April 17 (Reuters) - U.S. municipal bond sales will increase to $8 billion next week, led by a $1.16 billion deal from New Jersey's Economic Development Authority that will help the recently-downgraded state save money on its strained budget.
New Jersey's taxable and tax-exempt school facilities construction bonds, nearly all of which are refunding bonds, are slated to be sold in three series through lead manager Bank of America Merrill Lynch.
About $632 million of the bonds are taxable, while $527 million is tax-free debt. Proceeds from the sales, along with three unrated bank loans, will allow the state to shave about $40 million off its budget in fiscal 2014 and $284 million in fiscal 2015, according to Moody's Investors Service, which has assigned an A1 rating with a negative outlook to the deal.
The transactions will also shorten the final maturity on the debt by eight years and provide $28 million of net present value savings from fiscal 2016 through fiscal 2030, the credit rating agency said.
In addition to the refunding bonds, about $60 million of new debt will finance construction of K-12 school capital projects.
Standard & Poor's Investors Services downgraded New Jersey's general obligation debt to 'A+' on April 9. Despite the credit cut, however, the state's cost of borrowing has dropped alongside falling yields in the broader $3.7 trillion municipal bond market.
New Jersey's 10-year bonds started the year yielding 3.08 percent, according to Municipal Market Data, a unit of Thomson Reuters. The rate has fallen since then, even after the downgrade, hitting 2.60 percent as of April 16.
In conjunction with the GO downgrade, S&P also dropped its rating on the authority's outstanding debt to 'A' with a negative outlook from 'A+' with a stable outlook.
Overall, the muni calendar next week is far larger than the $2.4 billion sold this week, with the beginning of the Passover holiday and a closed market in recognition of Good Friday, according to Thomson Reuters estimates on Thursday.
This year has been marked by low issuance levels. Approximately $4.5 million in municipal issues have come to market each week on average this year, according to Thomson Reuters data. Only the week of March 9 experienced higher sales, when Puerto Rico sold $3.5 billion of bonds in a heavily oversubscribed deal.
The second-largest sale next week hails from Illinois, where the state on Monday will sell $750 million of tax-exempt general obligation bonds in an issue managed by Wells Fargo Securities. The bonds have serial maturities from 2015 through 2039.
Earlier this month, Illinois sold $250 million of general obligation bonds in competitive bidding that fetched a true interest cost of 4.08 percent for bonds carrying the same maturities. That's a lower overall interest rate than the state received for a debt sale in February, when a sale of $1 billion of GO bonds resulted in an overall interest rate of 4.46 percent.
Fitch Ratings assigned an 'A-' rating with a negative outlook to the bonds coming to market next week.
Also next week, the Texas Public Finance Authority will issue $700 million of tax-exempt unemployment compensation obligation assessment revenue refunding bonds. The bonds, which are being issued on behalf of the Texas Workforce Commission, have been rated triple-A by all three ratings agencies. Bank of America Merrill Lynch will be the lead manager.
Next week's negotiated calendar totals about $5.9 billion, with the competitive sales estimated to total $2.2 billion.
Leading the competitive calendar is the state of California, which plans to sell a total of $750 million in taxable and tax-exempt various purpose GO bonds on Tuesday. (Reporting by Robin Respaut and Hilary Russ; Editing by Chris Reese)