The Triborough Bridge and Tunnel Authority is the latest issuer to sell variable-rate debt through the Clarity BidRate electronic trading platform as more issuers seek to broaden the investor base for their short-term paper by using more transparent means.
The authority on Wednesday priced $187 million of New York Metropolitan Transportation Authority bridges and tunnels general revenue variable rate refunding bonds (Aa1/AAA//)(VMIG1/SP+1//) in two series to be traded on the Clarity Bidrate Alternative Trading System. Siebert, Williams Shank & Co. ran the books. State Street provided a letter of credit. The bonds were priced to yield 0.10%.
“Clarity offers a diversification from the traditional remarketing agent role by allowing investors to express interest in a security through a system that provides real-time feedback in determining price and allotments of bonds,” said MTA Finance Director Pat McCoy. “Investors' ability to make investment decisions is enhanced with this platform.”
Clarity is currently the only electronic trading platform available for the pricing of variable rate securities in the municipal market. The firm was created in response to the fallout from the Great Recession on the variable-rate market.
The MTA has a robust variable-rate debt program and says having access to a platform such as Clarity provides remarketing agent diversification. Clarity is one of 10 active remarketing agents on MTA’s variable rate portfolio and is remarketing about 10% of the VRDBs.
The MTA saw strong investor interest in the TBTA 2005B-2 bonds with over three times subscription for the bonds. Nine institutional accounts submitted orders of $600 million and were allotted bonds and the transaction reflected a well-diversified book that included new investors, McCoy noted.
This is the largest deal yet to be hosted on the Clarity platform. The state of California in November priced the second-largest, $100 million of VRDOs on the platform.
“I strongly support Clarity’s goals to democratize the variable rate market by creating an investor controlled marketplace that maximizes transparency, leverages technology, and helps to promote a broader and deeper distribution of bonds which could lead to improving overall risk for issuers and investors alike," California Treasurer Fiona Ma said in a release last year after the deal.
Clarity, of Clarity Markets Holdings, LLC, launched its first issuer deal in November 2016 when Ohio sold $32.3 million of variable rate bonds. The state of Wisconsin has also used Clarity.
"These deals are increasing our investor client acquisition and as we approach the half billion mark billion of resets every week with high-grade, respected credits,” said Chief Executive Officer and President Robert Novembre. Following on the heels of California, “the TBTA deal clearly underpins our efforts in the variable-rate market to bring transparency to an opaque space in the muni market.
“We see these transactions and those to follow are showing that transparency matters, that democratization matters, that liquidity matters," Novembre said. He said a separate and derivative goal beyond centralizing the variable-rate market is being able to offer significant data sets that do not exist in the traditional market.
"What we do is allow both issuers and investors to see the depth of the market every week — the rich bid, the cheap bid — and see it in real time," he said.
John Carter, senior managing director at Siebert, the underwriter on several Clarity deals, said both issuers and investors benefit from the platform. Issuers benefit by seeing the actual investor demand information that leads to the weekly interest rate determination, and investors benefit because acquiring a position in bonds in any bid process is merely a matter of winning in the bidding process and nothing further, he said.
“Investors, issuers, and now LOC providers all now have a much more transparent window into the actual levels of demand for weekly VRDB resets at various interest rates,” Carter said.
Many issuers diversify by using a variety of different remarketing agents to set their weekly VRDB rates across their portfolio, and also use different products (such as FRNs) for diversification purposes in the variable-rate market.
"Clarity is just an additional way for issuers to diversify their remarketing agent function to obtain additional market information, perspective and results," Carter said. Clarity also offers investors a tool for diversification in their VRDB holdings because they have the choice to add specific bonds from the Clarity system to their portfolios each week if they want to simply by winning a position in the bid process."
In conventionally remarketed transactions, an investor does not necessarily have the choice to purchase a specific bond each week because the existing holder may or may not decide to sell their position, Carter added.
Novembre said in combination with the two latest deals, Clarity should have a meaningful increase in accounts on the system in the weeks to come.
"The partnership with Siebert has proven to be an excellent joint effort and being able to on board such a high-quality credit with a high-quality bank reinforces Clarity's place in the market," Novembre said.
