said.
Some of the heaviest trading was in Puerto Rico's taxable debt, up to four and five times the amount of line item bids in the market, said a second New York trader. These particular pieces are normally reserved for buy-side players and arbitrage desks, but the size of the bids were small, indicating it was retail, said the second New York trader. The rise of bids was in contrast to the trend the trader has seen in the past few weeks.
"You're starting to see a lot less out for the bid in Puerto Rico," the trader said. "You used to be able to bid on 30, 40 line items in a given day, now you're lucky if you can find 15. There's just a lot less retail pieces out for the bid here."
Some of the day's heavier Puerto Rico trading happened in the taxable employee retirement pension system bonds, according to data provided by Markit. Yields on the 6.55s in 2058 fell to 12.181% in trading Wednesday from 13.018% on July 15th, while the 6.3s in 2043 rose to 12.68% today from 12.285% on July 31st.
The island's Highway and Transportation Authority revenue bonds also had a large spike in trading volume, with $14.67 million traded of the 5.25s in 2032 on Wednesday, the highest volume since May 2011, according the Municipal Securities Rulemaking Board's website EMMA.
The market strengthened in the intermediate and long end of the curve on Wednesday, according Municipal Market Data's triple-A scale. Yields were unchanged up to 2017, strengthened 2 basis points in 2018 and 2019, three basis point in 2020 and four basis point from 2021 to 2044. The ten-year benchmark closed at 2.471%.
According to the Municipal Market Advisor's 5% triple-A scale, the two year note yields was unchanged at 0.31%, while the 10-year and 30-year yield fell four basis points each to 2.20% and 3.38% respectively.
