ramirez municipal strategy · tional airport. the city’s assessed value (av) grew 6% yoy over the...

Municipal Market Weekly

***INSTITUTIONAL USE ONLY***

Credit & Market Strategy PETER BLOCK

Managing Director

[email protected]

(212) 248-3885

CEM BALOGLU

Assistant Vice President

[email protected]

(212) 248-3876

Underwriting JOHN YOUNG

Managing Director

[email protected]

(212) 248-3870

Sales & Trading ALAN GRECO

Managing Director

[email protected]

(212) 248-3892

Ramirez Municipal Strategy

September 23, 2019

Recap:

As expected, the Fed cut rates last week by -25 bps. Bonds gained and equities fell slightly, ending three-week winning streak

Last week $9.6 bil. of new issue was priced to sell. Supply is up 12% YoY, including taxable supply at +27% YoY

Fund inflows were $209 mil., for the 37th consecutive week ($44.7 bil. YTD)

Tax-Exempts and Taxable Munis reading “cheap” on higher than average supply and underperformance vs benchmarks

(Treasuries, Corps)

$8.6 bil. of new issue supply on tap for this week

Trade Ideas: Buy: high-quality credit, floating and/or 4%-5% cpns, 2yr-5yr mtys; 18yr-30yr mtys (6-10yr calls); taxables

Global Markets:

Markets last week featured expected FOMC rate cut, turmoil in money / repo markets driven by bank cash reserve shortages

against corporate taxes due and need to purchase Treasuries, dramatic oil price volatility driven by Iran/Yemen attack on Saudi oil refineries, and as week ended, renewed trade fears after Chinese officials aborted a visit to Montana. Trump call with Ukraine president scrutinized for improprieties; Dem’s calls for impeachment grow…

Fed cut fed funds rate -25bps to range of 1.75%-2.00% as sentiment divided over need for further easing – 53% probability of a

cut on Oct. 30

Equity markets snapped a three week rally with the S&P 500 finishing with a modest loss of -0.51% (still +19.36% YTD)

Treasuries gained +0.96% on the week (+7.11% YTD), led by the long-end which gained +2.79% (+19.73% YTD). Treasury

yields in 2-30yrs declined by an average of -12.3 bps, including -8 bps in 2yrs (1.67%), -14 bps in 10yrs (1.69%), and -17 bps in 30yrs (2.13%). Treasury 2s10s bull flattened -5 bps to 3 bps and 2s30s was -9 bps flatter at 46 bps

This Week: Big data release is on Thurs with Q2 GDP (+2% YoY exp) and PCE (Core: 1.7% YoY exp). We also have consumer

confidence (Sept; 133.0 exp), new home sales (Aug; 658k exp), continuing claims, Fed speakers, Treasury auctions; 2yr $40 bil, 5yr $41 bil. and 7yr $32 bil.; Trump vs Dems

Municipal Market:

Tax-exempts were stable and gained on the week along with Treasuries but woefully underperformed (+3.92 ratios avg) as an

above-average $9.6 bil. of new issue supply came to market and was priced to sell, of which 30% was taxable. Gross Muni supply in Sept is 43% higher MoM vs Sept. 2018, largely driven by taxable supply for advance refundings of tax-exempts. Gross supply YTD is $263.6 bil., or +12% YoY, relatively in-line with our +8% YoY projection. Tax-Exempt underperformance has been driven by higher levels supply, low absolute yields, and a sharp decline in reinvestment in Sept (as we have been projecting all year)

Fund inflows were +$209 mil. on the week for the 37th consecutive week ($44.7 bil. YTD)

M/T ratios in 2yrs (75.1%), 5yrs (81.2%), and 10yrs (86.9%) are now “cheap” vs 1yr averages and fairly valued vs 3yr averages;

30yr spot looks fairly valued. Taxable Munis have underperformed Corp-IG and now read 2 SD cheap at 103% of Corp-IG in 10yrs (See chart below)

30-day net supply is -$13.26 bil., comprised of $11.96 bil. new issues, against $25.22 bil. of maturing ($13.27 bil.) and called

bonds ($11.95 bil. The states that stand to experience the largest change in outstanding debt include CA (-$3.63 bil.), NY (-$2.25 bil.), FL (-$1.96 bil.), GA (-$1.38 bil.), and AL (+$852.2 mil.)

S&P Main Muni index gained +0.25% on the week

(+6.26% YTD), led by long duration at +0.30% (+9.23% YTD)

MMD scale in 2-30yrs was bumped by an average of -

3.4 bps (avg) across the curve, including -1 bps in 2yrs (1.25%), -5 bps in 10yrs (1.47%), and -6 bps in 30yrs (2.07%). SIFMA rose +16bp to 1.47%, or 100% of 10yr MMD. MMD 2s10s bull flattened -4 bps to 22 bps and 2s30s was -5 flatter at 82 bps

Bid-wanted activity was 25% below average as the

primary calendar took center stage, although trading flow was average

$8.6 bil. of new issue supply on tap for week, including

$7.2 bil. of negotiated and $1.4 bil. of competitive trans-actions. Approximately 15% is taxable. Negotiated led by $950 mil. NJ Trans, $877 mil. TX Wtr Dev, $400 mil. Miss, $358 mil. Baptist Health, and $329 mil. NYS EFC. Competitive deals are led by three deals over $100 mil.

Municipal Market Weekly Ramirez Municipal Strategy

September 23, 2019

Source: Bloomberg

Strategy

Currently like 30/70 barbell w/

eff dur 8-10 yrs (Bull)

Barbell:

30%: 2-5yr mtys

70%: 18-30yr mtys (6-10yr

calls)

Coupons: floating and/or fixed

4%-5%

Credit: ‘AA-’ or better GO and ‘A’

or better Revenue


September 23, 2019

Source: Bloomberg


September 23, 2019

Underwriters will attempt to market

$8.6 bil. of munis during the week

of 9/23, led in the negotiated space

by $950 mil. NJ TTFA, $877 mil.

TX Water Dev Board, $400 mil.

Mississippi, and $358 mil. Baptist

Health. The competitive calendar

is highlighted by $177 mil. Ever-

green SD #114, $140 mil FL DOT

GARVEE, and $132 mil. Rich-

mond.

Muni Primary Market


30-Day Visible Supply

($ in millions)

Current 2019 High 2019 Low

Total $ Date $ Date

Total 10,401.8 17,594.0 (8/6) 2,205.4 (6/27)

Comp. 2,191.0 6,556.7 (6/14) 1,266.4 (6/27)

Neg. 8,210.8 11,285.3 (8/6) 939.0 (6/27)

Top Negotiated Issuances Coming to Market

Issuer State Amount ($ 000’s)

NJ Transprtn Trust NJ 950,000

TX Wtr Dev Brd TX 876,935

Mississippi St MS 400,060

Palm Beach Co Hlth Facs (Baptist Health) FL 357,935

NYS Envrnmntl Facs Corp (NY Muni Water) NY 329,135

Top Competitive Issuances Coming to Market

Issuer State Amount ($ 000’s)

Evergreen SD #114 WA 177,300

FL DOT GARVEE FL 140,000

Richmond VA 131,940

Las Vegas Vly Wtr Dist NV 94,365

Washington St WA 82,730

Source: Bond Buyer

Source: Bloomberg Source: Bloomberg

Economic Calendar

Monday (9/23) Tuesday (9/24) Wednesday (9/25) Thursday (9/26) Friday (9/27)

Chicago Fed Nat Activity Index FHFA House Price Index MoM MBA Mortgage Applications GDP Annualized QoQ Personal Income

Markit US Manufacturing PMI Richmond Fed Manufact. Index New Home Sales Personal Consumption Durable Goods Orders

Markit US Services PMI Conf. Board Consumer Confidence U.S. to Sell USD18 Bln 2-Year FRNs

Reopening

GDP Price Index Durables Ex Transportation

Markit US Composite PMI U.S. to Sell USD40 Bln 2-Year Notes U.S. to Sell USD41 Bln 5-Year Notes Core PCE QoQ U. of Mich. Sentiment

U.S. to Sell USD45 Bln 3-Month Bills Fed Speakers - Evans/George/

Kaplan

Wholesale Inventories MoM Fed Speakers - Quarles/Harker

U.S. to Sell USD42 Bln 6-Month Bills Initial/Continuing Jobless Claims ECB Speaker - Lane

Fed Speakers - Williams/Daly/Bullard Pending Home Sales MoM

U.S. to Sell 4-Week Bills

U.S. to Sell 8-Week Bills

U.S. to Sell USD32 Bln 7-Year Notes

Fed Speakers - Kaplan/Bullard/

Clarida/Daly/Kashkari/Barkin

Ramirez Negotiated Issuances Coming to Market

Issuer State Amount ($ 000’s) Senior Manager Ramirez Role

Hawthorne CA 114,150 SAR Senior

S El Monte Imp Dt Succ Ag CA 5,595 SAR Senior

NYC Hsg Dev Corp NY 35,400 BAML Co-Senior

TX Wtr Dev Brd TX 853,940 BAML Co-Manager

NYS Envrnmntl Facs Corp (NY Muni Water) NY 329,135 Citi Co-Manager

Connecticut Hsg Fin CT 128,075 RayJay Co-Manager

Indiana Fin Auth (CWA Authority Project) IN 40,505 Citi Co-Manager

Weekly Visible Supply

($ in millions)

Week of

9/23/19

Total 8,636.2

Comp. 1,466.5

Neg. 7,169.7

Source: Bloomberg, Ramirez

Gross Supply

($ in millions)

As of

9/20/19

Last Week 9,580.4

12wk Moving Avg. 8,151.8

YTD 263,597.2

Source: Bloomberg

September 23, 2019

Source: Bloomberg

Muni Market Demand

September 23, 2019


Over the next 30 days, we see net muni market supply at –$13.26 bil., comprised of $11.96 bil. new issues, $13.27 bil. matur-

ing, and $11.95 bil. announced calls. The states that stand to experience the largest change in outstanding debt include Cali-

fornia (-$3.63 bil.), New York (-$2.25 bil.), Florida (-$1.96 bil.), Georgia (-$1.38 bil.), and Alabama (+$852.2 mil.).

US Lipper Fund Flows

Sector Flow Change ($B) YTD ($B)

Tax-Exempt Inflow: 0.209 Inflow: 44.721

Money Market Inflow: 5.391 Inflow: 325.429

Taxable Inflow: 4.107 Inflow: 111.906

Equities Inflow: 5.990 Outflow: -148.354

Tax-exempt mutual funds reported inflows for the 37th con-

secutive week with inflows of $209 mil. for the week ended

September 18th. This compares to the 12-week moving

average of a $1.28 billion inflow.

Source: Bloomberg

Source: Bloomberg


Source: Bloomberg

Source: Lipper Fund Flows

Source: Lipper Fund Flows

Muni Market Supply


Ramirez Managed Deals

September 23, 2019


$114,150,000

City of Hawthorne

(Los Angeles County, California)

Taxable Pension Obligation Bonds, Series 2019

Issue: Rated AA- / A2. Pricing - Tuesday, September 24, 2019. Ramirez & Co. is Senior Manager of this transaction. The proceeds of the City of Hawthorne (City)

Taxable Pension Obligation Bonds, Series 2019 (Bonds) will be used to fund the City’s unfunded accrued actuarial liabilities (UAAL) and FY20 normal costs to the

California Public Employees’ Retirement System (CalPERS) and pay costs of issuance. The City is issuing the Bonds for general fund budgetary flexibility, given

recent CalPERS plan adjustments that substantially increased near-term costs.

Security: The Bonds are unconditional obligations of the City payable from any source of legally available funds of the City. On July 23, 2019, the Supe-

rior Court of California for Los Angeles County entered a judgment to the effect that the Bonds are valid, legal, and binding obligations of the City.

Credit Overview: The City has a population of 87,854 and is located 17 miles east of downtown Los Angles, in close proximity to Los Angeles In terna-

tional Airport. The City’s assessed value (AV) grew 6% YoY over the past four years to $8.2 bil. ($93,000 per capita) in 2019. The City’s 10 leading taxpayers are

commercial and industrial properties comprising 7.4% of AV. The City’s leading employer is Space Exploration Technologies (SpaceX) with over 5,000 employees.

City resident incomes are below average with per capita effective buying income at 73% of the national level. The County unemployment rate was 4.7% in 2018.

The City ended FY18 (June 30) with a general fund operating surplus of $9.4 mil., and a ending fund balance of $26 mil. (38.7% of exps), consistent with the trend

of the prior five fiscal years. Unaudited results for FY19 indicate a $7.9 mil. general fund operating surplus and ending balance of $34 mil. (53.5% of exps). The

FY20 budget appears balanced. City revenues consist primarily of sales tax (31%), property tax (9%), utility tax (9%), and business license tax (8%). City voters in

2017 approved a 0.75 cent increase to the City sales tax rate, which is expected to generate between $7-9 mil. annually. Post-issuance, the City’s costs for debt

service, pensions, and OPEB are estimated at ~20% of exps. The City’s total net debt outstanding is $505 mil., or $5,700 per capita and 6.2% of AV. The City has

no plans for additional tax-supported debt.

$5,595,000

Successor Agency to the South El Monte Improvement District

Subordinate Taxable Tax Allocation Refunding Bonds

Series 2019

Issue: Rated AA (BAM-insured) / A+ (underlying). Pricing - Thursday, September 26, 2019. Ramirez & Co. is Senior Manager of this transaction. The proceeds of

the Successor Agency (SA) to the South El Monte Improvement District (District) will use proceeds of Subordinate Taxable Tax Allocation Refunding Bonds, Series

2019 (Bonds) to refund outstanding Series 2007A (taxable) bonds, purchase a debt service reserve (DSR) insurance policy, and pay issuance costs.

Security: The Bonds are secured by incremental ad valorem property tax revenues derived from the SA’s Merged Project Area. Bonds are su bordinate

to $4.43 mil. outstanding senior lien bonds, county administrative fees, and certain pass-through payments. The Bond’s DSR will be fully funded by a surety policy.

Additional bonds are permitted only for refunding purposes.

Credit Overview: The SA was established in 2012 pursuant to State statute to assume and wind down activities of the former Redevelopment Agenc y

(RDA) of South El Monte. The SA is required to continue to makes payments for all bonds of the former RDA, including timely filing recognized obligation payment

schedules (ROPS) with the State Dept of Finance. All ROPS have been timely filed with the State.

South El Monte is located about seven miles east of downtown Los Angeles in the San Gabriel Valley with an estimated population of 21,293. City per capita effec-

tive buying income (EBI) is a low 46% of the national average while median household EBI is a more favorable 84% of the national average.

The Merged Project area consists of three component areas totaling 1,020 acres. Total assessed value (AV) has increased in each of the past five fiscal years,

including +6.8% in FY20 to $1.8 bil. AV is primarily industrial (63% of AV) and commercial (14%). Base Year AV is $643 mil., resulting in a volatility ratio (Base AV /

Total AV) of 0.35 in FY19, down from 0.46 in FY15 due to development in the project areas. Projected successful appeals reflect a potential loss of less than 1% of

AV ($970,668). Coverage of maximum annual debt service (MADS) using FY20 tax revenues of $7.3 mil. on all liens totals 3.34x.


©2019 Samuel A. Ramirez & Co., Inc., member FINRA, MSRB, SIPC.

This material is proprietary to Samuel A. Ramirez & Co., Inc. or (“Ramirez”) and may not be disclosed to any third party or used for any other

purpose without the prior written consent of Ramirez.

Unless otherwise agreed in writing between you and Ramirez & Co, we are acting solely as a principal/underwriter in an arm’s length commercial

transaction in which Ramirez has financial and other interests that differ from yours. Ramirez is not acting as a municipal advisor, financial advisor

or fiduciary and the information provided should not be construed as “advice” within the meaning of Section 15B of the Securities Exchange Act of

1934.

The information in this document should not be considered research1 or its content be construed as a solicitation or recommendation. This materi-

al has been prepared for informational purposes only without regard to any particular user's investment objectives, financial situation, or means,

and Ramirez is not soliciting any action based upon it. The Information contained is not an offer to buy or sell or a solicitation of an offer to buy or

sell any security or instrument or to participate in any trading strategy. Ramirez does not provide accounting, tax or legal advice; however, you

should be aware that any proposed indicative transaction could have accounting, tax, legal or other implications that should be discussed with

your advisors and or counsel. The Information should not be relied upon for the maintenance of your books and records or for any tax, account-

ing, legal or other purposes. Subject to applicable law, you may disclose any aspects of any potential transaction or structure described herein

that are necessary to support U.S. federal income tax benefits. The information in this document reflects prevailing conditions and our views as of

this date which, are subject to change. In preparing this material, we have relied upon and assumed, without independent verification, the accura-

cy and completeness of all the information available from internal and public sources or which was provided to us by or on behalf of Ramirez or

which was otherwise reviewed by Ramirez. Even when this material contains a kind of appraisal, it should be considered preliminary, suitable only

for the purpose described herein and not be disclosed or otherwise used without the prior written consent of Ramirez. Bonds are subject to inter-

est rate risk. When interest rates rise, bond prices fall; generally the longer a bond's maturity, the more sensitive it is to this risk. Bonds may also

be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The

market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invest-

ed or the maturity value due to changes in market conditions or changes in the credit quality of the issuer. Bonds are subject to the credit risk of

the issuer. This is the risk that the issuer might be unable to make interest and/or principal payments on a timely basis. Bonds are also subject to

reinvestment risk, which is the risk that principal and/or interest payments from a given investment may be reinvested at a lower interest rate.

_____________________________________________________________________________________

1 For purposes of the debt Rule FINRA 2242, a “debt security” excludes any equity security, municipal security and security-based swap (each as

define under the Exchange Act) and any US Treasury (as defined in FINRA Rule 6710 (p)).

Samuel A. Ramirez & Co., Inc.

61 Broadway, 29th Floor

New York, NY 10006

September 23, 2019

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