New Jersey’s $3.7 billion tax-exempt COVID-19 emergency bond deal was oversubscribed to the tune of $40 billion, repriced by as much as 20 basis points to lower yields, coming amid a stronger municipal market Tuesday.
The strong demand amid a dearth of new municipal issuance by states and a search for yield also allowed New Jersey to skip a planned taxable portion and officials announced it would not need to access the Fed’s Municipal Liquidity Facility.
“New Jersey is a blowout,” a New York trader said. “Several customers are reporting 12 to 13 times oversubscribed with near $40 billion in orders. One message I got said about $15 billion in orders, but either way, plenty of demand … as expected at those spreads.”
Across the market, in secondary trading, top-rated municipal bonds strengthened, with yields falling by as much as three basis points on the AAA scale.
BofA Securities priced and then repriced New Jersey’s (A3/BBB+/A-/A) $3.7 billion of COVID-19 Series 2020A tax-exempt general obligation emergency bonds to lower yields by as much as 20 basis points in the longer maturities, lower by 30 basis points from price talk on Monday.
The deal had originally been sized at $4 billion and slated to sell on Wednesday containing a taxable social bond component, but sources said there was so much demand the state was able to move up the deal, downsize a bit and sell it as an all-exempt issue.
“We are extremely pleased with today’s outcome,” said State Treasurer Elizabeth Maher Muoio. “We believe the significant oversubscription we witnessed and the favorable interest rate we received is a sign that investors have faith in New Jersey’s fiscal outlook.”
Jennifer Sciortino of the State Treasurer’s Office said, “At this time, the state intends to sell the bonds in the capital market and does not intend to access the Municipal Liquidity Facility. There will not be a taxable component. The bonds will all be sold tax-exempt. It will be a 12-year transaction.”
The $3.672 billion of Series 2020A tax-exempts were repriced to yield from 1.02% with a 4% coupon (83 basis points above the interpolated MMD scale) in 2023 [646039YG6] to 2.25% with a 3% and 4% coupons (130 basis points above MMD) in a split 2032 maturity [646039YR2/646039YS0].
The 10-years [646039YP6] were repriced as 4s to yield 2.08% (+130 bps/MMD); they were originally priced as 4s to yield 2.18% (+140 bps/MMD).
The $3.699 billion of Series 2020A tax-exempts had been tentatively priced to yield from 1.09% with a 4% coupon (+90 bps/MMD) in 2023 to 2.45% with a 3% and 4% coupons (+150 bps/MMD) in a split 2032 maturity.
The deal came to market after S&P Global Ratings recently downgraded the state’s GOs to BBB+ from A-minus based on revenue losses triggered by the coronavirus. The issue carries negative outlooks from Moody’s Investors Service and Fitch Ratings and stable outlooks from S&P and Kroll Bond Rating Agency.
Matt Fabian, a partner at Municipal Market Analytics, said that while the Nov. 6 downgrade may have been triggered by the COVID-19 sale, it was not the only reason for the cut.
“MMA expects that the other agencies will eventually follow S&P and lower the state’s rating into the same territory: 1) as its ability to achieve structural balance will likely remain extremely challenged post-pandemic; and 2) debt metrics rise as revenue growth lags that of its mounting bills.”
Fabian noted however that higher federal tax expectations, the state’s income tax hike on wealthy individuals, limited muni supply and minimal default risk implicit in any state GO, indicated the COVID bonds would be well received by investors.
In the competitive arena, the City and County of Denver, Colo., (Aaa/AAA/AAA/NR) sold $401.68 million of bonds in two offerings.
Morgan Stanley won the $231.755 million of Series 2020B Better Denver GO refunding bonds with a true interest cost of 0.6%. Morgan Stanley also won the $169.925 million of Series 2020A Elevate Denver GOs with a TIC of 1.7%. Hilltop Securities is the financial advisor; Butler Snow is the bond counsel.
Since 2020, the city and county have sold over $9 billion of bonds, with the most issuance occurring in 2018 when it sold $3.3 billion.
Orange County, Fla., (NR/AAA/AAA/NR) sold $140.74 million of Series 2020 water and wastewater utility revenue bonds.
JPMorgan Securities won the bonds with a TIC of 1.9939%. The bonds were priced as 5s to yield from 0.19% in 2022 to 1.39% in 2040. PFM Financial Advisors is the financial advisor; Nabors Giblin and Ruye H. Hawkins are the bond counsel.
On Wednesday, Morgan Stanley is expected to price Massachusetts’ (Aa1/AA/AA+/) $1.36 million of GOs for retail investors ahead of Thursday’s institutional pricing.
UBS financial Services is set to price Baltimore, Md.’s (Aa2/AA-/NR/NR) $670 million of revenue bonds on Wednesday while Siebert Williams Shank is set to price California’s (Aa1/AAA/AA) $100 million of Series 2020A variable-rate GOs.
On Thursday, BofA is set to price the Port of Oakland, Calif.’s $531 million deal consisting of $344.29 million of Series 2020R (A1/A+/A+/NR) taxable senior lien refunding revenue bonds and $186.79 million of Series 2021H forward delivery intermediate lien refunding revenue AMT bonds.
Some notable trades Tuesday:
Plano Texas ISD 5s of 2022 traded at 0.19%-0.17%. Montgomery County, Maryland 5s of 2023 at 0.22%-0.20%. Bexar County, Texas 5s of 2024 traded at 0.28%-0.27%. NY Dorm Columbia University 5s of 2028 at 0.60%-0.59%. Yale 5s of 2029 at 0.70%. Loudon County, Virginia 5s of 2031 at 0.88%-0.87% vs. 0.89% Friday.
Northwest Texas ISD 4s of 2033 traded at 1.09% vs. 1.24% a week ago. Washington GO 5s of 2034 at 1.13%. Klein ISD 3s of 2043 traded at 1.65%-1.64%. NYC TFA subs, 3s of 2048, at 2.46%.
High-grade municipals were stronger Tuesday, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields dipped two basis points to 0.15% in 2021 and 0.16% in 2022. The yield on the 10-year muni fell three basis points to 0.77% while the yield on the 30-year dropped three basis points to 1.51%. The 10-year muni-to-Treasury ratio was calculated at 88.3% while the 30-year muni-to-Treasury ratio stood at 92.9%, according to MMD.
The ICE AAA municipal yield curve showed short maturities falling ny one basis point to 0.15% in 2021 and 0.16% in 2022. The 10-year maturity dropped three basis points to 0.78% and the 30-year yield fell three basis points to 1.53%. The 10-year muni-to-Treasury ratio was calculated at 90% while the 30-year muni-to-Treasury ratio stood at 93%, according to ICE.
The IHS Markit municipal analytics AAA curve showed yields lower across the curve at 0.15% and 0.16% in 2021 and 2022, respectively, and the 10-year at 0.79% with the 30-year yield at 1.53%.
The BVAL AAA curve showed the yield on the 2021 maturity unchanged at 0.15% and down one basis point to 0.15% in 2022, while the 10-year drpped three basis points to 0.78% and the 30-year fell three basis points to 1.54%.
Treasuries were stronger as stock prices traded mixed.
The three-month Treasury note was yielding 0.09%, the 10-year Treasury was yielding 0.87% and the 30-year Treasury was yielding 1.63%. The Dow fell 0.34%, the S&P 500 decreased 0.16% and the Nasdaq rose 0.14%.
Lynne Funk contributed to this report.