Prices continued to march higher yesterday, even though supply remained heavy, dominated by $879 million of McCormick Place expansion project bonds.
Strong investor demand for new deals and secondary product have driven prices higher during the last three sessions.
Supply has been heavy as issuers make a yearend rush on the primary sector. But investors have been there to scoop up the new bonds, often at attractive prices, market players said.
Combined short- and long-term municipal bond volume broke the $250 billion mark yesterday, totaling $255.21 billion through Dec. 8, according to preliminary figures from Securities Data Co.
Secondary gains have been modest, rising 1/8 to 1/4 point per day and that trend continued yesterday.
Traders said many bonds were unchanged, but dollar bonds were quoted up 1/8 to 1/4 point in sports, outpacing the government market.
In the debt futures market, the March municipal contract also closed in positive territory after spending in portion of the session in negative territory.
The March contract settled up 6/32 to 96.27. The MOB spread narrowed to negative 235 from negative 241 Tuesday as municipals gains surpassed the Treasury contract.
McCormick Place Priced
Dominating action, a 25-member syndicate led by Smith Barney, Harris Upham & Co. priced and repriced $879 million of Metropolitan Pier and Exposition Authority McCormick Place expansion project bonds.
At the repricing, current interest serial bond yields were lowered by five to 10 basis points, while the 2022 term bond yield was dropped seven basis points and the yield on the 2027 maximum term bond was lowered by six basis points. Zero coupon bond yields were lowered by five to 10 basis points, while yields on the remaining deferred interest bonds were lowered by 10 and five basis points respectively.
John Schmidt, the authority's chairman, said that "everyone was ecstatic" about the deal.
"The rates are below what we thought they would be and the offering was oversubscribed by billions of dollars," he said.
The final reoffering scale included $652 million current interest bonds priced by yield from 4.35% in 1995 to 5.90% in 2003. A 2022 term was priced as 6 1/2s to yield 6.538% and a 2027 term, containing $332 million of the loan, was priced as 6 1/2s to yield 6.564%.
There also were $165 million of noncallable capital appreciation bonds priced to yield from 6.55% in 2008 to 6.75% in 2021.
Finally, there was $63 million of deferred interest bonds priced to yield 6.50% in 2007 and 6.65% in 2012.
The current interest bonds are rated A by Moody's Investors Service, and A-plus by Standard & Poor's Corp. and Fitch Investors Service. The zeroes and the deferred interest bonds are insured by the Financial Guaranty Insurance Co. and are triple-A rated by all three ratings agencies.
In action related to the bond issue, the Chicago City Council yesterday approved the reallocation of $35 million of the city's unused private-activity volume cap to the authority.
According to Bruce Bonjour, a partner at Altheimer & Gray, the authority's bond counsel, the allocation was needed to cover the "non-qualified private use component" of the expansion project. That portion includes food service and vendor facilities and a privately operated heating and cooling plant.
Bonjour said that private use components of the expansion project exceeded $15 million in cost but less than 5% of the size of the bond issue required the private activity volume cap. He said the authority had asked the city for the reallocation several months ago and felt comfortable that the necessary approval would be in hand by Jan. 5, the date the bond issue is scheduled to close.
Still, there was no mention of any possible private-activity bonds allocation in the preliminary official statement for the issue. Bonjour said that was because the authority was confident it would receive the allocation from the city.
He added that if the reallocation had not been approved by the Chicago council, the authority had several options available to it to address the private-activity question. They included postponing the pricing, issuing about $20 million of the bonds as taxable or getting an allocation directly from Illinois after Jan. 1.
UNDC Sells Bonds
Goldman, Sachs & Co. priced and repriced $172 million of refunding bonds for the United Nations Development Corp., a public benefit corporation of New York State.
At the repricing, tax-free senior lien yields were lowered by five basis points on serials from 2001 through 2007, while the 2012 term was lowered by seven basis points and the 2026 term yields were lowered by five basis points.
The subordinated lien yields were lowered five basis points from 2001 through 2004 and in 2011. The 2026 term bond yield was lowered by four basis points.
The final offering included $134 million of senior lien bonds priced to yield from 4.95% in 1997 to 6.25% in 2007. A 2012 term was priced as 62 to yield 6.337% and a 2026 term, containing $91 million of the loan, was priced as 6s to yield 6.40%.
There was $32 million of subordinate lien bonds priced to yield from 4.25% in 1994 to 6.15% in 2004. A 2011 term was priced as 6.20s to yield 6.375% and a 2026 term was priced as 6 1/4s to yield 6.43%.
Finally, there was 5.6 million of noncallable taxable senior lien bonds priced to yield from 5.10% in 1994 to 6.80% in 1997.
The bonds are rated A by Moody's and A-plus by Fitch, except for the subordinated lien bonds, which are rated A by Fitch.
Both underwriters and other market participants termed the United Nations Development Corp.'s refunding a success.
The deal refunded debt issued by the corporation in the 1980s. Officials say the refunding will save the corporation almost $2 million each year until 2023.
Debt service on the bonds will be paid through lease and rental revenues collected by the corporation from office space and a hotel. The corporation established by the New York State Legislature in 1968 to provide office facilities and lodging for the United Nations and its agencies.
"The deal did well and it was aggressively priced," said one observer of the offering.
Underwriters said the bonds were sold to both retail and institutional investors
In a little known aspect of the deal, New York State has provided a "moral obligation" on the deal's subordinated bonds, which make up $32 million of the issue.
Under the clause, the state says it could appropriate money to finance a reserve fund that covers one year's worth of debt service on the subordinated securities.
Unlike a general obligation of the state, a moral obligation is not backed by the full faith and credit of the state's tax base. As a result, there is no guarantee lawmakers will make the yearly appropriation if the corporation draws on the reserve fund to make debt service payments. The reserve fund is $2.3 million, or one year of debt service on the subordinated debt.
In other primary-market action. A.G. Edwards & Sons as senior manager priced $105 million of Gwinnett County, Ga., general obligation bonds.
The offering included serial bonds priced to yield from 3% in 1994 to 6.15% in 2011.
The offering is rated Aa1 by Moody's and AA by Standard & Poor's.
In follow-through business, Goldman Sachs reported the account closed on an issue of $400 million of California various purpose general obligation bonds.
Secondary Markets
Traders continued to report good two-way business flow yesterday, as The Blue List fell $63.4 million to $1.59 billion.
In secondary dollar bond trading, prices were unchanged to up as much as 1/4 point.
In late action, Houston Water and Sewer 6 3/8s of 2014 were quoted at 99 1/2-3/4 to yield 6.41%; MBTA 6.10s of 2023 were quoted at 96-1/4 to yield 6.39%; and Georgia MEAG 6 3/8s of 2016 were quoted at 99 1/2-3/4 to yield 6.41%.
North Carolina Catawba 6 1/4s of 2013 were quoted at 98 5/8-99 to yield 6.37%.
In secondary note trading, yields were unchanged to down five basis points.
In late trading, Los Angeles tax and revenue anticipation notes were quoted at 2.45% bid, 2.40% offered, New Jersey Trans were quoted at 2.40% bid, 2.35% offered. Pennsylvania Tans were quoted at 2.45% bid, 2.40% offered.
