Market Commentary: A February to Remember

Published March 5, 2019

We are back from another spectacular gathering of our colleagues in the senior living industry. The 16th annual HJ Sims Late Winter Conference in Clearwater Beach last week brought together hundreds of managers, board members, designers, builders, bankers and investors to share best operating practices and successful strategies, highlight emerging trends, and gain perspective on current financial markets. In the coming weeks, our investment banking hosts will offer a comprehensive recap of the thought-provoking keynote speeches and working sessions. Based on early feedback from networkers, this may have been our best colloquium ever. It certainly sets a high standard for next year when we will meet in San Diego for another three-day forum that is not to be missed.

While we convened in Florida last week, HJ Sims employees and clients made some spectacular efforts to support two very good causes. Tara Perkins in our Marketing Department coordinated our firm’s first Gift of Life Bone Marrow Registry campaign to help cure blood cancer and inherited immune disorders. More than 30 of our conference attendees volunteered to donate bone marrow or stem cells. In New Jersey, Kevin Herbert in our Compliance Department just completed his 13th Polar Bear Plunge in Seaside to help raise $2.3 million for Special Olympics. We salute Kevin, Tara, and all who step forward so selflessly to help save and enhance the lives of others.

Last week also marked the end of February. During the month, the major stock indices gained more than 3%: the Dow added 916 points to close at 25,916; the S&P 500 rose 80 points to 2,784; and the Nasdaq rallied to 7,532, up 250 points. Volatility as measured by the VIX fell from 16.57 to a low for the year at 13.51 before finishing at 14.78. Oil prices climbed by $3.43 a barrel to $57.22, and gold prices dropped by nearly $7 an ounce to $1,315. Among events most watched by the markets were the President’s State of the Union address, the declaration of a national emergency, and summit with Kim Jong Un in Hanoi; final passage of a government funding bill, on-off progress in trade talks with China, and conjecture over Brexit; the mayoral election in Chicago, the House Oversight Committee hearings, and the U.S. District Court judge’s approval of a restructuring plan to reduce debt service on $17 billion of Puerto Rico’s sales tax debt by about $456 million a year.

Municipal bond issuance totaled $23 billion in February, about average for the second month of the year. As a result of mutual fund inflows and low volatility, issuers continue to enjoy a distinct pricing advantage in the primary market. Cash flows into muni bond funds totaled $8.4 billion and have been positive since the start of the year. High yield muni funds took in a net of $1.6 billion and heavy demand from investors, particularly institutional buyers, reduced volatility and boosted prices for tax-exempts despite a sell-off in Treasuries. The 10- and 30-year government yields rose 9 basis points to close at 2.71% and 3.08%, respectively, and the 2-year added 6 basis points to finish at 2.51%. In stark contrast, the 2- and 10-year AAA municipal general obligation bond yields fell 7 basis points to 1.58% and 2.10%, respectively, and the 30-year benchmark dropped 4 basis points to 2.98%. So far in 2019, muni prices have steadily increased. The 2-year tax-exempt yield is down 20 basis points, the 10-year has fallen 18 basis points, and the long bond is 4 basis points lower. Year-to-date the benchmark S&P municipal index has returned 1.26% and the S&P Municipal Bond High Yield Index is up 1.47%.

HJ Sims was a co-senior manager in last week’s $34 million non-rated Henrico County Economic Development Authority financing for Virginia United Methodist Homes and the Pinnacle Living life plan community in Cedarfield. The maximum yield 2052 term bonds were priced with a 5% coupon to yield 4.69%. Among other high yield muni deals recently on the calendar, the State of Ohio brought a $39.3 million BBB-minus rated deal for The University of Findlay featuring 2044 term bonds priced at 5% to yield 4.40%. Missouri’s I-470 Western Gateway Transportation Development District had a $31.7 million non-rated sales tax revenue bond issue structured with a final maturity in 2048 that priced at par to yield 5.25%. The California Municipal Finance Authority brought a $28 million non-rated transaction for United Health Centers of the San Joaquin Valley which had a final maturity in 2044 priced at par to yield 4.00%. The Brazoria County Industrial Development Authority in Texas sold $25 million of non-rated 9% solid waste disposal facilities revenue bonds due in 2039 for Gladieux Metals Recycling and the Port of Beaumont Navigation District of Jefferson County, Texas issued $25 million of 8% non-rated dock and wharf facility revenue bonds due in twenty years for Allegiant Industrial Island Park. In the education sector, the Build NYC Resource Corporation had a $20.6 million non-rated revenue bond deal for New Dawn Charter Schools which included 30-year term bonds priced at 5.75% to yield 5.70%; the Maricopa County Industrial Development Authority sold $17.1 million of 6.25% non-rated revenue bonds due in 10 years for Heritage Academy; and the Wisconsin Public Finance Authority issued $15.7 million of non-rated revenue bonds for Wilson Preparatory Academy in Wilson, North Carolina which had 30-year term bonds priced at 5.00% to yield 5.125%.

This week, HJ Sims is in the market with two financings. We have a $10.3 million BB rated refunding issue for Trillium Academy in Taylor, Michigan, and we are a co-manager for the North Carolina Medical Care Commission on its $46.2 million BBB+ rated retirement facilities first mortgage revenue bond financing for The Pines at Davidson. The 30-day visible supply of municipal bonds totals $7.6 billion and markets are focused on the U.S. debt ceiling which was just re-imposed on March 1, infrastructure legislation in the works, the European Central Bank meeting, and economic data releases including non-farm payrolls and housing starts.

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