Property and casualty companies took big bites of general obligation bonds offered on a competitive basis yesterday by Pennsylvania, Georgia, and Vermont.
"It's in great shape," J.P. Morgan Securities Inc. managing director Peter T. Clarke said of the $290.6 million Pennsylvania deal his firm won with a true interest cost of 6.5879%. Late in the day, all but $38.8 million of the bonds had been placed with investors.
Serial bonds were reoffered to investors at yields ranging from 4.40% in 1995 to 6.30% in 2005. Bonds from 2006 to 2014 were FGIC-insured and saw strong property and casualty interest, Clarke said. Bonds in 2004 and 2005 were also FGIC-insured, he said.
While interest from property and casualty companies figured prominently in the success of the deal, the offering also benefited from investors' realization that yesterday's three GO deals are probably the last of their kind the market will see for a while, Clarke said.
While some smaller GO deals are still ahead, "I think people saw this as a chance to get some good size on the books at rates that certainly represent a back-up from where we were earlier this month," he said.
Clarke said that while property and casualty companies have been visible in the market for quite some time, they were particularly strong buyers yesterday.
A property and casualty company took a big chunk of the $104.8-million Georgia deal won by a CS First Boston group with a net interest cost of 6.2952%. Goldman, Sachs & Co. had the cover bid with an NIC of 6.3026%.
Serial bonds were reoffered to investors at yields from 4.25% in 1995 to 6.10% in 2005. The property and casualty company took the bonds from 2006 to 2013, a source familiar with the deal said.
"There were lots of other orders ahead that obviously got knocked out by this big order," the source said. He estimated that the property and casualty company bumped about eight other orders. The source added that bonds through 11 years saw good in-state retail demand.
The remaining 2014 maturity was reoffered to investors at a 6.65% yield. The unenhanced offering was rated triple-A by Moody's Investors Service and Fitch Investors Service. Standard & Poor's Corp. rates the offering AA-plus.
The source cited the offering's noncallable status, its relatively small size for the state, Georgia's good name, and some investors' need to put money to work as factors in the deal's success. The deal had a $14.8-million balance near day's end.
A Prudential Securities Group won $70 million Vermont GO bonds with a true interest cost of 6.346%.
Alan W. Murphy, senior vice president and manager of Prudential's underwriting department, also credited property and casualty interest as a factor in the success of the Vermont offering.
"The P&Cs were the big buyers of the bonds," he said, adding that he was referring to bonds from 10 years on out. There was also heavy buying by a large New York trust department, he said.
Inside 10 years, Murphy cited "some good corporate participation in the first two or three years" and "a lot of bank business in the five to 10-year range." Retail also participated, he said.
"Vermont has a lot of scarcity value," Murphy said. "Not too many people are full on that name at all."
J. Chester Johnson, chairman of Government Finance Associates Inc., financial adviser to the state, said a Smith Barney group had the cover bid with a 6.3671% TIC.
"I think by and large all the deals did reasonably well today," Murphy said, adding that the market has stabilized somewhat.
Serial bonds were reoffered to investors at yields ranging from 5.25% in 1997 to 6.65% in 2014. A 1996 maturity was not formally reoffered. Moody's rates the offering AA, while Standard & Poor's rates it AA-minus.
Margaret D. Patel, a portfolio manager at the Advantage Municipal Bond Fund, was not a buyer yesterday, but remains bullish on municipal bond performance versus that of taxable bonds.
"I haven't been troubled with redemptions, but the new money flow has really dried up," she said. "So I'm a bystander urging on other purchasers. I think that the whole market is so attractive, that everything should be bought there."
Patel noted that at the end of October, the Bond Buyer's Revenue Bond Index was at 86.5% of Treasuries. "And now we're over 90%," she said.
While the move has been a painful one for bondholders, it creates a tremendous buying opportunity, Patel said.
"If you look at what has happened to munis in the last 10 weeks, it has been a bloodbath, and yet there has been very little publicity about it," she said. "To me, it has been as bad a market as the junk bond market in 1990, when the market was collapsing day by day."
Though she thinks rates will move higher next year, municipals are relatively cheap and new supply should be roughly equal to redemptions, she said. That means municipals should be one of the credit market's better performers, she said.
In yesterday's market, yields on high-grade issues rose by five basis points through the first five years, but declined by five basis points on the longer end, a municipal analyst said. Dollar bonds dropped 1/4 point overall, and more in spots. Activity was light to moderate.
Yesterday's December MOB spread was negative 487, compared to negative 493 on Monday. In debt futures, the December municipal contract closed down 10/32 to 82 26/32. In the government market, the 30-year bond ended down 1/2 point to yield 8.02%.
The 30-day visible supply of municipal bonds yesterday totaled $3.56 billion, down $42 million from Monday. That comprises $1.703 billion of competitive bonds, up $113.6 million from Monday, and $1.860 billion of negotiated bonds, down $155.5 million.
Standard & Poor's Corp.'s Blue List of Municipal Bonds was down $8.3 million yesterday, to $1.58 billion.