The agency that issues debt fore Philadelphia said yesterday that poor market conditions have forced it to postpone issuing $100 million of special tax revenue bonds until the end of the month.
The Pennsylvania Intergovernmental Cooperation Authority had wanted to price the deal tomorrow. But the agency announced that it has delayed the offering until the week of Nov. 28, citing volatility in the tax-exempt market and market expectations that the Federal Reserve Board will raise short-term interest rates today.
"With the Federal Open Market Committee meeting and the market still digesting the election, our advisers said it would make sense to hold off," said Ron Henry, special consultant to the authority.
In October, the authority named Smith Barney as lead manager on the issue, which will finance renovation of various city buildings, including fire stations, libraries, and recreation centers,
The authority has not issued an official statement for the deal, but Henry said the document should be out by the end of the week.
Volatile market conditions have recently forced several issuers -- even some that rarely use the market -- to postpone deals. For example, the Ocean Research Foundation, a Long Island, N.Y., organization, has postponed bringing $52 million of aquarium bonds to market, citing in a press release "a sharp increase in interest rates for tax-exempt securities and an overall deterioration in municipal bond conditions."
Most market players expect the Fed to raise the federal funds rate by 50 basis points, from its current level of 4.75%, and several issuers said they will await the outcome of today's Fed meeting before completing their transactions.
Reid Smith, an assistant vice president at Vanguard, said many municipal bond investors are also waiting until market conditions improve before investing in deals that are entering the market. As a result, he said, the Pennsylvania deal will probably attract so-called crossover buyers, or investors who usually purchase taxable debt.
"It depends on the Treasury market," Smith said. "They would need to see an attractive relationship to Treasuries."
Given the sour market conditions, investors were hesitant to predict what yield levels on the authority's bonds will be when they come to market. The authority wants to insure the entire issue, in which case the securities would yield about "7.15% -- maybe a little bit behind that," Smith said.
As part of the $100 million issue, the authority will earmark $7 million for a debt service reserve fund, and $3 million for underwriting fees, and use the remaining $90 million to make the capital improvements. The bonds are supported by a special tax on wages, salaries, and net profits earned by Philadelphia residents.
The authority was formed about three years ago to help extricate Philadelphia from a severe budget crisis. Since 1991, the authority has issued about $1.3 billion of bonds to finance capital projects and balance the city budget.
The agency's bonding authority expires in December. The $100 million issue is expected to be its last.