SAN FRANCISCO — Despite a boost from two massive California deals, municipal bond issuance in the Far West was down 3.7% in the first half of 2009, compared to the same period a year earlier. But that was the smallest decline recorded in any region during the period.
Issuers in the Far West sold $47.47 billion of bonds in 596 transactions, according to Thomson Reuters, down from $49.3 billion in 714 transactions in the first half of 2008.
The relatively strong numbers don’t fully reflect the widely diverging fates of different sectors, said Roger Davis, chairman of the public finance department at Orrick, Herrington & Sutcliffe LLP, by far the region’s largest bond counsel firm.
“Substantial sectors of the market are various gradients of weak, inactive, or absent,” Davis said. Those sectors include financings driven by development, such as community facilities districts and housing bonds, as well as exempt facilities bonds, and most nonprofits outside health care, he said.
But general government issuers have remained active, Davis said.
The state of California was the region’s top issuer, credited with $13.4 billion.
A series of budget crises, cash crunches, and drawn-out budget negotiations kept the state out of the market for the entire second half of 2008 and well into 2009.
At that point, California rolled an entire year’s worth of bond issuance into two massive deals: a $6.54 billion tax-exempt GO sale in March, followed by a $6.86 billion taxable deal GO in April, composed largely of Build America Bonds.
That deal reflects one way the first-half statistics were shaped by the recession, and perhaps even more so by the federal stimulus package passed in response.
Issuance of taxable bonds came close to quadrupling compared to the first half of 2008, to $8.63 billion, thanks to the new BAB program, even though issuance of BABs, which substitute a federal subsidy to issuers for the tax exemption on interest, only began in April.
“It’s certainly a very popular product,” Davis said. “Whether more bonds have been issued or bond issues have been larger because of Build America Bonds is more speculative.”
The BAB program is limited to governmental issuers, and tends to pencil out for higher-rated issuers, reflecting in both cases the issuers who have been most able to access the market this year, he said.
Bonds with interest subject to the federal alternative minimum tax all but vanished, as the stimulus legislation wiped out the AMT on new money issues through 2010.
The stimulus bill also made more bonds eligible for bank-qualified treatment, increasing the exemption for deals up to $30 million from $10 million, and bank-qualified issuance topped $1.54 billion, compared to $565.6 million a year earlier.
Education showed the strongest increase of any sector, up 40.8%.
The transportation sector was down 57.5%. And bond issuance for housing dropped by almost two-thirds, to $640.8 million.
“Housing finance agencies generally compete on price, they don’t offer a lot of fancy products,” said Standard & Poor’s housing analyst Larry Witte.
“The problem is that at least until recently, the general mortgage market rates have been so low,” he said. “When that advantage goes away, [HFAs] don’t have a lot of activity.”
Around the region, fixed-rate issuance was up 24.3%, while variable-rate issuance dropped.
Bond insurance was down 82.2%, reflecting a broad market shift after many bond insurers saw their triple-A ratings nuked by the credit crunch.
New-money financing in the region was up 20.4%, to $26.73 billion, while refundings were down 31.2%, to $12.25 billion.
Citi kept its place atop the regional underwriting table, credited with $10.96 billion in volume, ahead of the now combined Banc of America-Merrill Lynch, which tallied $7.77 billion.
Public Resources Advisory Group was the region’s top financial adviser by volume, aided by its participation in California’s two massive GO sales.
Orrick topped the bond counsel chart again, with 42.9% market share by volume.
California volume was down slightly, to $35.4 billion from $36.46 billion. The same firms that topped the regional chart topped the California chart: Orrick, Citi, and PRAG.
Washington State was the largest issuer outside of California, selling $1.38 billion.
For the entire state of Washington, volume dropped 21.8%, to $4.24 billion.
Barclays Capital narrowly topped JPMorgan to lead the senior manager chart.
Seattle-Northwest Securities Corp. topped the financial adviser chart. Foster Pepper PLLC was top-ranked bond counsel.
Oregon issuers bucked the regional and national trend, as local issuers took advantage of voter authorizations from the November 2008 election and state policymakers worked to stimulate a slowing economy. Oregon issuance jumped 51.6% to $3.23 billion in the first half from $2.13 billion a year ago. The number of deals rose to 71 from 57.
The top issuers were the Oregon Department of Administrative Services with $719.6 million of debt and the Oregon Department of Transportation with $347.3 million.
“The Department of Transportation and the Department of Administrative Services were all projects that were part of the government’s economic stimulus package,” said Patrick Clancy, a principal at the Western Financial Group in Lake Oswego, Ore.
He said the state’s traditionally conservative approach to debt management gave it the room to stimulate an economy that has been hit hard by the recession. Oregon’s jobless rate was 12.2% in June, the third-highest jobless rate in the nation and more than double the 5.9% rate a year earlier.
“They were attempting to put a lot of projects on the ground as quickly as possible, the same as the feds were,” said Clancy, whose firm was the top financial adviser in the state with $1.22 billion of deals and a market share of 37.8%. “They moved a number of projects forward a bit to try to get them done and to try to get them working.”
Bank of America-Merrill Lynch was top underwriter in Oregon. K&L Gates led among bond counsel.
Nevada volume dropped by more than half, to $1.59 billion. Both education and transportation were down substantially. Citi was the state’s top underwriter.
Hawaii volume was up substantially, topping $1.41 billion, over eight transactions. The largest single deal was a $725.4 million sale of state GOs, managed by Citi, with Kutak Rock LLP as bond counsel
Alaska volume increased substantially, reaching $809.5 million.
