CreditSights
Four large prepaid energy deals have been priced in the last two days, a further sign of the sector’s explosive growth.
Processing Content
On Monday, three of the deals came to market: the Black Belt Energy Gas District with $1.145 billion of gas project revenue bonds, Main Street Energy with $802.715 million of energy project revenue bonds and the Public Energy Authority of Kentucky with $523.32 million of gas supply revenue bonds.
On Tuesday, Energy Southeast came to market with $719.73 million of energy supply revenue bonds.
The four deals were on the day-to-day calendar, “playing it close to the vest, and all of a sudden, boom, they all get done,” said Pat Luby, head of municipal strategy at CreditSights.
However, the fact that deals are able to come and get done is “further testimony” to the strength and depth of demand currently in the market, he said, noting the prepaid energy sector has become too large for portfolio managers to ignore.
“It’s becoming an important influence on the performance of the sector. It’s a meaningful part of the index,” he said.
The prepay sector has reached a market size of $113 billion, with an average growth rate of 25% since 2018, J.P. Morgan strategists said in a report.
Within the Bloomberg Muni Index, the gas prepay sector now accounts for 5.6% of the entire benchmark, they said.
This weight grows to 8.4%, 10.5%, and 27%, respectively, within the Bloomberg 1-15yr Index, California only index, and Intermediate California Index, per J.P. Morgan strategists.
These four deals come on the heels of the success of the Google-related $1.2 billion prepaid electricity deal from Thursday, which saw over $10 billion orders amid 100 accounts, market participants
However, the timing of these four deals is not related to Thursday’s upsized deal — in which Google’s parent, Alphabet, was the funding recipient — but rather to the nonstop influx of prepay energy deals that have come to market this year.
“Today is no different than a couple of weeks ago,” said James Welch, municipal portfolio manager at Principal Asset Management. “They’ve all been coming. Certainly, volatility has been a little bit lower. They’ve been waiting for that June coupon money; perhaps the bankers have. But when you’ve got $18 billion or so [of prepay issuance] year-to-date, today is not an outlier. It’s been a trend for all of 2026.”
Furthermore, the market wouldn’t think it unusual to have multiple large water and sewer deals come from different issuers around the country in one week, but in the prepay sector, because of the growth, it somewhat stands out, Luby said.
The muni market is “wide open” for business right now, said Jamie Iselin, head of the municipal fixed income team and a senior portfolio manager at Neuberger Berman.
“Prepay market deals have generally gone very well, despite the rise in supply, so there’s certainly capacity,” he said.