BRADENTON, Fla. - Municipal bond issuance in the Southeast fell 13.5% during the first half of 2009, but some market experts think sales could pick up in the second half due to federal stimulus incentives.
The volume sold by all issuers in the 11-state region was $32.01 billion, compared to $37.02 billion in the same period last year, according to Thomson Reuters. It was the Southeast's worst first half since 2004.
With credit markets still disrupted and the costs for issuing variable-rate debt high, issuers throughout the Southeast sought the comfort of fixed-rate offerings selling $28.18 billion of fixed-rate bonds in 629 deals, an increase of 25.4% over last year.
Variable-rate deals offering short puts were down 76.7% on volume of $3.18 billion. The use of letters of credit dropped by 72.9% on volume of $2.07 billion, while standby purchase agreements were used on $258.5 million of debt, a 93.5% decline.
The par amount of bonds sold with insurance was $4.93 billion, a drop of 50.1% from last year.
Issuers sold $29 billion of tax-exempt debt, down 10.7% from last year. However, taxable debt issuance was up 134.7% to $2.9 billion. Taxable sales included $1.37 billion of Build America Bonds, which debuted in April under the federal stimulus plan. The Southeast came in last among The Bond Buyer regions for BAB sales during the first half, with a market share of only 8.9%.
While BABs, which benefit from a federal subsidy, may be slow coming from the Southeast as issuers weigh the pros and cons, bank-qualified sales increased by 134.3% on volume of $1.9 billion as issuers took advantage of the federal stimulus provision increasing the eligible size for such deals to $30 million from $10 million.
The number of bank-qualified transactions increased for Public Financial Management Inc., the top-ranked financial adviser in the Southeast with $3.42 billion worth of deals during the first half, said managing director David Moore, who also said the firm has a "good bit of business in the queue for the last half of the year."
"The bottom line is, banks can offer a lower rate to a borrower," Moore said. "You don't have to write an official statement, get ratings or bond insurance, and for smaller cities and counties it's a very appealing thing. For this year and next year, while the [stimulus] rule is in place, I think you're going to see a lot of bank-qualified deals."
Moore said the stimulus act presents issuers with additional financing options but, in these tough economic times, an issuer still must be creditworthy and have the ability to pay back the debt.
Public Resources Advisory Group was the second-ranked financial adviser in the first half with $3.17 billion of par amount on 16 deals, while First Southwest Co. came in third with 20 deals worth $2.04 billion.
In senior-managed deals, Bank of America-Merrill Lynch ranked number one with $6.11 million par volume in 68 transactions. Citi was the second-ranked senior manager with $4.73 billion on 44 deals. Morgan Keegan & Co., which was the third-ranked senior manager in the Southeast during the first two quarters on 129 deals with a par value of $3.45 billion, rose from fourth place last year.
Morgan Keegan expects to gain market share in the Southeast and nation because of its distribution and pricing efforts, said Rob Baird, president of fixed-income capital markets and public finance banking. "We're expecting BABs to be to be used on an increasing basis in the Southeast, then issuance for qualified school construction bonds for construction is going to mushroom. It's going to be an interesting time watching the market and how they'll accept all that."
Kemp Lewis, a managing director in Morgan Keegan's New York office, said he expects the $22 billion of QSCBs allocated by the stimulus legislation across the U.S. to be used within the required two-years.
QSCBs offer investors a tax credit.
Morgan Keegan, which underwrote the first Recovery Zone Bond - or "super BAB" - deal in July with Lafayette Parish, La.'s $3.64 million sale, also has seen bank-qualified sales increase due to stimulus incentives.
Recovery Zone Bonds authorized by the stimulus act are allocated to counties and parishes based on unemployment rate and other economic factors and are eligible for a 45% interest subsidy from the federal government.
Nearly every kind of issuance from the Southeast in the first half was in negative territory, except general obligation bond deals, which increased by 45.3% on sales volume of $9.65 billion compared with $6.64 billion last year. While issuers offered $22.36 billion of revenue bonds, those sales were off 26.4%.
Issuers throughout the region sold $19.62 billion of new-money bonds, down 4.6% from last year's volume of $20.57 billion. However, refundings were down 19.2% on sales of $7.61 billion.
There were $26 billion in negotiated transactions compared to $5.8 billion in competitive deals and $235.8 million in private placements, which represented declines of 11.5%, 20.9%, and 30%.
Issuance for general purposes was one of only two categories that saw increases in volume in the first two quarters. General purpose debt sales were up a whopping 68% on volume of $9.52 billion compared to only $5.67 billion last year boosted by a $1.02 billion deal by Florida's Citizen's Property Insurance Corp., which made it the single-largest issue in the Southeast during the period.
Utility sales also increased by 7% on volume of $3.52 billion compared to $3.29 billion last year, while issuance in other sectors declined.
Florida issuers sold the largest amount of debt of any state in the Southeast during the first half with $7.3 billion in 66 deals, but that was a decline of 35.6% compared to last year. The Florida State Board of Education sold $900 million in four offerings while Miami-Dade County sold $803.8 million in two deals.
Virginia issuers had the second-highest total volume of sales in the first half with $5.53 billion in 59 transactions, up 21.5% from last year. The Virginia College Building Authority was the state's biggest issuer with four deals totaling $748 million.
Issuers in Georgia had the third-highest volume in sales with $4.32 billion in 61 deals, down 8% over $4.69 billion sold in 81 deals last year. The triple-A rated state was the largest single issuer in the Southeast with a $613.9 million GO refunding in February followed by $464.3 million of new GO bonds sold in May. Atlanta sold the second-highest amount of debt in the state with $828 million in two deals.
North Carolina was one of five Southeastern states that saw a hike in debt sales in the first half with $4.2 billion, which was up 4.4% over last year. Wake County sold the largest amount with $670.3 million in three transactions, followed by the North Carolina Medical Care Commission's $541.7 million in nine offerings.
In Kentucky, issuers also increased first-half sales with $2.88 billion in 134 deals, an increase of 68.1% over last year. The Kentucky State Property and Building Commission sold the most with $811.7 million in five transactions, while the Kentucky Economic Development Finance Authority issued $500.5 million of debt in four deals.
Tennessee issuers sold $2.67 billion in 79 offerings, which was 27.5 % below last year. The Nashville-Davidson County Metropolitan Health and Educational Facilities Board was the top issuer in the state with $411.5 million in three offerings.
South Carolina saw a 40.1% drop with sales volume of $1.4 billion. The state's top issuer was electric and water utility Santee Cooper with two sales totaling $366.2 million.
There was a 27.7% increase in deals from Alabama, where $1.39 billion of debt was sold. The top issuers were the Birmingham Waterworks and Sewer Board with $155.1 million and Huntsville with $151.7 million.
Debt sales in Louisiana fell by 39.6% in the first half of 2009 from the same period in 2008, but a strong rebound in the second quarter somewhat redeemed a dismal first three months. Sales by Louisiana issuers in the first six months totaled $1.38 billion. The state set the pace with four sales totaling $485 million, followed by the East Baton Rouge Sewer Commission with $165 million.
Mississippi increased debt sales in the first half to $765.2 million, up 18.4%. The Mississippi Development Bank sold the most debt with $244.3 million in 16 deals.
Issuance plummeted 72% in West Virginia, where issuers brought $190.1 million to market in four offerings. The largest deal was the West Virginia Commissioner of Highways' sale of $76.8 million.
In the bond counsel rankings for the first half, Squire Sanders & Dempsey LLP came in on top with $2.19 billion on 11 transactions followed by Hawkins Delafield & Wood LLP with par amount of $1.85 billion on 19 deals. McGuireWoods LLP rose to third place from sixth last year, with 28 transactions valued at $1.72 billion.
Jim Watts contributed to this story.
