San Joaquin Hills Transportation Corridor Agency was able to reprice part of its sale of senior lien toll road refunding revenue bonds at lower yields Wednesday because of buyers' demand for triple-B paper, traders said.
The underwriters dropped yields from five to 10 basis points on the 2016 to 2034 maturities of the senior lien toll road bonds, which comprised a $1.1 billion portion of the $1.4 billion two-part deal. The reductions came after the deal team raised yields on the senior lien bond's long maturities Wednesday morning during the bonds' preliminary pricing from their pre-marketing period. Yields on the bonds maturing from 2029 to 2050 were raised between eight and 20 basis points from premarketing to preliminary pricing, according to documents given to The Bond Buyer.
Yields on the 2029 maturity are still approximately three basis points above what was originally proposed during the bonds' pre-marketing.
"They were probably spooked by the sell-off," a trader in New York said. "But people want yield now, and there's an opportunity to get some with triple-B bonds. When [the deal team] saw the demand they likely immediately pushed those yields down."
The bonds consist of senior lien toll road refunding revenue bonds and junior lien toll road refunding revenue bonds.
The senior lien bonds are rated BBB-minus by Standard & Poor's and Fitch Ratings, and are current interest bonds, convertible capital appreciation bonds, and capital appreciation bonds. The junior liens are rated BB-plus by S&P and Fitch and are current interest bonds.
Yields on the $1.11 billion series A bonds ranged from 0.60% with a 5% coupon in 2016 to 4.45% with a 5% coupon in 2050.
The 2029, 2034, 2044, and 2050 term bonds have sinking funds. There is an optional call at par in 2025.
The $294 million series B bonds were priced with yields ranging from 4.55% with a 5.25% coupon in 2044, to 4.80% with a 5.25% coupon in 2049.
A trader in Chicago said the 5% and 5.25% coupons indicate the deal was being heavily marketed toward institutional investors
Goldman and Barclays Capital are joint bookrunners on the deal, with Goldman running the series A and Barclays the series B.
The trader in New York did note that the deal was increased in size from an originally scheduled $1 billion, meaning the underwriting team probably believed, despite the weakening market, that there would be demand for the bonds.
Primary
The Michigan Finance Authority issued $271.9 million of local government loan program revenue bonds for the Detroit Regional Convention Facilitity Authority with yields ranging from 0.47% with a 2% coupon in 2016 to 3.64% with a 5% coupon in 2039. JPMorgan led the sale.
There is an optional par call for the bonds in 2024, except for the 2020 maturity, which can be called at par in 2019. The 2021 maturity has an optional par call in 2020, the 2022 maturity can be called in 2021, the 2023 maturity in 2022, and the 2024 maturity in 2023.
There is a sinking fund on a 2039 term bond. The deal was rated AA-minus by S&P and A-plus by Fitch.
Puerto Rico GO Yields Jump to 3- Month High
Yields on Puerto Rico benchmark general obligation 8s in 2035 rose to their highest level since July 14th on Wednesday.
The 8s in 2035 yielded 9.56% as of 2:45 PM EST, according to Bloomberg data. This is 14 basis points higher than on Monday.
Traders attributed the yield hike to a combination of the municipal market's sell-off this week and rumors that Puerto Rico Gov. Alejandro Gracia Padilla may file a bill authorizing a greater-than $2 billion bond this week.
"I think yields on the Puerto Rico 8s in 2035 have backed off a bit because of both the sell-off and the rumored bond issuance," a second trader in New York said.
Many market participants see the potential $2 billion bond as a negative for Puerto Rico credits. The market for Puerto Rico credits also weakened when the Commonwealth's $900 million revenue anticipation note sale on Oct. 10 was increased from an originally scheduled $700 million.
The second trader in New York said that the GOs with coupons less than 8% are also "backing-off a bit," but noted that the Commonwealth's insured sales tax bonds have been relatively steady.
"They are still trading at the levels they were a couple weeks ago," he said.
He listed the Puerto Rico Sales Tax Financing Corp. sales tax revenue capital appreciations 0s of 2045 as an example. The bond was trading between a high of 6.45% to a low of 6.43% on Oct. 20, according to data provided by EMMA. This is actually about 15 basis points stronger than the high of 6.06% and the low of 6.58% the bonds were trading on Oct. 10.
He also mentioned the COFINA 0s of 2042 that traded at 6.49% on Oct. 21. This is between 22 and nine basis points lower than the high of 6.71% and low of 6.58% the bonds were trading at last week on Oct. 17.
Scales
Municipal bonds weakened on Wednesday with bonds maturing in 10 years yields rising by one basis point, according to Municipal Market Data. The yields for bonds maturing in 11 to 15 years increased by two basis points, and by one basis points for 16 to 21 maturities. The rest of the curve held steady.
Treasuries were mixed with the 30-year's yield falling by one basis point to 2.99%. The 10-year held steady at 2.23% and the two-year note fell by one basis point to 0.37%
