Municipals improve on the session; Chicago Board of Education offers G.O. bonds at 7.75%, 8.5%

By Sheri Kasprzak

New York, Feb. 3 – Municipals rounded out an active session with yields falling as much as 3 basis points, market insiders said.

The market largely ignored Treasuries, which were mixed after oil prices rebounded by 8%.

The 30-year Treasury bond yield rose by 3 bps to close at 2.70%, the 10-year note yield edged 1 bp higher to 1.88%, the five-year note yield ended 1 bp lower at 1.27%, and the two-year yield fell by 3 bps to 0.72%.

U.S. crude oil prices jumped by the most in five months, climbing 8%, or $2.40, to end the session at $32.28 per barrel.

Chicago BOE brings G.O. bonds

Leading the day’s pricing action, the Chicago Board of Education hit the market with its delayed $725 million of series 2016A tax-exempt unlimited tax general obligation bonds. The offering was cut to $675 million from the initial $875 million par amount early Wednesday, but the board was able to sell another $50 million, a market source told Prospect News Wednesday afternoon.

The board priced term bonds due 2026 with a 7% coupon to yield 7.75% and term bonds due 2044 with a 7% coupon to yield 8.5%.

J.P. Morgan Securities LLC and Barclays led the syndicate offering the bonds.

The taxable portion of the deal was nixed.

Proceeds from the offering will be used to fund capital improvements throughout the district and to refund variable-rate and other bonds.

Decision not taken ‘lightly’

“Borrowing money was never a decision that we took lightly, and, though some wanted our efforts to fail, CPS needed to move forward in order to keep our doors open so we could educate our children,” Ronald DeNard, the school district’s chief financial officer, said in a statement released Wednesday evening.

“Along with the tough cuts announced yesterday and earlier this year, the sale of these bonds will produce sufficient proceeds to mitigate our cash flow challenges through the end of the fiscal year. CPS faces many financial difficulties ahead, but we are committed to working with CTU [Chicago Teachers Union] on a long-term contract and the state to finally address the inequitable state funding for CPS that is driving the district’s budget imbalance.”

The district said in its statement that it will make its Feb. 15 debt service payments.

The offering conducted Wednesday includes $206 million of debt restructuring to provide immediate budgetary relief for the year ahead.

Additionally, the district will postpone reimbursing the general operating fund for some of the swap termination fees, the statement noted.

New York housing bonds price

Elsewhere during the day, the New York State Mortgage Agency offered $104.78 million of series 195-196 homeowner mortgage revenue bonds.

The bonds were sold through BofA Merrill Lynch.

The offering includes $66,185,000 of series 195 non-AMT bonds and $38,595,000 of series 196 AMT bonds.

The series 195 bonds are due 2031, 2034, 2040 and 2046. The 2031 bonds have a 3% coupon and priced at par. The 2034 bonds have a 3.25% coupon, the 2040 bonds have a 3.55% coupon, and both priced at par. The 2046 bonds have a 4% coupon and priced at 109.59 to yield 2.796%.

The series 196 bonds are due 2016 to 2026 with term bonds due in 2035 and 2037. The serial coupons range from 0.40% to 2.75% and all priced at par. The 2035 bonds have a 3.65% coupon, the 2037 bonds have a 3.70% coupon, and both priced at par.

Proceeds will be used to finance mortgage loans.

Nassau County brings bonds

Among the week’s competitive sales, Nassau County, N.Y., came to market with $120.14 million of series 2016B general improvement bonds.

The bonds (A2) were sold competitively with Barclays winning the bid at a 2.449% true interest cost.

The bonds are due 2017 to 2030 with 5% coupons and yields from 0.73% to 2.63%.

Proceeds will be used to finance capital improvements for the county.

This offering follows a $273 million general improvement refunding deal priced last week through Ramirez & Co. Inc. and BofA Merrill Lynch.

Steven Conkling, spokesman for the county treasurer’s office, said these bonds were sold competitively because they’re new-money bonds.

“Pursuant to New York State local finance law, this had to be sold on a competitive basis,” Conkling said.

Refundings, he noted, can be sold on a negotiated basis.

The bonds sold Jan. 27 will facilitate the refunding of the county’s series 2008A, 2008C, 2009A and 2009C general improvement bonds.

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