A morass of problems, ranging from worse-than-expected budget deficits to a misunderstanding over a bond call, forced underwriters and issuers yesterday to postpone the sale of $3.3 billion in new issues, including $1.2 billion New Yo k City bonds.
Confusion created by the postponements caused considerable uncertainty in both the primary and secondary sectors. In addition, a faltering stock market, a sour long Treasury bond, and heavy municipal supply combined to force secondary prices down 1/2 point. Off-the-run names were down as much as 1 point in choppy trading.
"The uncertainty of the status of the deals has created a very unsettling atmosphere throughout the market," said the head of a major Wall Street trading desk. "Institutions weren't big sellers today, but you don't know if you're looking at the light at the end of the tunnel or a train."
Early in the session, New York City announced that it would postpone until today its big sale because negative New York State budget deficit developments increased risk (see story, P.1).
Market sources say the New Jersey Turnpike Authority is unlikely to price its $1.6 billion refunding issue today, but the turnpike's financial adviser said late yesterday no decision will be made until today.
"We are waiting until the morning to make a final determination, but things are not going in our favor," said Richard P. Poirier, a general partner at Lazard Freres & Co. "Unless things improve in the morning," the turnpike sale will be postponed.
In the California market, the sale of $353 million university of California Regents revenue bonds was postponed by state treasurer Kathleen Brown after certain investors said they were confused about a call date (see related story, P.1). And $114 million of Los Angeles Department of Water and Power bonds set for competitive sale were postponed because of a 6-1/2 interest rate cap.
The financing authority will take bids next Tuesday, according to Ronald Flodine, director of finance.
Also pulled from the market was a $92 million Georgia Municipal Electric Authority deal priced Monday by a First Boston group.
Bradford R. Higgins, a managing director at First Boston, said higher prices on the short end of the Treasury market created negative arbitrage that hurt the cost savings to the issuer.
"We're in no particular rush to do this," Mr. Higgins said. "The market has made the refunding less efficient and there's no reason to leave money on the table."
New-Issue Activity
The new issues that were priced yesterday once again met with mixed results as buyers demanded concessions, forcing underwriters to tinker with yields.
Goldman, Sachs & Co. tentatively priced and repriced $282 million Los Angeles County Transportation Commission, Calif., sales tax revenue refunding bonds. A Goldman officer said the deal was downsized from $471 million due to sour market conditions.
"The savings goal was hit with a smaller loan but we were able to lower some yields," the officer said. "It's a tough market and we're cautious but we saw some reasonable fund and retail interest."
Yields were lowered by five basis points on insured bonds in 1993-2003. Term bond yields were lowered three to five basis points, except for the 2018 maturity which remained unchanged.
The final offering included serials priced to yield from 4.65% in 1993 to 6.55% in 2006. A 2010 term was priced to yield 6.60%, a 2013 term was priced to yield 6.766%, a 2015 term was priced to yield 6.67%, and a 2018 term priced to yield 6.70%.
The bonds are rated A1 by Moody's Investors Service and A-plus by Standard & Poor's Corp., except for the 1993-2003 and 2015 maturities, which are backed by Financial Guaranty Insurance Co. and triple-A rated by both agencies and Fitch Investors Service.
In other action, a 24-member syndicate led by Merrill Lynch & Co. priced, and then repriced and restructured $275 million Massachusetts Bay Transportation Authority general transportation system bonds.
Underwriters raised yields five to 10 basis points in 1997-2002, 2011, and 2022 and to add 2006 and 2007 maturities.
The final pricing included serial bonds priced to yield from 5% in 1993 to 6.65% in 2002. A 2006 term was priced to yield 6.95%, a 2007 term to yield 6.95%, a 2011 term to yield 7.1%, a 2021 term to yield 7.07%, and a 2022 term, containing $89 million of the loan, was priced to yield 7.15%.
The managers said they expect a Baa rating from Moody's Investors Service. Standard & Poor's rates the issue BBB.
An issue of $120 million Hawaii Housing Finance and Development Corp. single family mortgage purchase revenue bonds was priced and repriced by by Dean Witter Reynolds.
Yields were lowered by five basis points on the 2024 term but raised five to 10 basis points from 1998-2003 and in 2020.
The final offering, subject to the federal alternative minimum tax, included $57 million of serial bonds priced at par to yield from 5% in 1993 to 6.75% in 2003. A 2011 term was priced at par to yield 7%, a 2020 super sinker was priced at par to yield 6.75%, and a 2024 term was priced to yield 7.10%.
There also were $62 million non-AMT bonds priced at par to yield 6.90% in 2016 and 7% in 2031.
Competitive new issues fared better than mot deals in the negotiated sector.
Prudential Securities won $100 million Port Authority of New York and New Jersey consolidated revenue bonds with a true interest cost of 6.8186%.
Prudential reported an unsold balance of $1.5 million by session's end. The 6 1/2s of 2026 were quoted at 95 7/8-96 1/8 to yield 6.79%, compared to the original yield at 6.78%.
The bonds, subject to the federal alternative minimum tax, were reoffered to investors at yields ranging from 6.45% in 2006 to 6.65% in 2012, while a 2026 term, containing $81 million of the loan, was priced to yield 6.781%.
An issue of $86 million Franklin, Ohio, limited county courthouse bonds was won by a Kemper Securities group with a TIC of 6.483%.
Kemper reported an unsold balance of $13 million near the close.
The issue was priced to yield from 4.25% in 1992 to 6.40% in 2010. A 2012 term was priced as 6 3/8s to yield 6.50%, a 2017 term was priced as 6 3/8s to yield 6.55%, and a 2020 term was not formally reoffered.
The bonds are rated triple-A by Moody's and Fitch, and AA-plus by Standard & Poor's.
Secondary Market
In the secondary, traders reported light bid-wanted activity and some buying, although the action was subdued because of heavy supply. "Municipals are really cheap to Treasuries, especially on the short end," said a Chicago-based trader. "It's going to create a good buying opportunity here sooner or later, but there are more sellers than buyers right here."
Standard & Poor's Blue List of dealer inventory rose $123 million yesterday to the $1.4 billion mark.
Contrary to previous commentary, several traders at large Wall Street houses reported active trading Monday in bonds backed by guaranteed investment contracts with Executive Life Insurance Co. Activity yesterday was lighter and one trader reported bonds changing hands at 48 1/4-49 with the high trade at 50 1/4 cents on the dollar.
Secondary dollar bonds were quoted off 1/4 to as much as 1 point, depending on the name.
Denver Airport 7 3/4s of 2021 were out for the bid and were quoted at 91 1/2-92 1/2 to yield approximately 8.44%. North Carolina Eastern 6 1/2s of 2017 were quoted at 96-1/4 to yield 6.8%. Washington Public Power Supply System 6 7/8s of 2017 were quoted at 98 3/4-99 to yield 6.95%, and MTA 7s of 2012 were quoted at 97 1/8-98 to yield 7.18%.
Short-term note yields rose about five basis points on the day, except for New York names which were quoted around 15 to 20 basis points higher.
In late secondary trading, Los Angeles Trans were quoted at 4.15% bid, 4.07% offered. March New York State Trans were quoted at 5.15% bid, 5% offered, and New York City Rans were quoted at 5.10% bid, 4.90% offered. Texas notes were quoted at 4.15% bid, 4.07% offered in late trading.
