New Jersey yesterday executed a $1 billion interest rate swap with Lehman Brothers, in a deal industry officials say is the largest municipal swap ever signed.
Meanwhile, secondary prices were narrowly mixed as overwhelming supply stifled trading and several deals scheduled for sale were delayed.
The New Jersey swap, which was applied to the floating-rate portion of a $1.6 billion note deal, fixes the state's payments on the $1 billion in notes at an average rate of 2.4258%, according to state officials.
The cost of the liquidity and remarketing fees on the deal was an additional 26 basis points, meaning the final cost to the state is under 2.69%.
Robert Lurie, New Jersey's director of public finance, said if the entire deal were done fixed, it would have cost about 3.10%.
Mr. Lurie said the swap saved the state $3 million in interest costs.
The state split the $1 billion in notes into five equal pieces, intending to award them to the lowest bidder on each. But Lehman offered the best yield on all five sections, Mr. Lurie said. The maturity of both the swap and the underlying notes is nine months, and the swap rate is keyed off the state's actual interest rate on the notes, rather than an industry index.
Kidder, Peabody & Co. was senior manager on the floating rate portion.
Moody's Investors Service rated the issue and the liquidity facility VMIG-1 Standard & Poor's Corp. rated them SP1-plus/A1, and Fitch Investors Service rated them F-1-plus/F-1-plus.
Separately, a 19-member syndicate led by First Fidelity Securities priced the $600 million fixed-rate portion of the revenue anticipation notes.
The securities, due June 15, 1993, were tentatively priced as 3 1/2s, to yield 3.05%, and then repriced to lower the yield to 3%.
The firm said late yesterday that a net interest cost would not be available until today. ,
The issue is rated MIG-1 by Moody's. SP1-plus by Standard & Poor's, and F-1-plus by Fitch.
In other note issuance, Montana awarded $135.6 million of tax and revenue anticipation notes to Citicorp Securities.
The notes, due June 30, 1993, were won with a bid of 3.50% and reoffered to investors at 2.95%. The issue is rated MIG-1 by Moody's and SP1-plus by Standard & Poor's.
Long-Term New Deals
New issues have encountered frugal, picky buyers over the last week and a half and many deals have received mixed results. However, if underwriters are able to tailor an issue to investor demands, the results have generally been said to be positive.
Leading action in the negotiated sector yesterday, Merrill Lynch & Co. priced, repriced, and restructured $599 million of Texas Public Finance Authority noncallable general obligation refunding bonds.
At the repricing, the amount was raised from the original $552 million offering. Yields in 1994 and 1995 were lowered by five basis points, while yields in 1997, 1999, 2000, 2006, and 2001 were raised by five basis points. A 2007 maturity was added with an 8% coupon and a 2009 maturity was also added.
"Buyers are really looking for structure and things like noncallable features and we tailored this one for them at the repricing," the officer said. "It's a shorter deal, which helps get things moving in this market, and it's in good shape.
The final reoffering scale included serial bonds priced to yield from 3% in 1993 to 6.20% in 2009.
Capital appreciation bonds were priced to yield 5.90% in 2001.
The issue is rated double-A by both Moody's and Standard & Poor's, except for the Cabs, which are insured by the AMBAC Indemnity Corp. and are triple-A rated by Moody's and Standard & Poor's.
In the competitive sector, $190 million of New York State full faith and credit various-purpose general obligation bonds was won by a First Boston Corp. group with a true interest cost of 5.6959%.
The firm reported an unsold balance of approximately $102.2 million late in the. day. Serial bonds were priced to yield from 3% in 1993 to 6.35% in 2012.
The issue is rated A by Moody's and A-minus by Standard & Poor's.
A Lehman Brothers group won $125 million of Kansas State Department of Transportation highway revenue bonds with a TIC of 5.94264%.
The firm reported all bonds sold by session's end.
The offering included serial bonds priced to yield from 4.35% in 1996 to 6.15% in 2009. A 2012 term, containing $32 million of the loan, was priced as 6s, to yield 6.198%.
The issue is rated double-A by Mood's and Standard & Poor's.
Major Deals Delayed
The supply glut prompted underwriters to once again delay the sale of $700 million of Washington Public Power Supply System bonds.
And PaineWebber Inc., as lead manager, pulled a $446 million Puerto Rico Electric Power Authority electric and power revenue re funding bond offering from the market.
Many market players said they expected the pricing of $450 million of Illinois State Toll Highway Authority highway bonds, but lead underwriter Donaldson, Lufkin & Jenrette Securities Corp. said late yesterday the deal was tentatively scheduled for next week to allow investors time to review bond documents.
Traders noted that the postponements will do little to alleviate supply pressure in the long run.
As interest rates head higher, they said, the market could improve somewhat as issuers back away. But if the prices improve and rates drop, the potential for gains will be limited by issuers returning to the primary sector.
The deals postponed yesterday join $1.4 billion of North Carolina Municipal Power Agency revenue bonds that were pulled from the market Tuesday and $450 million of Massachusetts Water Resources Authority general revenue bonds that were delayed Monday.
Approximately $5.4 billion of deals have been postponed or placed on a day-to-day basis over the last several weeks, according to available statistics compiled yesterday by The Bond Buyer. Total 30-day visible supply was calculated at $10.71 billion yesterday.
Cash prices opened mostly unchanged as looming supply discouraged activity and the market hung in place, traders said.
"It's very difficult to trade this market and there is a lot of confusion out there," a Wall Street-based trader said. "Nobody is willing to take much risk here and getting short isn't the greatest thing to do either."
Some specialty bonds made gains of 1/8 to 1/4 point, but the strength was not broad based across the market.
Tax-exempts' near-term prospects will depend upon Treasury movement, traders noted, and the market will likely stick to a narrow range.
In the debt futures market, the December contract moved in a 17-tick range early on, hitting a low of 95.02 and a high of 95.19 by mid-morning.
By session's end, the December contract settled up 3/32 to 95.14, despite lower Treasury prices.
Traders also said there was MOB spread buying and the December MOB narrowed dramatically, moving to negative 268 from negative 285 Tuesday.
Secondary bid-wanted flow increased again yesterday, traders said, as prerefunded bonds and intermediate maturities were put up for sale. Traders also said several larger customer lists were said to be circulating in the Street.
In addition, traders said that bonds of the New York Metropolitan Transportation Authority qualified for some secondary insurance.
In secondary dollar bond trading, prices were quoted unchanged but some bonds made gains of 1/8 to 1/4 point.
In late action, Chicago GO AMBAC 5 7/8s of 2022 were quoted at 93-1/2, to yield approximately 6.40% on the bid-side; Puerto Rico GO 6s of 2014 were quoted at 94 3/4-95, to yield 6.45%; and New York City Water Authority 6s of 2017 were quoted at 92 1/2-93, to yield 6.61%.
Denver Airport Authority AMT 6 3/4s of 2022 were quoted at 95 7/8-96, to yield 7.08%; Los Angeles Department of Water and Power 6s of 2032 were quoted at 94 3/4-95 1/4, to yield 6.36%; and Florida Board of Education 6s of 2025 were quoted at 94 3/4-95, to yield 6.38%.
In the short-term note secondary market, traders said yield were unchanged to five basis points lower on the day.
In late secondary action, Los Angeles Trans were quoted at 3.05% bid, 3% offered; Texas trans were quoted at 3.05% bid, 3% offered; and Wisconsin notes were quoted at 3.05% bid, 3% offered. New York State Trans were quoted at 3.15% bid, 3.10% offered.