Despite a recent onslaught of negative reports about its fiscal outlook, New York City was able to draw strong investor support yesterday for its $675 million offering of tax-exempt and taxable bonds at yields lower than what market specialists had been predicting.
As recently as last week, some investors were looking at yields in the 8 3/4%-9% range for the long bonds, and only Tuesday the uderwriting account led by Goldman, Sachs & Co. was discussing a yield in the vicinity of 8 5/8%. But demand for the bonds at the preliminary pricing yesterday morning -- close to $300 million in priority for Group A and Group B was reported by market sources -- was strong enough to allow the underwriters to trim the returns on the offering by five basis points. The yield on the Group B bonds was shaved to 8.55% from 8.60% and the return on the Group A bonds was reduced to 8.50% from 8.55%.
Some market participants said the New York City performance was even more impressive considering that the rest of the municipal market was moving lower yesterday. Dollar bond prices were down as much as 1/2 point, while yields on high-grade serial and prerefunded bonds rose almost five basis points on the day in the face of some sizable bid lists and a lower government bond market.
On the tax-exempt side, the $91.7 million Group A bonds, due 2005-09, were priced as 8.40s at slight discounts to yield 8.50%, while the $188 million Group B bonds, due 2010-20, were offered as 8 1/4s to yield 8.55%. The $26 million 2011 maturity from Group B was taken out and offered to investors as Citysaver custodial receipts and principal strips.
Yields on the remaining tax-exempt serials ranged from 7.20% in 1992 to 8.45% in 2004.
Returns on the taxable bonds ranged from 9% in 1993 out to 11.50% in 2012-14.
The Citysaver yields run from 7% in 1991 to 8.45% in 2011.
The bonds are rated A-minus with a negative outlook by Standard & Poor's Corp. and Baal by Moody's Investors Service.
Richard E. Kolman, vice president and manager in municipal underwriting and syndication at Goldman, Sachs & Co., said that the issue found "strong investor support and did not come at any concession to the secondary market." Mr. Kolman pointed out that some long maturing New York City bonds traded on Tuesday as cheap as 8.60%. The institutions were the big buyers beyond 10 years and retail was the main support short of 10 years, he added.
James L. Gammon, senior portfolio manager at Loews/CNA Holdings, confirmed the institutional demand. Mr. Gammon said he put in orders in the intermediate range maturities for about $150 million, but that he expected to get only about half.
Yesterday, New York City did better than at its February sale when comparing the yield on its long bonds to the 30-year government bond return. The 8.55% yield on yesterday's Group B bonds was only about 15 basis points higher than the current return on the government bond. Back in February, the 8.35% New York City yield was 40 basis points higher.
In the competitive market, a Dean Witter Reynolds Inc. group was awarded $86.5 million New York State Medical Care Facilities Finance Agency mental health services facilities improvement revenue bonds late yesterday, after it was discovered that a bid by a Merrill Lynch & Co. account was not in conformity with the notice of sale.
The term bonds, due 2017, were priced at 98 1/4 as 7 5/8s to yield 7.78% and reported then as all sold. Serial yields ranged from 6% in 1993 to 7.65% in 2007. The issue is rated A-minus by Standard & Poor's.
A First Boston Corp. account won $68 million Virginia full faith and credit bonds and scaled them from 4.20% in 1992 to 6.70% in 2011. The issue, rated triple-A by Moody's, Standard & Poor's, and Fitch Investors Service, sold down to a $16.5 million balance.
A Merrill Lynch & Co. account had the successful bid for $68 million City and County of San Francisco various purpose unlimited tax bonds, rated double-A by Moody's and Fitch. They were reoffered from 4.75% in 1993 out to 6.80% in 2011. An unsold balance was not available late yesterday.
Rhode Island Health and Educational Building Corp. awarded $33.5 million higher education facilities revenue bonds (Brown University) to a Prudential Securities Inc. group. Rated double-A by Standard & Poor's and Moody's, the issue sold down to a $15.8 million balance at returns reaching 6.95% in 2016.
Returning to the negotiated arena, a Bear, Stearns & Co. account marketed $215.5 million Metropolitan Transportation Authority, N.Y., commuter facilities variable-rate demand obligations, and reported the verbal award received and the account closed.
The issue has a stated maturity of July 1, 2021, but the bonds were priced at part to yield 2.50% to the July 1, 1991 mandatory tender date. They are rated AA/A1-plus by Standard & Poor's and are expected to be rated Aa2/VMIG-1 by Moody's because of the backing by a letter of credit which is a several obligation of various banks.
In secondary dollar bond trading, New York LGAC7s of 2016 dropped 3/8 to 94 1/2-3/4 to yield 7.47%. Florida State Board of Education 7 1/4s, due 2023, were only 1/4 lower at 102 1/2-103, where they returned 6.90% to the 2004 par call.
But the recently issue Los Angeles County Transportation Commission bonds fell 1/2, with the insured 6 3/4s of 2018 at 97 1/8-3/8 to yield 6.97% and the uninsured 6 3/4s of 2020 at 96-96 1/4, where they returned 7.06%.
Dollar bond traders attributed the weaker tone to Federal Reserve Chairman Alan Greenspan's optimistic remarks concerning the economy and lower prices in the government market.
In prerefunded bond trading, issues with a 1995 call were quoted at 5.87% bid, 5.84% offered.
California Health Facilities Financing Authority, $88 million hospital revenue bonds (Childrens Hospital of Los Angeles) 1991 series A.
Ratings: Moody's A1; S&P's A-plus.
The yield on the term bonds in 2021 was sweetened three basis point.
The final terms are comprised of $71 million term bonds, due 2021, priced at 99.077 as 7 1/8s to yield 7.20%, $3.8 million term bonds of 2003 offered at 99.589 as 6.70s to yield 6.75%, and serials scaled from 5% in 1992 to 6.55% in 2001.
Goldman, Sachs & Co. is senior manager for the underwriters. The verbal award has been received.
University of Illinois, $76.6 million auxiliary facilities system revenue bonds.
Ratings: Uninsured bonds, Moody's Aa; S&P's AA (CreditWatch). AMBAC insured bonds (2002-10), Moody's Aaa; S&P's AAA.
The current interest bonds are comprised of $16 million terms of 2022 priced at 84.276as 5 3/4s to yield 7% and serials scaled from 5.25% in 1993 to 6.45% in 2001.
Yields on the insured capital appreciation bonds ran from 5.95% in 1996 to 7.20% in 2010. Returns on the uninsured Cabs were out to 7.35% in 2015-21.
The bonds were marketed through an account led by Morgan Stanley & Co. The verbal award was received yesterday.
Washington Housing Finance Commission, $61 million single-family mortgage revenue refunding bonds (GNMA and FNMA mortage-backed securities program).
Ratings: S&P's AAA.
All current interest bonds were priced at par.
Yields for the non-AMT issue ran from 5.70% in 1995 to 7% in 2005. The $26.3 million super sinkers of 2016 were not formally reoffered.
The AMT issue will yield 7.55% in 2021 for the current interest bonds with the capital appreciation bonds, due 2022-24, returning 7.75%.
PaineWebber Inc. is senior manager for the underwriters.
Kentucky Housing Corp., $60.5 million housing revenue bonds (FHA insured/VA guaranteed). The offering is comprised of $30.6 million new issues and $29.9 remarketings.
Ratings: Moody's Aa1; S&P's AAA.
All bonds were tentatively priced at par.
The non-AMT bonds will yield 7.125% in 2010 and 7.25% in 2017.
Yields on the AMT bonds run from 5.70% in 1994 to 6.80% in 2003, 6.625% for the super sinkers of 2011, and 7.45% for the term bonds of 2023.
The bonds were marketed through an account headed by Bear, Stearns & Co. The official award is expected tomorrow.
Pitt County, N.C., $57.9 million hospital revenue bonds, series 1991 (Pitt County Memorial Hospital).
Ratings: Moody's A1; S&P's A-plus; Fitch A-plus.
The $25.8 million term bonds, due 2021, were offered at 97.511 as 6.90s to yield 7.10%. The $19.7 million term bonds in 2014 were priced at 97.695 as 6 3/4s to yield 6.95%. Serial yields ran from 5.40% in 1994 to 6.30% in 2001. And the capital appreciation bonds returned 7% in 2005.
First Boston Corp. is senior manager for the underwriters. The verbal award was received yesterday.
Missouri State Health and Educational Facilities Authority, $34.6 million health facilities refunding and improvement revenue bonds (Southeast Missouri Hospital Association) series 1991.
Ratings: Moody's Aaa; S&P's AAA. MBIA insured.
The offering is expected to be comprised of term bonds in 2016 priced at 98.219 as 6 3/4s to yield 6.90%, term bonds in 2011 priced at 98 1/2 as 6 5/8s to yield 6.762%, and serials scaled from 4.50% in 1992 to 6.666% in 2006.
The issue is being negotiated by an account led by A.G. Edwards & Sons Inc. The formal award is expected today.