New Jer­sey EDA Prices $583M as Muni Mar­ket Strength­ens

The Bond Buyer - - Market News - BY CHIP BAR­NETT & AARON WEITZMAN

Top-rated mu­nic­i­pal bonds fin­ished stronger on Thurs­day, traders said, as the week’s largest deal came to mar­ket — the New Jer­sey Eco­nomic De­vel­op­ment Author­ity’s $583 mil­lion sale.

Mor­gan Stan­ley priced and repriced the New Jer­sey EDA’s $582.78 mil­lion of Se­ries 2017A tax-ex­empt and Se­ries 2017B tax­able mo­tor ve­hi­cle sur­charges sub­or­di­nate rev­enue re­fund­ing bonds.

The $554.34 mil­lion of tax-ex­empt bonds were priced to yield from 2.49% with a 4% coupon in 2022 to 2.35% with a 3% coupon in 2024 and from 2.86% with a 5% coupon in 2027 to 4.00% with a 4% coupon in 2034.

The tax-ex­empts are rated Baa2 by Moody’s Investors Ser­vice with the ex­cep­tion of the 2023, 2024, 2027, 2028 and 2031 ma­tu­ri­ties to­tal­ing $213.73 mil­lion, which are in­sured by Build Amer­ica Mu­tual and rated AA by S&P Global Rat­ings.

The $28.44 mil­lion of tax­ables were priced at par to yield from 3.29% in 2019 to 3.80% in 2022.

The tax­ables are rated Baa2 by Moody’s and BBB-plus by S&P.

“While it is a short week, there is a se­ri­ous lack of sup­ply in the mar­ket. There al­ready was quite a bit of money to be put to work and in­creas­ingly there is more un­cer­tainty in the world lead­ing to risk be­ing taken out of the mar­ket,” said one New York trader. “This is clearly ev­i­dent in the rally in the Trea­sury mar­ket as well as gold and other com­modi­ties -- so it is not a huge sur­prise that N.J. EDA can tighten in by 15 ba­sis points on the repric­ing.”

He also noted that the ma­jor­ity of the or­ders com­ing in for the EDA’s were in the 2029-2031 ma­tu­ri­ties, with the most com­ing for the 2031 in­sured ma­tu­rity.

“This was an op­por­tu­nity to work with the state and its un­der­writ­ers to cus­tom­ize our in­sur­ance pre­mium to meet the spe­cific needs of this trans­ac­tion,” said Scott Rich­bourg, head of pub­lic fi­nance at BAM. “Be­cause the bonds are sub­ject to early re­demp­tion from ex­cess cash flow and may not be out­stand­ing un­til their stated ma­tu­rity date, we struc­tured a split-fee pre­mium in which the state paid for the first five years of cov­er­age up­front and will pay an an­nual pre­mium tied to the amount of out­stand­ing debt af­ter that. Ul­ti­mately, that means the state will only pay for the cov­er­age it needs, and that was an­other way to gen­er­ate sav­ings from the trans­ac­tion.”

Since 2007, the N.J. EDA has is­sued $21.67 bil­lion of se­cu­ri­ties, with the most is­suance in 2008, when it sold $3.22 bil­lion. Thurs­day’s sale puts the EDA over the $1 bil­lion mark for this year.

“The credit anal­y­sis was in­ter­est­ing be­cause we had to in­de­pen­dently an­a­lyze and fore­cast rev­enues from each one of the pledged mo­tor ve­hi­cle sur­charges,” said Howard Spum­berg, man­ag­ing vice pres­i­dent in BAM’s east re­gion pub­lic fi­nance group. “Then we com­bined the in­di­vid­ual cash flow fore­casts to see how they im­pact the trans­ac­tion as a whole,” “Over­all, we are com­fort­able that the struc­ture will pro­vide suf­fi­cient debt-ser­vice cov­er­age across a wide range of stress-case sce­nar­ios.”

Else­where, Gold­man Sachs priced the Board of Re­gents of the Univer­sity of Texas’ $350 mil­lion of Se­ries 2017A tax­able rev­enue fi­nanc­ing sys­tem bonds.

The is­sue was priced at par to yield 3.354% in a 2047 bul­let ma­tu­rity.

The deal is rated triple-A by Moody’s, S&P and Fitch Rat­ings.

The yield on the 10-year bench­mark muni gen­eral obli­ga­tion fell three ba­sis points to 1.81% from 1.84% on Wed­nes­day, while the 30-year GO yield dropped two ba­sis points to 2.66% from 2.68%, ac­cord­ing to the fi­nal read of Mu­nic­i­pal Mar­ket Data’s triple-A scale. The yield on the two-year Trea­sury dropped to 1.27% from 1.30% on Wed­nes­day, the 10-year Trea­sury yield de­clined to 2.06% from 2.10% and the yield on the 30year Trea­sury bond de­creased to 2.68% from 2.72%. ◽

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