California water department targets 3% savings with $1.9 billion deal; yields flat to weaker

By Sheri Kasprzak

New York, Sept. 29 - Despite a hiccup in the market Wednesday, issuers are still out for record-low yields, as evidenced by an upcoming $1.9 billion sale from the California Department of Water Resources.

The department is looking to save 3% on its fixed-rate bonds when it comes to market next week with the offering, Russell Mills, chief financial officer with the California Energy Resources Scheduling-Department of Water Resources Electric Power Fund and Power Supply Program, said in an interview Wednesday with Prospect News,

"We have a 3% threshold for our fixed-rate portion," Mills said.

"We need to show that savings before we actually refund any of those bonds."

The department plans to use the proceeds from the sale to refund its series 2002A fixed-rate bonds and redeem some outstanding variable-rate debt.

"Our expectations are that we would have a greater than 3% savings on fixed-rate and some present value savings on the variable-rate piece," Mills reported.

Bank of America Merrill Lynch, Stone & Youngberg and Wells Fargo Securities LLC lead the syndicate selling the bonds. A retail order period will be conducted Oct. 5 and Oct. 6, with institutional pricing set for Oct. 7.

"The product is a retail-oriented product," Mills noted of the two-day retail order period.

"It is a large amount, and while we'd love to have that kind of retail participation, we expect to have both retail and institutional."

Extremely favorable market conditions drove DWR to bring the bonds to market at this time, Mills said.

"We have the ability to restructure at such a low fixed rate and provide savings to the rate payers of California. Timing really is a factor. We've got historically low interest rates."

The bonds (Aa3/AA-/AA) are due 2011 to 2020.

Yields close slightly weaker

Meanwhile, in the broad municipal market Wednesday, a trader reported that yields closed flat to slightly weaker.

"I'd say the good majority of the curve is flat," he noted.

"There might be spots where yields are up by a basis point or so. It looks like we're just following Treasuries."

Salt River bonds price

Meanwhile, heading up Wednesday's primary action was a $500 million offering of series 2010A Build America Bonds from the Salt River Project Agricultural Improvement and Power District of Arizona.

Morgan Stanley & Co. Inc. was the senior manager for the sale, which was knocked from $641 million.

The bonds (Aa1/AA/) are due Jan. 1, 2041, and have a 4.839% coupon, priced at par.

Proceeds from the offering will be used to finance the district's ongoing capital improvement program, as well as refund existing debt.

Pa. Housing sells bonds

In other news, the Pennsylvania Housing Finance Agency priced $354 million in series 2010 single-family mortgage revenue bonds (Aa2/AA+/) on Wednesday, said a pricing sheet.

The agency priced $104 million in series 2010-109 AMT bonds, $116.455 million in series 2010-110A AMT bonds and $133.545 million in series 2010-110B non-AMT bonds.

The 2010-109 bonds are due 2011 to 2020 with term bonds due 2025 and 2028. Coupons range from 0.45% to 3.4%, all priced at par. The 2025 bonds have a 4.125% coupon priced at par. The 2028 bonds have a 4.5% coupon, also priced at par.

The 2010-110A bonds are due 2014 to 2020 with a term bond due in 2025. The serial coupons range from 2.45% to 4.35%, all priced at par. The 2025 bonds have a 4.75% coupon priced at par.

The 2010-110B bonds are due 2011 to 2021 with term bonds due 2025, 2030 and 2039. Serial coupons range from 0.45% to 3.55%, all priced at par. The 2025 bonds have a 4.125% coupon priced at par and the 2030 bonds have a 4.5% coupon, also priced at par. The 2039 bonds have a 4.75% coupon, priced at par.

Morgan Stanley & Co. Inc. and Janney Montgomery Scott LLC were the lead managers for the 2010-109 bonds.

Barclays Capital Inc. and Bank of America Merrill Lynch were the lead managers for the 2010-110 bonds.

Proceeds will be used to finance single-family mortgages.

JEA sells revenue bonds

Also during the session, JEA of Florida sold $294.335 million in series 2010 revenue bonds in several tranches, said pricing sheets.

The sale included $108.19 million in series three D-1 bonds, $76.195 million in series three D-2 bonds, $15.925 million in series 2010C subordinate revenue bonds, $34.315 million in series three 2010E Build America Bonds, $52.435 million in series 2010D subordinate Build America Bonds and $7.275 million in series 2010E subordinate revenue bonds.

The series three D-1 bonds are due 2011 to 2031 with coupons from 2% to 5%. The series three D-2 bonds are due 2011 to 2015 and 2020 to 2030 with a term bond due in 2038. Serial coupons range from 3% to 5%. The 2038 bonds have a split maturity with a 4.25% coupon priced at 97.598 and a 5% coupon priced at 113.979.

The series 2010C subordinate bonds are due 2020 to 2027 with 3.125% to 4% coupons.

The series 2010D BABs are due 2017 to 2023 with a term bond due 2027. The serial coupons range from 3.5% to 4.899%, all priced at par. The 2027 bonds have a 5.582% coupon priced at par.

The series three 2010E BABs are due Oct. 1, 2030, and Oct. 1, 2040. The 2030 bonds have a 5.35% coupon priced at par and the 2040 bonds have a 5.482% coupon, also priced at par.

The 2010E subordinate bonds are due 2012 to 2016 with 3% to 4% coupons.

Citigroup Global Markets Inc. was the senior manager for the series three 2010D and series 2010C subordinate bonds. Goldman, Sachs & Co. was the lead manager for the series three 2010E BABs, the series 2010D subordinate bonds and the series 2010E subordinate bonds.

Proceeds will be used to fund the construction, extension and expansion of JEA's electric system, as well as refund on Oct. 22 the authority's series three 2008D-2A, series three 2008D-2B and series three 2008D-2 variable-rate bonds.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.