Munis fall with Treasuries on Fed October meeting minutes; Jefferson County brings warrants

By Sheri Kasprzak

New York, Nov. 20 - Municipals weakened on Wednesday along with plummeting Treasuries following the release of the October meeting minutes from the Federal Open Market Committee, insiders said.

Yields were up by 4 basis points to 7 bps across the board.

Looking to Treasuries, the 30-year bond yield climbed by 10 bps, and the 10-year note yield was up 9 bps on the session.

Meanwhile, those FOMC minutes included some positive news about municipals.

"In the municipal bond market, issuance of bonds for new capital projects remained solid," the minutes said.

"Yields on 20-year general obligation municipal bonds decreased about in line with other longer-term market rates over the intermeeting period."

Jefferson bonds price

In primary action, Jefferson County, Ala., brought to market $2,572,790,000 of series 2013 sewer revenue warrants. The offering was substantially upsized from $1,738,408,714.

The offering included $395,005,000 of series 2013A senior lien sewer revenue current interest warrants, $171.74 million of series 2013B senior lien sewer revenue capital appreciation warrants, $286.08 million of series 2013C senior lien sewer revenue capital appreciation warrants, $810,915,000 of series 2013D subordinate lien sewer revenue current interest warrants, $222,695,000 of series 2013E subordinate lien sewer revenue capital appreciation warrants and $686,355,000 of series 2013F subordinate lien sewer revenue convertible capital appreciation warrants.

Deal done in six tranches

The 2013A warrants are due 2044, 2048 and 2053. The 2044 warrants have a 5% coupon and priced at 95.46 to yield 5.30%, the 2048 warrants a 5.25% coupon and priced at 96.886 to yield 5.45%, and the 2053 warrants have a 5.5% coupon and priced at 97.625 to yield 5.65%.

The 2013B warrants are due 2025 to 2036 with 0% coupons and yields from 5.625% to 6.625%.

The 2013C warrants are due 2038, 2042, 2046 and 2050. They have 0% coupons. The 2038 warrants priced at 53.331 to yield 6.50%, the 2042 warrants priced at 52.826 to yield 6.60%, the 2046 warrants priced at 52.078 to yield 6.75%, and the 2050 warrants priced at 51.34 to yield 6.90%.

The 2013D warrants are due 2015 to 2018 and 2021 to 2023 with term warrants due in 2042, 2051 and 2053. The serial warrants have 5% coupons and yields from 2.375% to 4.625%. The 2042 warrants have a 6% coupon and priced at 94.131 to yield 6.45%, and the 2051 warrants have a 7% coupon and priced at 102.779 to yield 6.70%. The 2053 warrants have a 6.5% coupon and priced at 95.227 to yield 6.85%.

The 2013E warrants are due 2028 to 2036 with 0% coupons and yields from 7.50% to 8%.

The 2013F warrants are due 2039, 2046 and 2050 and have 0% coupons. The 2039 warrants priced at 48.5 to yield 7.50%, the 2046 warrants priced at 47.365 to yield 7.75%, and the 2050 warrants priced at 46.698 to yield 7.90%.

The senior-lien 40-year warrants (A2/AA-/) were repriced to 5.65%, 10 bps lower than retail pricing, said Alan Schankel, managing director with Janney Montgomery Scott LLC, but the uninsured subordinate lien warrants (/BBB-/BB) had yield hikes in longer maturities with yields lowered significantly in shorter maturities.

"Debt service will jump significantly in 2024," Schankel said Wednesday.

"Rating distinctions by maturity are rare for municipal bonds, typically used only for asset-backed securities such as tobacco bonds, but if ever there was a situation justifying a lower rating for longer maturities, JeffCo is it."

The warrants were sold through Citigroup Global Markets Inc.

Proceeds will be used to refund and retire existing sewer revenue bonds and to pay past-due debt service on those refunded bonds.

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