The Back Alley Archives

Dec. 3 (Bloomberg) -- The Port Authority of New York and New Jersey attracted no bids from investment banks interested in underwriting a $300 million taxable note offering in another sign that the seizure in credit markets persists.

The three-year notes, backed by revenue from the bi-state agency that operates airports, river crossings and transit in the New York City area, were placed up for competitive sale this morning. The deal carried the highest short-term ratings from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings and would have been the largest of its kind in eight months.

“It’s astonishing,” said Fred Yosca, managing director and head of trading at BNY Mellon Capital Markets in New York. “A household name, like the Port Authority, not being able to get a bid is truly a sign of a market that is in distress.”

States and cities have struggled to sell bonds through advertised bidding in recent months, as underwriters focus on lining up individual investors in negotiated deals ahead of time to avoid getting stuck with too many unsold securities.

Massachusetts hired Goldman Sachs Group Inc. and Citigroup Inc. in October to negotiate the sale of $750 million of tax- exempt notes due in less than a year after scrapping two earlier advertised rounds of bidding.

Largest Offering

Today’s deal was to have been the largest taxable municipal offering sold competitively since the Port Authority’s own $350 million transaction in March, based on data compiled by Bloomberg. Lehman Brothers Holdings Inc. was the winning bidder then, and Citigroup had the cover, or next-highest, bid.

In the municipal market, competitive sales force banks to place interest-cost bids to win the right to market bonds to investors. In more-common negotiated deals, underwriters are chosen before borrowers talk about rates and prices with buyers. Municipal issuers have sold 81 percent of their long-term debt via negotiation this year, with competitive deals making up most of the rest, according to Bloomberg data.

The lack of bids today will have “no impact” on any current capital projects because the deal was scheduled “well in advance” of its capital-funding needs, the Port Authority said in a news release.

The agency, which is redeveloping the World Trade Center site in lower Manhattan, typically sells taxable debt to fund capital projects that aren’t related to transportation.

“We are confident that the markets will recover in the upcoming year when we plan to return with another sale,” the authority said in the statement. “Our credit ratings and our financial health remain strong.”

‘Market Access’

Moody’s cited the Port Authority’s “demonstrated market access” in its rating report for the notes, after it got an average of nine bids at its four previous note sales.

The Port Authority’s taxable notes would compete for demand from investors also considering more than $15 billion of three- year securities sold by banks with recently approved guarantees from the Federal Deposit Insurance Corp.

Mary Talbutt-Glassberg, a vice president at Devon, Pennsylvania-based Davidson Trust Co., with about $1 billion under management, said she opted not to pursue the Port Authority bonds.

“I would feel better if there were definite financial support on the deal,” such as insurance like that provided by the FDIC, she said.

here's the thing.

EVERYONE is looking for money...your typical bricks and mortar type companies are...municipalities are...banks are...everyone.

as an investor, and you have the cash to loan, you are going to be VERY, VERY particular with what you're going to do with that money and whom you want to loan it to...this is not so much a credit story (regarding the credit worthiness or lack of for the port authority and the states of NY and NJ) but a relative value story...where is the value? should i tie up this money in notes that will yield me "X" for "Y" amount of years or should i give it to, IMHO, another company rated similarly but yielding "X" plus another couple of hundred basis points...as long as i've done my diligence and understand why there is a huge difference in the similarly rated entities, why would you loan it to NY/NJ port authority? it's bad business if you've got alternatives....and TRUST ME...there are borrowers looking to give it up for the cash...cash is king as we've said before...those who have it dictate the pace of play.

and i am SURE that there were bids...the bids may not be acceptable to the borrower but i'm sure there were...we call em 'throw away' bids...bids you don't expect to get hit on but if you do, you'll gladly buy it because you're bidding at extremely cheap levels relative to comparables and historics...even then, when your 'throw away' bid gets hit, you feel like a schmuck 'cause now you know you didn't bid 'em CHEAP enough....lol.

Look at the yields on three month and two year Treasuries and you can see where all the money has gone. Market went from completely mispricing risk to wanting nothing to do with risk.

That's damn good color on the relationships between the Fed and primary dealers. I really wish I could figure out more about that stuff...I can't imagine the shit that goes on behind closed doors at that level.