Buy Side

July Sees $30.5B of Long-Term Debt Sold

Amid ongoing market volatility and continued pressure from the credit crisis, a total of $30.51 billion in long-term debt was sold during the month of July, making it the third weakest month so far in 2008, according to Thomson Reuters.

Overall, there were a total of 798 long-term bond issues in July, which brings the total number of long-term bond issues for the first seven months of the year to 6,784 and the total year-to-date volume to $259.7 billion, according to the July 31 data. July showed a nearly $20 billion drop in issuance in comparison to the 1,231 issues totaling $50.44 billion that came to market last month, and represents a 4.4% decrease in volume compared to July 2007 when 965 issues totaling $31.90 billion came to market.

So far this year, July represents the third slowest month for volume behind February, with 768 long-term bond issues totaling $21.31 billion, and January - the weakest month - with 767 issues totaling $20.12 billion. April saw the strongest volume, with 1,140 issues totaling $50.7 billion, while June was the second strongest month, according to the data.

Analysts say July's volume was relatively strong and - despite its occasional seasonal sluggishness - was sustained by a 31.7% jump in refinancing as many municipalities converted their auction-rate debt to long-term paper following the collapse of the ARS market earlier this year.

Refinancing volume jumped by 40.9% in July to $5.96 billion among 149 issues, compared with $4.23 billion among 99 issues last July. Meanwhile, on a year-to-date basis, the refunding volume soared by 31.7% to $75.14 billion consisting of 1,647 issues in July, compared with 1,360 issues consisting of $57.06 billion year-to-date in 2007.

"Basically, it's the same story. If you take a look at issuance, it remains relatively heavy given the demand in the market," said Phil Fischer, municipal strategist at Merrill Lynch & Co. in New York City. "Long-term munis continue to be quite cheap.''

He said refinancing remained heavy during the month due to conversions and activity in the variable-rate market, such as steady issuance of variable-rate demand obligations with short-puts, which totaled $6.81 billion in July among 133 issues, versus $6.67 billion among 119 issues last July. Year-to-date, however, variable-rate issuance with short puts has swelled by 221.5% to $80.20 billion year to date among 1,260 issues, compared with $24.94 billion among 753 issues in the first seven months of 2007.

"We're also getting refinancing of the weaker insured VRDOs as well," Fischer noted. "We continue to see the evidence of the refinancing coming in with very high letter of credit volume and standby purchase agreements relative to last year."

For instance, the volume of letters of credit in July amounted to $5.37 billion among 109 issues, compared with $1.87 billion among 78 issues in July 2007 - a 186.4% rise. Year to date, the figures are more pronounced, soaring by a whopping 388.2% to $45.98 billion among 872 issues, versus 539 issues totaling $9.41 billion, according to the Thomson data.

In addition, while the July issuance of standby purchase agreements declined by 30.3% to $1.17 billion over 12 issues, compared with 19 issues totaling $1.67 billion last July, the year to date figures indicate stronger volume, according to Fischer.

Year-to-date, the issuance of standby purchase agreements jumped by 191.2% to $23.8 billion consisting of 242 deals this July, compared with $8.20 billion consisting of 106 deals last July, according to the data.

Fischer said the decline of insurance penetration was the result of the ongoing credit deterioration of bond insurers, culminating with last week's placement of Financial Security Assurance Inc. and Assured Guaranty Corp. on review for a possible downgrade by Moody's Investors Service.

In July, the volume of bond insured deals dropped a whopping 67.4% to $4.53 billion among 168 issues, compared to $13.90 billion among 400 issues in July 2007. On a year-to-date basis, meanwhile, bond insurance volume dropped by 53.7% to $58.56 billion among 1,879 issues, compared with 3,398 issues in July 2007 totaling $126.4 billion.

In terms of issuance, the month's two largest deals were a $1.12 billion revenue sale on July 16 from New York's Triborough Bridge & Tunnel Authority and a $1 billion revenue sale from the North Texas Tollway Authority on July 21, followed by an $853.3 million new-money and refunding on July 23 from the Los Angeles Department of Airports.

The deals contributed to the 160.6% increase in the transportation sector to $5.51 billion among 43 deals, compared with $2.11 billion among 38 deals.

An $823.1 million competitive general obligation offering from the state of Washington back on July 9 was the fourth largest deal in July. Meanwhile, a $687.7 million taxable sale from the Louisiana Public Facilities Authority that took place on July 22 helped boost the public facilities sector itself by 224.1% - the heaviest year-over-year growth of any one sector during the month - to $1.98 billion consisting of 48 issues, which is up from $611.9 million among 39 issues last July.

Connecticut, meanwhile, saw a 158.3% rise in volume to $5.52 billion consisting of 76 deals, compared with $2.13 billion consisting of 85 deals last July, the data showed.


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