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BLOOMBERG MUNI BOND BRIEF

Monday, Nov 27, 2017

By: Joe Mysak

Bloomberg

BLOOMBERG MUNI BOND BRIEF

The Muni Bond Forward Calendar Seems to Be Growing By a Billion Everyday… What set all this in motion is Tax Reform, or at least the threat of it. Under the House version, the tax exempt financing of stadiums, tax credit bonds, advance refundings and tax exempt private activity bonds would all be eliminated. Under the Senate plan, only advance refundings would go. This week, the two sides sit down to begin to reconcile their versions. The GOP’s narrow, two vote majority in the Senate may mean that if the chamber's leaders can put together enough votes to pass a bill, the final legislation could look a lot like their version. Which  may mean no more advance refundings. Bloomberg Intelligence’s Eric Kazatsky in a blast email last week said his sources tell him that Senate Republicans don’t want to compromise on this issue. “They feel like they did the industry a solid by protecting the tax exemption, and by preserving private activity bonds,” Kazatsky wrote. Still, among the options being discussed, according to Kazatsky, are retaining advance refundings but limiting them to small issuers, meaning those who borrow less than $50 million a year; retaining advance refundings but restricting investment of proceeds and eliminating advance refundings but expanding current refundings from 90 days to 365 days before the call date. Issuers are not taking chances, nor should they.  Day by day, the calendar fills with the at-risk advance refundings and private bond issues. The story bond segment of the market is just beginning to flourish again, with financings for Elvis Presley’s Graceland, the Queen Mary, high-speed rail. Who knows the kind of private activity  deals we’ll see in the next 30 days.

HEADLINES:
Denver Great Hall,
a developer for the city’s airport, is set to borrow $196 million of tax exempt revenue bonds before the end of the year. The private activity bonds, which would no longer be tax exempt if  issued after January 1 under the  House's tax-cut bill, will fund a portion of the costs of a remodel and upgrade of an airport terminal. The bonds will be issued during the week of December 4 through Wisconsin’s Public Finance Authority.

Connecticut Governor Malloy appointed three members, Thomas Hamilton, Scott Jackson and Jay Nolan to a newly created Municipal Oversight Board that  will have a $28 million fund for distressed cities such as Hartford. Hamilton is the CFO of the Norwalk Public Schools system, Jackson serves as Commissioner of the Connecticut Department of Labor and Nolan is counsel at Day Pitney in Hartford. If subsidies for Build America Bonds fall under the Tax Reform knife, don't expect to see more of the bonds getting called in 2018, according to Citicorp municipal analysts. Bonds on the shorter-end of the curve would be most attractive for issuers to call using the extraordinary redemption provision, as lower coupon payments would allow the issuer to make up the cost “fairly quickly”.

Whitefish Energy Holdings said it resumed repairing Puerto Rico’s storm ravaged electric grid after receiving a payment from the territory’s bankrupt utility. The company which saw its no-bid $300 million contract with the Puerto Rico Electric Power Authority canceled last month amid criticism, said Monday it was suspending work because it was owed $83 million. Under the terms of the canceled deal, Whitefish was supposed to continue work until November 30.

DATA WATCH

Primary Market: The amount of bond sales scheduled by state and local governments over the next month jumped to the highest in 13 months amid a rush to borrow before Congress enacts tax law changes that would pull the subsidies from a large part of the municipal debt market.

Puerto Rico: The Commonwealth’s benchmark 8% bond due in 2035 traded at a new low of 23.12 cents on the dollar.

In the Pipeline: Delaware, $360 million GO’s, via negotiation (Citi-corp) 11/27; Pomona College, CA, $130 million revenue bonds, via negotiation (Barclays) 11/27; Oklahoma Turnpike Authority, $685.9 million revenue bonds, via negotiation (RBC Capital Markets) 12/7; Commonwealth Transportation Board VA, $629 million revenue bonds, via negotiation (Bank of America Merrill Lynch); New Jersey Turnpike Authority, $500 million revenue bonds, via negotiation) (Loop Capital Markets).


Rush Spurs Muni Supply Muni supply will be one of the top stories to watch for the remainder of the year as issuers rush to market ahead of Tax Reform. At this pace, 2017 issuance has a chance to come close to the $390-400 billion mark if the volume pipeline continues to build. It may be a record setting December for sales of new municipal bonds. The amount of debt set to be offered over the next month has soared to $24 billion, a 13-month high, as state and local governments rush to borrow before Congress enacts sweeping changes that would pull subsidies from a major chunk of the tax exempt bond market starting in January.

Investors Not Getting Compen-sated for GO Risk, Pimco  Says… Investors should consider revenue bonds over GO debt because bond-holders are likely not being adequately compensated for investing in securities backed by a general pledge to repay instead of lien on specific funds, according to Pacific Investment. GO debt historically trades at a lower yield versus same rated revenue bonds. Spread between the two (revenue less GO) has narrowed but remains significant. Lower yield on GO partly driven by perception GO issuers will support debt without limitations. Detroit and Puerto Rico show this is not always the case. At current yields GO investors may not be getting adequate compensation for  the risk they are assuming.

Chicago City Council Approves Mayor's $8.6 Billion 2018 Budget...The City Council approved Mayor Emanuel’s $8.6 billion spending plan for 2018. Council members voted on measure during Tuesday’s meeting. Spending plan counts on almost $100 million of projected savings from sales of $3 billion of bonds backed by a dedicated share of tax revenue from the state, which can be sold for lower yields than city GO bonds. Provision in IL budget allows Chicago to sell debt backed by state revenue it receives, somewhat similar structure as Puerto Rico COFINA bonds, giving the bonds a higher rating than the city’s GO bonds.

FL Express Rail Deal Debuts… Just under the January 1, 2018, House GOP deadline, the FL Development Finance Corp is selling $600 million in non-rated tax exempt revenue bonds for the new, (relatively) high-speed railroad. If the House Republicans get their way, private activity bonds like this will no longer be a feature of the tax exempt market.This is a venture of FL East Coast Industries, a company that private equity firm Fortress Investment Group purchased in 2007. If  bonds can be sold this will be the first foray into the municipal bond market for the “All Aboard Florida Bright-line Passenger Rail Project,” the first private passenger railroad to be built since the industry's heyday. The bonds are being sold, via negotiation, in minimum denominations of $100,000 to qualified institutional buyers. This is for the South Segment of the project, which will run between West Palm Beach and Miami, with a stop in Fort Lauderdale. The 67-mile trip will take about an hour. The company says it is still working on setting fares. The “Brightline Ridership and Revenue Study” in the memorandum indicates they will range between $21.34 and $49.90 depending on the ticket and economy or premium class.

If you have any questions or desire updated information contact your GMS Account Executive. Information taken from sources deemed reliable. This update does not purport to include all available information

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