Wave of Supply Hits Market; Over $2 Billion Priced Yesterday
Issuers, led by the Washington Public Power Supply System, tapped the tax-exempt market for nearly $2 billion yesterday, while secondary-market prices finished mixed after a deluge of bid-wanteds.
Goldman, Sachs & Co. as senior manager tentatively priced, and then repriced $540 million WPPSS refunding revenue bonds for units 1, 2, and 3.
Serial yields were lowered five basis points from 1994 to 1998 throughout the loan, while term bond yields were lowered three to four basis points.
The final terms of the deal included $145 million for unit 1 priced to yield from 4.70% in 1992 to 6.90% in 2008. A 2017 term, containing $91 million of the loan, is priced as 6 7/8s to yield 7.011%.
There is $273 million of unit 2 bonds priced to yield from 5.45% in 1994 to 6.60% in 2005. A 2012 term, containing $110 million of the loan, is priced as 6s to yield 6.88%.
There are compound interest bonds priced to yield 6.95% in 2006 and 2007.
Finally, there is $135 million unit 3 bonds priced to yield from 4.70% in 1992 to 6.90% in 2008. A 2011 term is priced as 6 3/4 to yield 6.96% and a 2018 term is priced as 6 1/2s to yield 6.95%.
A Goldman officer noted that the issue was aggressively priced and that several institutions opted out as a result. But he said the deal was still "well placed," although there will be some Street float, mainly in the serial maturities.
"We lost a few orders, but we still saw good institutional business from bond funds in the longer maturities and casualty and trust companies in the serials," the officer said. "The net is, we had good support, and there will be a few serials around for retail followthrough."
Goldman had planned to price about $150 million of the deal as periodic auction reset securities and inverse floating-rate securities, but market yields sank so low that the potential savings from the variable rate security was limited.
"Rates are going lower, and the spread is tight," the officer said. "But there are other vehicles that made sense to the issuer. A month ago, the saving was 25 to 30 basis points, and that's diminished."
The issue is rated Aa by Moody's Investors Service, Standard & Poor's Corp., and Fitch Investors Service, except for the project No. 2 2005 maturity, which is backed by Financial Guaranty Insurance Co., and rated triple-A by all three agencies.
WPPSS has not tapped the market since last October, when it completed the last major leg of a massive $3.9 billion refinancing for units 1, 2, and 3. Goldman was lead manager for the last issue, which totaled $608 million and was priced with a maximum yield of 8.04% in 2012.
In other sizeable new issue activity, Smith Barney, Harris Upham & Co. as senior manager tentatively priced $575 million New York City Municipal Water Finance Authority water and sewer system revenue bonds. The size of the issue was increased from $300 million.
The offering included serials tentatively priced at par to yield from 5.20% in 1993 to 7% in 2006.
The issue includes a 2010 term tentatively priced to yield 7.05%; a 2013 term, containing $93 million of the loan, tentatively priced as 7.10s to yield 7.125%; a 2016 term, containing $131.5 million of the loan, tentatively priced as 7s to yield 7.125%, and a 2021 term of $140 million, tentativley priced as 6.25s to yield 7.025%. A 2017 term of $54 million was not formally reoffered to investors.
The bonds are rated A by Moody's and A-minus by Standard & Poor's.
In competitive new issue activity, $230 million District of Columbia full faith and credit general obligation general fund recovery variable-rate bonds were won by First Boston Corp. with a bid of par as 4.80s.
The deal was reported all sold late yesterday.
The bonds were reoffered to investors as 4.80s at par in 1991B-1, 1991B-2, and 1991B-3 series.
The same issuer also offered $105 million fixed-rate full faith and credit GO fund recovery bonds, which were won by a Bear Stearns group with a true interest cost of 5.910%. Bear, Stearns reported an unsold balance of $34.8 million late in the session.
The offering included serials priced to yield from 5.20% in 1992 to 5.65% in 1996.
Bonds between 1993-1996 are backed by FGIC and triple-A by all three agencies. The 1992 maturity is rated Baa by Moody's and A-minus by Fitch Investors Service.
In short-term new-issue activity, Merrill Lynch & Co. as senior manager tentatively priced and repriced $160 million of Massachusetts Bay Transportation Authority notes to lower the Series E yield by 10 basis points.
The final terms included Series D notes due Oct. 1, 1992, priced as 5s to yield 4.65%, and Series E notes due Oct. 1, 1992, priced as 5.50s to yield 5.20%.
The managers expect a MIG-1 rating by Moody's and an SP1-plus rating on the Series D notes, which are backed by a letter of credit from Sumitomo Bank. The Series E notes are rated MIG-2 by Moody's and F2 by Fitch Investors Service. The managers expect an SP-2 rating from Standard & Poor's.
Market participants said there were large amount of bonds out for the bid on broker wires, and traders reported several blocks of bonds in the $10 million to $15 million range out for the bid. There also was one big seller taking profits, sources said.
Trading cooled down in the afternoon, and some bonds traded up slightly, but cash was generally off 1/8 to 1/4 point in spots.
In the debt futures market, the December municipal futures contract settled down 5/32 to 94.01.
In secondary note trading, some note yields fell as much as five basis points and traders said that demand from large bond funds remains strong. "The huge funds are soaking up anything they can get their hands on," one trader said. "There's a lot of cash out there."
In late secondary-market trading, Pennsylvania 5 1/4 Tans were quoted at 4.53% bid, 4.51% offered, while Texas 5% Trans were quoted at 4.39% bid, 4.35% offered. March New York State Trans were quoted at 5.07% bid, 5.03% offered and Los Angeles notes were quoted at 4.48% bid, 4.43% offered. In thin trading, March California notes were quoted at 4.37% bid, 4.33% offered, while June notes were quoted at 4.40% bid, 4.35% offered.
Bear, Stearns & Co. priced $100 million South Dakota Housing Development Authority home ownership mortgage bonds.
The offering included $32.5 million Series A bonds priced to yield from 5.20% in 1993 to 6.30% in 2001.
A 2005 term is priced to yield 6.85%, a 2011 term priced to yield 7.05%, and a 2027 term priced to yield 7.15%.
There is $47 million Series B bonds priced to yield from 5.20% in 1993 to 6.30% in 2001.
A 2008 term is priced to yield 7%, a 2011 term is priced to yield 7.05%, and a 2017 term is priced to yield 7.10%.
There also are $21 million Series C bonds, subject to the federal alternative minimum tax, priced at par to yield 6.625% in 2022 super sinker term and 7.30% in 2024.
The bonds are rated Aa by Moody's and the managers expect an AA-minus rating from Standard & Poor's.
An issue of $79 million New Jersey Turnpike Authority turnpike revenue bonds was priced and repriced by a PaineWebber Inc. group to lower yields five basis points.
The final terms include bonds priced to yield from 4.45% in 1992 to 5.30% in 1995.
The bonds are rated A by Moody's, Standard & Poor's, and Fitch.