(Bloomberg) -- Buffalo Bills fans, fresh off a blowout win against the Jacksonville Jaguars, just scored another victory — this time in the municipal bond market.
Roughly 100 retail buyers placed orders for debt sold this week which will help finance the construction of a new $1.7 billion stadium for the National Football League team in Orchard Park, New York. Fans in the highest-tax bracket would need to find a taxable security yielding about 7% to compete with the payout on the offering’s 20-year bond. Treasuries would need to offer a yield of 5.83%.
That’s because the debt is exempt from state and federal income taxes, a valuable haven in a state with one of the highest levies in the US.
“For top tax-rate payers in New York, this was hard to pass up,” said James Pruskowski, chief investment officer at 16Rock Asset Management. “This AA-rated credit offered a rare opportunity to lock in high yields without having to take on the substantial credit or liquidity risks typically required in other markets to achieve similar returns.”
The bonds were marketed to members of the Bills’ enthusiastic fan base dubbed ‘Bills Mafia’ known around the NFL for rowdy pre-game tailgates and such loud cheering that’s said to rival jet engines. The retail-order period took place on Monday, allowing mom and pop buyers to have first dibs on the debt before institutional pricing on Tuesday.
Such priority is common in high-tax states like New York or California. In total, about 100 individuals placed bids for bonds, totaling about $2.7 million of orders on the $110 million sale, according to a spokesperson for the Erie County Comptroller.
This year, asset management companies have been touting the attractive yields on tax-exempt muni bonds after considering the value of that tax break. Investors in the highest-tax bracket benefit the most from the exemption. For New Yorkers, the tax-exemption is especially valuable as the highest levy is 10.9% — among the biggest in the country.
Erie County sold debt due in 20 years that was priced to yield 3.45%. It sounds small, but considering the tax break on the debt, the wealthiest New Yorkers snapping up the securities earned yields equivalent to 7.1% on taxable debt, shows an online tool from Eaton Vance, part of Morgan Stanley Investment Management.
For those with a household income of $400,000, the benefit still stands. A similarly-dated US Treasury would need to yield 5.37% to compete with the 20-year Bills’ bond. Currently such debt is trading at a rate of about 4.18%.
The Bills bonds are rated AA by S&P Global Ratings, the third-highest grade available. Though, on the short-end of the curve, the debt priced with yields lower than top-rated benchmark bonds, indicating strong demand for debt that matures in just a few years.
“The heavy demand was a result of a new name coming to market,” said Max Christiana, a portfolio manager for Belle Haven Investments. He also mentioned that a sale by New York City’s water utility didn’t have many short-dated maturities, raising demand for issues that did have that structure.
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