No bids for Port Authority of NY/NJ bond offering shows credit crisis far from over

Posted Dec 3rd 2008 5:34PM by Joseph Lazzaro
Filed under: Bad News, Financial Crisis

In another sign that the credit crunch has not disappeared, the Port Authority of New York and New Jersey received no bids from investment banks to underwrite a taxable note offering.

The Port Authority was trying to sell $300 million worth of three-year notes, backed by revenue streams, Bloomberg News reported. The Port Authority operates airports, river crossings, and certain transit systems in the New York metropolitan area and has a strong credit rating. The agency is also rebuilding the World Trade Center site, including the new Freedom Tower.

Economist David H. Wang was apoplectic about the failed offering. "This is unbelievable," Wang said. "It's a ridiculous situation, frankly, and something has to be done to free-up these credit markets. This is the financial equivalent of Warren Buffett not being able to get a $20 million loan."

State, cities, and other taxing districts have had trouble selling bonds through advertised bidding, after institutional investors pared-back their appetite for fixed-income securities -- and just about every other asset class -- as the financial crisis intensified in September. In tandem, investment banks have balked at bidding for certain debt, sensing insufficient client demand, Wang said.

"Credit conditions had improved somewhat up to the end of last month, but the Port Authority's inability to get a bid Wednesday demonstrates that more liquidity is needed," Wang said. "If necessary, the Federal Reserve or Treasury should step in to provide liquidity because there is no reason for deals like this to not be funded, from a risk standpoint."

Bond Market / Economic Analysis: Yet another disappointing -- and absurd -- data point for the credit markets. As economist Wang noted, the Port Authority has multiple, strong revenue streams that aren't going away anytime soon. It's credit rating is strong. In short, it's a very low risk investment. And yet, no bidders. If the Fed or Treasury does not step in first, perhaps the Port Authority will end up doing what Massachusetts did earlier this year, choosing to go the negotiated route for certain bond sales, when bids came in with an excessive/high interest rate for their bonds.

Tags: bond market, bonds, credit crunch, credit markets, interest rates, inthenews, Port Authority, Port Authority of New York and New Jersey