Issuers in the Northeast sold $108 billion of municipal bonds in 2007, an increase of nearly 15% from 2006.
The region's volume was all the more impressive given that the bond insurance industry's woes put a damper on sales in the final quarter. Heavy borrowing by Puerto Rico helped boost volume, while overall issuance in New York fell slightly.
Total Northeast volume surpassed other regions in the country, with Citi and Merrill Lynch & Co. the top two underwriters, pricing $17.22 billion and $12.27 billion of debt, respectively. UBS Securities LLC - first in 2006 - came in third place with $11.58 billion. Following the top three banking firms, Bear, Stearns & Co. priced $10.83 billion and Goldman, Sachs & Co. underwrote $8.86 billion.
The New Jersey Tobacco Settlement FinancingCorp. on Jan. 23 sold the biggest deal in the region, $3.62 billion of refunding bonds, followed by the Puerto Rico Sales Tax FinancingCorp.'s $2.67 billion sale on July 13, the Puerto Rico Highway and Transportation Authority's $2.18 billion transaction on Feb. 15, the Puerto Rico Electric Power Authority's $1.94 billion deal on April 19, and the Massachusetts School Building Authority's $1.5 billion sale on March 14.
New York was by far the largest issuer in the region, selling $32 billion of debt. Its total sales were down 2.2% compared to the $32.73 billion sold in 2006. The number of deals fell to 700 from 744.
New York's 2007 volume started on the upswing, rising 13.9% in the first quarter compared to the same period in 2006. Volume declined in the second and third quarters and fell 7.9% in the final quarter as the bond insurance fiasco took its toll on the market.
"There's no question that the insurance mess is impacting people's ability to sell debt," said Frank McKenna, managing director at Raymond James& Associates Inc. "It's been a very difficult challenge for issuers and bankers ... to get bonds out into the market at the right prices."
The Dormitory Authority of the State of New York and New York City saw increases in bond sales in 2007.
It's "typical for the city and DASNY that they are consistently the largest issuers regardless of market condition," McKenna said. "The city's three credits are in the market often and always will be, and DASNY's such a diverse issuer that they have a lot of constituents to take care of."
DASNY was again the top issuer of bonds in New York and the Northeast region, marketing $4.64 billion, a $1.02 billion increase over 2006. The authority didn't just sell more debt in 2007, it went to the market with more issues - 42, compared to 32 in 2006.
"The increase in issuance from 2006 to 2007 is largely attributable to our doing more deals on the private client side - that's universities and hospitals," said DASNY managing director of public finance Portia Lee. "We did more deals and also they were larger in scope."
New York City under its general obligation, New York City Transitional Finance Authority, and New York City Municipal Water Finance Authority credits sold $8.9 billion. GO sales increased to $4.18 billion in 2007 from $3.57 billion in 2006 and the MWFA's volume increased to $2.58 billion from $1.55 billion. The TFA sold $2.14 billion last year, up from $1.45 billion.
New York's top two financial advisers in 2007, Public Resources Advisory Group and A.C. Advisory Inc., both advise New York City.
The sectors in the state that experienced the biggest increase in issuance were development and health care, which soared 536.9% to $1.32 billion and 110.6% to $2.79 billion, respectively. The biggest declines were in bonds sold for environmental facilities and electric power.
Despite the insurance turmoil in the fourth quarter, insurance penetration in New York was flat at $12.74 billion for the year. The use of standby purchase agreements rose 53% but represented a small portion of the market, covering $644.2 million of debt.
Puerto Rico issuance more than doubled in 2007, for a total of $12.26 billion in 19 deals compared to $5.87 billion among 16 sales the year before.
Debt refinancing was the main driver behind the surge as the island sold $2.84 billion of refundings, up $2.54 billion from $292 million in 2006. Puerto Rico sold four of the 10 biggest Northeast deals in 2007.
"We did our biggest deal ever, which was $4.5 billion of sales tax bonds, but we also did a big issue in the power company, the highway authority, and a lot of this was refunding," said Jorge Irizarry, president of the Government Development Bank for Puerto Rico.
Puerto Rico, which carries BBB-minus and Baa3 rating from Standard & Poor's and Moody's Investors Service, turned to bond insurance to help market the debt. Insured volume surged to $6.03 billion in 2007 from $478.5 million in 2006.
Pennsylvania issuers overall sold the second largest amount in the Northeast in 2007, issuing $17.9 billion. That was up 6.3% from 2006. The commonwealth's top issuers in 2007 included the Pennsylvania Higher Education Assistance Authority, which sold $1.5 billion and Philadelphia, which issued $1.3 billion.
New Jersey issuers sold $13.31 billion in 2007, an increase of 33%. The $3.62 billion TSFC tobacco refunding deal was the region's biggest in 2007, and a $1.17 billion New Jersey Transportation Trust Fund Authority deal also helped boost borrowing in the Garden State.
General purpose infrastructure projects received $6.1 billion of funds in 2007, up from $1.65 billion the year before. Housing and public facilities sectors saw increases while borrowing decreased in the transportation and education sectors.
Massachusetts issuers sold $12 billion, a 27% boost from $9.51 billion. The $1.5 billion MSBA deal contributed to the increase as did two commonwealth deals, a $1.1 billion GO sale and a $1 billion new-money and refunding issue. Health care borrowing jumped to $1.43 billion in 2007 compared to $324 million the year before.
Bond issuance in Maryland increased 8.2% in 2007 to about $6.4 billion in 104 transactions. Debt issued for transportation saw the largest increase between 2006 and 2007, a surge of 455%. About $758 million of transportation debt was issued in five issues in 2007, compared with $136 million in three issues in 2006.
The Maryland Health and Higher Education Facilities Authoritywas the state's biggest issuer in 2007, floating $1.18 billion of bonds in 22 deals. The state was the second-largest issuer, with a total of $700 million in two transactions. The Maryland Transportation Authoritywas third, issuing $625 million in two deals.
New Hampshire issuers sold $1.2 billion in 2007 compared to $1.6 billion the previous year. The decline was due in part to New Hampshire waiting to issue its $75 million new-money deal in January 2008 instead of December. The state itself issued nearly $200 million in 2006 but ended up not issuing any in calendar 2007.
"We were in a good cash flow position, and we didn't see any need to issue the debt, so we decided to put it off for a month," said state Treasurer Catherine A. Provencher.
Connecticut issuance was slightly down in 2007 to $4.8 billion compared to 2006's nearly $5 billion. Its largest issuers included the Connecticut Health and Educational Facilities Authority with $1.6 billion issued in 2007. CHEFA's largest deal was in September, when it sold $600 million for higher education.
Rhode Island's volume decreased 20.6% to $1.4 billion. Delaware's total volume in 2007 increased 20.1% to $1.1 billion. Vermont's total volume jumped 25.9% to $863.7 million. Maine's volume remained almost the same, with about $1.1 billion issued.
The District of Columbia saw a significant debt increase in 2007, to $3.5 billion from $2.2 billion, as it completed its largest ever GO sale at $827.6 million. The district also enjoyed its highest ever bond ratings - A-plus from Fitch Ratings and Standard & Poor's and A1 from Moody's.
District chief financial officer Natwar Gandhihas nevertheless warned officials to be wary of borrowing too much as tougher economic times approach. Debt issuance for this year should be lower than in the recent past.
Gandhi told The Bond Buyer in December that 2008 is a "key year," as the district's fiscal policy begins to shift from borrowing to relying on its anticipated $1.5 billion surplus to finance projects.
Ted Phillips, Jonna Stark, Humberto Sanchez, and Peter Schroeder contributed to this story.
