WASHINGTON, Aug 8 (Reuters) - Two heavy-weight refunding deals from the New York region will dominate U.S. municipal bond issuance next week, which will likely total $6.97 billion, according to Thomson Reuters estimates.
New York City will refund $900 million general obligation bonds in a negotiated sale, with a two-day retail order beginning on Monday and institutional pricing on Wednesday. Bank of America Merrill Lynch will serve as lead underwriter on the deal, which will be sold in two series of $700 million and $200 million and have maturities spanning from 2015 to 2034.
The city’s credit is generally considered strong - Standard & Poor’s and Fitch Ratings both rate its general obligation debt at AA and Moody’s Investors Service rates it at Aa2.
At the same time, the Port Authority of New York and New Jersey will bring a negotiated refunding deal of $833.79 million to market with Citigroup as lead underwriter. The authority last came to market in June.
Despite state and federal investigations related to the “Bridgegate” scandal - where New Jersey Governor Chris Christie allegedly engineered a traffic jam as political retaliation - the authority is considered a solid credit.
Fitch Ratings has assigned the deal an AA- rating, citing the authority’s stable revenues and healthy financial performance. But Fitch warned that the authority’s massive $27.6 billion capital plan and possibly lower revenues could hurt the authority’s credit.
Altogether, negotiated sales will total $4.78 billion next week, with many large refunding deals expected, according to Dalcomp. Michigan will refund $266.47 million state trunk line fund bonds, with Citigroup as lead manager, and Harris County, Texas, will refund $230 million road bonds, with Goldman Sachs as lead underwriter.
The competitive calendar, estimated at $2.2 billion next week, will also see some sizeable refunding deals. Minnesota is expected to flood the market with $849.45 million in competitive deals on Tuesday, including a $123.39 million refunding of general obligation state trunk highway bonds. The state will bring the largest competitive deal of the week to the market that day with $438.06 million general obligation bonds.
For most of 2014, the $3.7 trillion municipal market has suffered a dearth of refunding deals after interest rates began rising late last year. In July, refinancing issuance totaled $13.04 billion, down 29 percent from July 2013.
Still, rates have recently begun falling again, which could make refunding attractive to issuers again.
On Municipal Market Data’s benchmark scale, the yield on a top-shelf 10-year bond was 2.19 percent on Thursday, which was 33 basis points lower than six months earlier and 54 basis points lower than the same day in 2013.
The difference was even more striking for highly rated 30-year debt. The yield on the 30-year was 3.23 percent on Thursday, 61 basis points lower than six months before and 105 basis points than a year earlier. (Reporting by Lisa Lambert; Editing by Bernard Orr)