U.S. Muni Market: Fed Rate Cut Could Fuel Further Surge In Taxable Supply

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Deals that priced this past week included close to US$2.5bn worth of New York State Thruway Authority general revenue bonds at yields of 1.12% and 3.5%; more than US$1bn of taxable California State general obligation bonds at yields of 1.69% to 3.18%; and almost US$714m of Ascension Health System hospital revenue bonds at yields of 1.17% to 1.71%.

Sales Continue to Surge

According to analysts at Janney Montgomery, the municipal market absorbed a “sizeable” new issue calendar last week, and this week appears to be “more of the same,” with about US$12.5bn worth of fresh offerings teed up for sale.

Janney observed that taxable bonds will account for “a large slice” of the coming week’s offerings – as was the case last week – including US$621m of ‘AA’-rated Wisconsin annual appropriation bonds, as well as Pennsylvania Turnpike Commission’s planned sale of three series worth of taxable refunding bonds.

Also, on the near-term radar, Broward County, Florida is on tap to sell around US$226m of water and sewer utility revenue bonds, Series 2019A, as well as roughly US$204m worth of taxable water and sewer utility revenue refunding bonds, Series 2019B.

The county intends to peg the proceeds from the Series 2019A bonds in large part to fund various water and sewer projects, while the intake from the Series 2019B bonds is expected to help refund existing municipal debt.

Broward has a five-year, US$381m capital program in place from the fiscal year 2019 to 2023, with a budget about on par to meet its plan. The county anticipates financing around 60% of the program with debt and the remainder with cash on hand.

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The offering rated ‘AA+’ by Fitch Ratings and ‘Aa1’ by Moody’s Investors Service, is being lead-managed by Bank of America Merrill Lynch and is slated to be sold in the week of November 5th.

Moody’s analyst Valentina Gomez noted that the agency’s credit rating reflects “stable coverage levels, healthy liquidity, a large and diverse customer base, and an above-average debt burden.” She also said the rating is further supported by wholesale customers, which pay around 39% of debt service (post-issuance), based on reserved capacity.

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DISCLOSURE: AUTHOR SECURITY HOLDING: NO POSITIONS

The author does not hold any positions in the financial instruments referenced in the materials provided.

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