City of Pittsburgh (PA)
General Obligation Bonds, Series of 2021
March 2, 2021
SWS received the mandate to serve as the first M/WBE senior managing underwriter on a City of Pittsburgh transaction
The market leading up to pricing was characterized by unusually high volatility and sharp increases in MMD (+44 bps total during the two weeks prior to pricing) as uncertainty remained surrounding stimulus proposals, inflation concerns, and COVID-19 vaccine rollouts. Due to the light forward calendar, SWS recommended pricing early in the week of March 1st in order to benefit from the lower primary issuance supply.
Additionally, SWS solicited price views from the syndicate including 3.0%, 4.0%, and 5.0% coupons to come up with a recommended structure to include sub-5.0% coupons that would lower the City’s borrowing costs and meet investor demand. The day before pricing there was a positive tone in the equity markets and weaker treasury market due to positive economic data, J&J’s new vaccine, and the likelihood of Biden’s relief bill passing. The morning of pricing saw a lack of volatility due to optimism from the anticipated federal help to state and local governments and the positive investor reads received during premarketing the day prior, which led SWS’ underwriting desk to tighten the pre-pricing scale by 2 bps on maturities 2027 through 2041.
Just prior to opening the order period, the MMD read was steady signaling a firmer market as compared to the previous week SWS’ sales force brought in over $30.8 million of PA retail orders and over 98% of total retail orders. Total orders submitted exceeded $290 million or 6.2x subscription from 47 unique investors, of which 27 were not current holders of the City’s G.O. credit. The strong demand for the deal allowed SWS to aggressively lower spreads by 5 to 8 bps from 2027 through 2041, and the SWS desk committed capital to underwrite the balances of the first five maturities. This successful pricing led to an all-in interest cost of 2.60%.