All but one of the various bond sectors posted declines in volume in the first half of 2009 from 2008 totals, often with wild variances between sales in the first and second quarters.
Overall, total long-term issuance in the first half decreased to $196.72 billion in 5,541 issues, down from $231.51 billion in 6,200 issues in the same period last year, according to new data from Thomson Reuters.
There was less activity in the first quarter when 2,397 deals worth $85.55 billion priced, while second-quarter issuance jumped to 3,144 deals totaling $111.17 billion. Last year, 2,486 sales worth $85.40 billion were priced in the first quarter, versus 3,714 issues totaling $146.11 billion in the second quarter.
In what was by almost every standard a down half for debt sales across the country, general purpose bonds posted a 25% increase. There were 1,682 such issues in the first half, with total sales of $64.23 billion, up from the $48.46 billion in 1,617 sales in the same period of 2008.
The sale of bonds for transportation purposes, from roads to mass transit systems, was off by roughly two-thirds in the first quarter compared to 2008. But in the second quarter, transportation deals rebounded to within $116 million of 2008’s sales over the same period.
In contrast, health care debt sales in the first quarter were slightly above the first quarter of 2008, but then fell to less than 50% of volume in last year’s second quarter.
Kenneth Kaufman, managing partner of Kaufman, Hall & Associates, said refundings due to auction failures of health-care related variable-rate debt boosted total sales in 2008’s first half above the normal range.
Bond sales in the first half of 2009, he said, were lower than normal due to the overall poor market conditions that carried over from last year.
“We’re back into more of a normal market for health care debt now, but it is what I’ve heard called 'the new normal,’ ” Kaufman said. “It is not the same market we had 24 or 36 months ago.”
There were 261 health care issues in the first half worth $20.54 billion. The volume was down 37.5% from the $32.84 billion in 443 issues in the same period of 2008.
Year-to-year first-quarter sales are comparable, with $8.39 billion in 2009 and $7.56 billion in 2008. But
second-quarter sales fell to $12.15 billion from $25.28 billion last year, a drop of roughly 51%.
Kaufman said issuance in the first half of 2008 was inflated due to problems with auction-rate securities issued previously by hospitals, and thus is not a good basis for comparisons.
“We had the meltdown in auction-rate debt early in the year with failed auctions, and hospitals were very heavy users of those instruments,” he said. “So you had hospitals doing one-time restructuring issues in the first half of the year, and that rolled over into the second half.
“Then the problems affecting the whole municipal bond market in the last half of 2008 negatively affected sales in the first half of 2009,” Kaufman said. “The only institutions that could take debt to market in the first six months were double-A and high-A issuers.”
Refunding issues totaled $6.74 billion in the first half, down from $12.33 billion in 2008. New-money issues totaled $10.47 billion, off $10.81 billion from the 2008 period. Combined issues totaled $3.33 billion, falling by almost two-thirds from the $9.70 billion that went to market in the same period last year.
Hospitals were particularly involved in auction-rate debt because they are so well managed, according to Kaufman.
“They are very large organizations, with sophisticated financial operations and experienced chief financial officers,” he said. “They took advantage of what seemed to be a very valuable tool.”
Kaufman Hall was the top financial adviser for health care bond issues in the first half of 2009, with 59 issues totaling $5.08 billion.
Health care debt in the first two quarters included $18.79 billion issued for general hospitals, $603.9 million for children’s hospitals, and $546.9 million for specialty care facilities.
The biggest issuer of health care debt in the first half was the Illinois Finance Authority, which sold $2.1 billion of bonds in 15 issues.
Debt issued for transportation efforts plummeted 36% from first half to first half, with $19.76 billion over 214 issues in the first six months compared to $30.89 billion over 285 issues last year.
The decline was particularly severe in the first quarter, with only $5.38 billion in volume, down substantially from $16.40 billion in 2008. However, second-quarter issues almost equaled 2008 totals, with $14.38 billion in 2009 and $14.50 billion in 2008.
Dwindling state revenues are putting a damper on highway bonds, said Mike Patterson, chief financial officer with the Oklahoma Department of Transportation. He also serves as secretary of the American Association of State Highway and Transportation Officials’ standing committee on finance and administration.
“This year was abnormal, but so was 2008,” Patterson said. “The volatility in state revenues makes issuers reluctant to go to market.”
Federal highway aid is also less certain, he said, due to a decline in gasoline tax revenues.
“I think the doldrums will last the remainder of 2009,” Patterson said. “Things should pick up in 2010.”
The largest single decline in transportation debt was posted by airport bonds. Proceeds available for airport projects totaled $2.52 billion in the first half, off $6.17 billion or 71% less than the $8.69 billion last year.
In contrast, debt issued for mass transit efforts was off only slightly from 2008. Mass transit debt totaled $7.46 billion in the first half, down from $7.59 billion in 2008. Toll roads and state highways benefited from $7.38 billion in bond sales, off from $11.15 billion last year.
Transportation debt in the first two quarters included $17.84 billion of revenue bonds and $1.92 billion of general obligation bonds. Revenue debt in the first half of 2008 totaled $27.92 billion, along with $2.97 billion of GO bonds.
State governments and agencies issued $13.09 billion of transportation bonds, up from the $11.83 billion posted by state issuers in last year’s first half. However, sales by cities and towns fell to $587.8 million in 2009, from $2.93 billion in 2008.
Local transit authorities issued $12.06 billion of debt in the first half of 2008, but the total fell to $3.82 billion in 2009.
Largest sales of transportation bonds in the first two quarters included $1.75 billion by the New Jersey Turnpike Authority, $1.25 billion by New York’s Metropolitan Transportation Authority and $1 billion by Dallas Area Rapid Transit. All three occurred in the second quarter.
Meanwhile, development bonds had a dismal first quarter, with total volume dropping by more than 87%. Sales totaled $611 million compared to $4.98 billion in the same period of 2008, a decline of $4.3 billion.
However, second-quarter totals paint a brighter picture, with sales rebounding to $940.6 million, off just $247 million from second-quarter 2008 sales of $1.19 billion. Total development issues fell 75% in the first half, from $6.16 billion in 2008 to $1.55 billion in 2009.
The drop-off affected all sectors of development debt, as economic development bonds fell from $4.42 billion in the first two quarters of 2008 to $865.3 million in 2009. Industrial developments declined from $1.29 billion in 2008 to $625.2 million in 2009.
Education bonds almost held their own in 2009, however, with $49.91 billion in 2,263 issues, down just 8% from $54.49 billion over 2,287 issues in the first half of 2008.
First-quarter issuance actually exceeded 2008, with $23.79 billion versus $18.85 billion last year. Sales were up in the second quarter, with $26.12 billion of education debt going to market, which is down more than 26% from $35.64 billion in 2008.
The total for 2009 included $29.16 billion sold for public K-12 schools and $19.38 billion for higher education. Sales in the first half of 2008 included $32.24 billion for public education and $19.78 billion for colleges and universities.
Local districts issued $25.33 billion of school debt in the first half, up from $24.43 billion in 2008. Colleges and universities sold debt totaling $8.31 billion in 125 issues, an increase from $6.37 billion in 113 tranches last year. Debt sales for education by state agencies fell to $10.51 billion from $16.62 billion.
California accounted for the two largest educational bond sales in the first half of 2009. The Los Angeles Unified School District issued $950 million of GO bonds in February, followed in March by a $794.2 million issue from the University of California.
