The Bond Buyer 40

The Bond Buyer - - Front Page - By Chris­tine AlBAno & AAron Weitz­mAn Yvette Shields con­trib­uted to this col­umn.

Chicago’s $1.3 bil­lion deal Sales Tax Se­cu­ri­ti­za­tion Corp., ten­ta­tively sched­uled to price Wed­nes­day, was moved to the day-to­day calendar, ac­cord­ing to deal par­tic­i­pants. Bookrun­ner Loop Cap­i­tal Mar­kets cited “market con­di­tions.”

Pro­ceeds of the deal will go to re­fund higher in­ter­est cost gen­eral obli­ga­tion bonds, so the city is seek­ing to meet its tar­geted sav­ings lev­els – both for bud­getary re­lief and net present value sav­ings – mak­ing the deal’s value es­pe­cially sub­ject to pre­vail­ing rates.

Mu­nic­i­pals were weaker on Mu­nic­i­pal Market Data’s AAA bench­mark scale, which showed the yield on the 10-year muni gen­eral obli­ga­tion ris­ing three ba­sis points while the yield on 30-year muni ma­tu­rity gained four ba­sis points.Trea­sury bonds were stronger as stocks traded lower.

“Re­cent market fluc­tu­a­tions re­sulted in the STSC’s de­ci­sion to post­pone the bond of­fer­ing un­til the market nor­mal­izes,” said Chicago Fi­nance Dept. spokes­woman Kris­ten Ca­ban­ban.

“We will con­tinue to mon­i­tor the market and will bring the of­fer­ing when con­di­tions are most fa­vor­able to achiev­ing the great­est sav­ings for tax­pay­ers.”

Sev­eral market par­tic­i­pants said other fac­tors posed head­winds for the city. They in­cluded both a down­grade of the bonds last week and a down­grade of the state’s sales-tax backed Build Illi­nois bonds late Tues­day, both due to re­vised cri­te­ria pub­lished Oct. 22. The two cred­its are struc­turally very dif­fer­ent, with the state’s fall­ing un­der the cat­e­gory of tra­di­tional rev­enue bonds and the city’s rep­re­sent­ing a true sale of the pledged rev­enue to spe­cial bank­ruptcy-re­mote en­tity, but the fresh head­line that the market was only be­gin­ning to di­gest was es­pe­cially dam­ag­ing.

One trader said a pre-pric­ing wire on Tues­day put one of the 2053 term bonds at a roughly 80 ba­sis point spread with a 5% coupon to the MMD bench­mark.

“It was a num­ber of el­e­ments ... I don’t think it was any one thing,” a New York trader said Wed­nes­day. “Over­all, be­ing priced into a weak market fac­tored in, and I think peo­ple were spooked by the S&P down­grade,” he said. “We heard some in­vestors wanted cheaper lev­els, and I think when some peo­ple heard about S&P re­assess­ing the sales tax bonds they found that scary.”

The deal’s size and its tax­able por­tion were also con­cerns in to­day’s market cli­mate, the trader said.

With the tax­able por­tion un­fa­mil­iar to cross over buy­ers, he said, “it was not some­thing up their al­ley.”

In ad­di­tion, he said the track record of pre­vi­ous Chicago se­cu­ri­ti­za­tion deals may have given is­suers pause, es­pe­cially in a weaker market Wed­nes­day.”This was not a deal the market was lick­ing its chops for,” he said. “Prior deals have not been easy. To come with a large deal in a tough market makes it even more chal­leng­ing.”

Aside from the post­pone­ment of the Chicago deal, the trader said there are a lot of cross-cur­rents in the market, in­clud­ing the an­tic­i­pa­tion of Fri­day’s un­em­ploy­ment num­bers and next week’s midterm elec­tions.

Chicago had been eye­ing Hal­loween as the pric­ing date, chief fi­nan­cial of­fi­cer Ca­role Brown ear­lier this month con­sid­ered putting off the sale as rates fluc­tu­ated and sup­ply grew.

The fi­nance team de­cided last week to move for­ward and on Thurs­day dou­bled the size to $1.3 bil­lion from $665 mil­lion in an ef­fort to wrap up the up to $3 bil­lion of se­cu­ri­ti­za­tion bor­row­ing au­tho­rized by the city coun­cil for re­fund­ing pur­poses be­fore Mayor Rahm Emanuel leaves of­fice in May.

Mu­nic­i­pal bonds were weaker on Wed­nes­day, ac­cord­ing to a late read of the MBIS bench­mark scale.

Bench­mark muni yields rose as much as one ba­sis point in the one- to 30-year ma­tu­ri­ties.High-grade mu­nis were also weaker, with yields cal­cu­lated on MBIS’ AAA scale ris­ing as much as one ba­sis points across the curve.

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