Massachusetts Transportation Sells $1.1 Billion as Demand Rises (Business Week)
May 18 (Bloomberg) — Massachusetts’ Department of Transportation, which runs the oldest subway system in the U.S., is selling $1.1 billion in tax-exempt securities in the week’s second-biggest offering as demand for such debt rises amid bond market volatility.
Treasury 10-year notes yielded 3.49 percent yesterday and touched 3.26 percent on May 6, the lowest this year, as concern that the European Union’s $1 trillion rescue plan may fail to contain the region’s sovereign-debt crisis drove investors to the haven of U.S. government bonds. Top-rated, 10-year tax- exempt municipal yields held at 3.14 percent yesterday, the lowest since March, according to Municipal Market Advisors.
MassDOT, created last year in a merger of state agencies, is issuing $894 million in tax-exempt bonds to refinance debt from 1997, according to preliminary offering documents. The remainder, $207.7 million, will be offered as variable-rate demand obligations to match a swap agreement with UBS AG from 2008.
“With the volatility in the Treasuries market, it looks like more new issues are coming as tax-exempt,” said Guy Lebas, chief fixed-income strategist and economist at Janney Montgomery Scott LLC. A high municipal to Treasuries ratio “should stimulate some interest in some of the new deals.”
The ratio of 10-year tax-exempt municipal yields to equivalent-maturity Treasuries touched 88.927 percent last week, just below a five-month high of 93.345 percent reached May 7. The higher the ratio, the cheaper municipal bonds become relative to Treasuries, as they offer a near-comparable yield at a lower price.
Treasury Rally
“With Treasuries rallying in response to the flight to quality, in response to what’s going on in Europe, muni ratios got very, very cheap,” said Christine Todd, a managing director and head of the group that oversees $26 billion in tax-sensitive fixed-income portfolios at Standish Mellon Asset Management Co. in Boston.
MassDOT’s sale will help refinance securities sold more than a decade ago by the Massachusetts Turnpike Authority to help pay for Boston’s $15 billion “Big Dig,” the largest public works project in U.S. history. The subordinated bonds are secured by turnpike tolls and other revenue, such as state aid.
The sale comes after Massachusetts Governor Deval Patrick dissolved the Turnpike Authority last year. Before the creation of MassDOT, Fitch Ratings had downgraded senior Big Dig bonds to as low as BBB+ in 2002, the third-lowest investment grade, and subordinate debt to BBB.
‘Incredible Feat’
“It is an incredible feat to come to this point and be able to close out,” said Karol Ostberg, director of capital finance at MassDOT in Boston. “Prior to the legislation, turnpike bonds were low-enough rated that they didn’t have market access.”
The bonds redeem serially from 2011 through 2027 and in 2032 and 2037, with the biggest amount coming due in the longest maturity. The debt is rated A+, the fifth-highest grade, by Fitch, one level lower, A, at Standard & Poor’s and A3, the seventh-highest grade, by Moody’s Investors Service.
The department last sold bonds in March. A tax-exempt security from that sale, maturing in 2035, was priced to yield 4.45 percent at the time of sale and traded with an average yield of 4.15 percent May 12. That’s 26 basis points below top- rated, 25-year tax-exempts, according to a daily survey by Concord, Massachusetts-based MMA.
Following are descriptions of pending sales of municipal bonds in the U.S.:
PENNSYLVANIA, the sixth-largest U.S. state by population, plans to sell $1 billion in general obligations in a competitive sale tomorrow, according to preliminary offering documents. The issue will include $548.9 million in Build America Bonds maturing serially from 2022 through 2030 and $451.1 million in tax-exempts maturing serially from 2011 through 2021. The securities, rated AA by S&P, will be used for construction and renovation projects, environmental preservation and to help improve sewage treatment systems. (Added May 17)
METROPOLITAN WASHINGTON AIRPORT AUTHORITY, which operates Ronald Reagan Washington National and Washington Dulles International airports near the nation’s capital, will offer $650 million in revenue bonds as soon as tomorrow. The sale, originally scheduled for last week, will occur after two delays because of market volatility, the authority said. The securities are part of $2.9 billion of debt the authority plans to issue to help fund an extension of the Washington Metropolitan Area Transit Authority’s rail system, according to S&P. Citigroup will market them to investors. (Updated May 18)
COLUMBUS-FRANKLIN COUNTY FINANCE AUTHORITY, home to Ohio’s capital, plans to sell $158 million in taxable revenue bonds today. The securities will mature semiannually from February 2015 through August 2021. Proceeds from the issue, rated AA- by S&P, will be deposited into a reserve fund and will help finance future capital needs, according to preliminary offering documents. RBC Capital Markets will market the issue to investors. (Updated May 18)
–Editors: Walid el-Gabry, Ted Bunker
To contact the reporter on this story: Catarina Saraiva in New York at [email protected].
To contact the editor responsible for this story: Mark Tannenbaum at [email protected]
May 18, 2010, 1:06 AM EDT
