New Jersey EDA Prices $583M as Muni Market Strengthens
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%. ◽