The State of California priced the largest municipal bond deal priced since COVID-19 market disruptions commenced

The State of California priced $1.44 billion of tax-exempt new money and refunding GO bonds, the largest municipal bond deal priced since COVID-19 market disruptions commenced earlier in March.

The State maintained flexibility for this transaction and after market volatility had subsided the Friday before, it then decided to release the POS on Tuesday, April 14th and scheduled pricing two days later.

However, heading into the morning of pricing, the market tone was weaker than expected after seeing an increase in Bids-Wanted from the day before and liquidation pressures on investors from client redemptions.

The pricing strategy then focused on developing a robust book of orders since this was the first transaction exceeding $1 billion by starting with pricing spreads 5 to 10 bps wider than the initial price views. After the successful order period, the deal was over 6x oversubscribed, with over $6 billion of investor orders. Pricing spreads were then lowered by up to 7 basis points and the State decided to up-size the refunding portion of the deal by $441 million to capture additional debt service savings.

When compared to the March 10th GO bond transaction, this April 16th transaction priced 6 to 12 basis points lower (except for the 2026 – 2028 maturities which were due to the lower 3.00% coupon required). This transaction showed that there was strong investor demand in the market environment at the time for highly rated bonds with a pricing strategy that incorporated flexibility in timing and initial offering levels to attract the largest universe of investors.