Munis continue winning streak as China sparks fear; U of Texas upsizes deal to $461.87 million

By Sheri Kasprzak

New York, Jan. 7 – Municipals strengthened again on Thursday, continuing a weeklong rally and a streak of outperforming Treasuries, traders reported.

Yields on top-rated munis fell by 4 basis points to 5 bps with the 10-year bond yield closing 4 bps lower at 1.84% and the 30-year yield falling 5 bps to 2.77%.

Meanwhile, Treasury yields fell by 2 bps to 3 bps.

A continued slump for China’s stocks sparked worries Thursday, and throughout the week, that weakness from one of the world’s economic superpowers could mean a global economic meltdown.

U.S. stocks tumbled as well with the Dow Jones industrial average giving up 392.41 points to close at 16,514.10 and the Nasdaq falling 146.34 points to 4,689.43. The S&P 500 rounded out the day 47.17 points lower at 1,943.09.

University of Texas bonds price

Heading up the day’s primary action, the University of Texas System hit the market with $461,865,000 of series 2016 revenue financing system bonds. The deal was upsized from $450 million.

The deal included $255,825,000 of series 2016A taxable bonds and $206.04 million of series 2016B green bonds.

The 2016A bonds are due Aug. 15, 2046, have a 3.852% coupon and priced at par.

The 2016B bonds are due 2026, 2036 and 2046. The 2026 bonds have a 5% coupon and priced at 128.989 to yield 1.95%. The 2036 bonds have a 2.5% coupon that priced at par and a 4% coupon that priced at 109.174 to yield 2.94%. The 2046 bonds have a 2.5% coupon and priced at par.

Allen Hah, the university’s assistant vice chancellor for finance, said that institutional investors snapped up the bullet maturities and that retail investors showed an interest in those bonds as well.

“The stepped coupon bonds saw very strong demand for retail investors as those bonds were primarily marketed to retail,” Hah said in an interview.

“Pricing went very well for both the tax-exempt and taxable deals as a result of strong marketing by the underwriting team as well as macro effects of the broader market.”

The bonds (Aaa/AAA/AAA) were sold through senior manager BofA Merrill Lynch.

Proceeds will be used to finance capital improvements and refund the system’s series A and B commercial paper notes.

Higher ed deals abound

The U of Texas deal is one of many higher education offerings flooding the market recently.

On Thursday, Bowling Green State University of Ohio announced plans to offer $70 million of general receipts bonds (A1/A+/). The university hasn’t been in the market with general receipts bonds since 2010 when it priced $77,375,000 of debt. Those bonds had maturities from 2012 to 2021 with term bonds due in 2025, 2030 and 2039 and yields as high as 6.73%. A portion of the bonds were sold as part of the Build America Bonds program.

East Carolina University and the Nevada System of Higher Education are both slated to come to market with offerings next week. Both deals are competitive with East Carolina eyeing a $140,105,000 issue of general revenue bonds (Aa2/AA-/) and the Nevada system planning $61,345,000 of certificates of participation.

Indiana’s Ball State University is also gearing up for a sale, a $55.44 million revenue bond (Aa3/AA-/) deal to finance housing and dining facility improvements.

“I can’t speak as to why other universities are issuing bonds currently, but the [University of Texas] System has capital needs that we need [to] finance on a regular basis,” Hah said Thursday.

Hah said the system’s triple A rating allows it to issue debt in the capital markets on favorable terms.

“Interest rates currently remain at or near long-term historical lows, which is an attractive environment to issue debt,” he added.

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