The 2009 rankings for bond insurers will surprise no one who has been paying attention to the municipal market. The dominant player in the game didn’t just command a large slice of the pie — it took the pie itself, minus a few crumbs here and there.
Through its two subsidiaries, Assured Guaranty Ltd. insured $34.8 billion of municipal debt last year, or 98.2% of the insured market, according to Thomson Reuters. Competition was virtually absent as the former bigwigs, among them Ambac Assurance Corp. and MBIA Inc., spent the year attempting to recover from the credit injuries they incurred in the financial crisis.
The majority of business was performed by Assured Guaranty Corp., which backed $29.3 billion in the year, while the recently acquired Assured Guaranty Municipal Corp., previously named Financial Security Assurance, insured $5.5 billion. Overall, only $35 billion, or 8.5%, of the $409.1 billion of debt sold last year was insured at all.
Last month Moody’s Investors Service affirmed the Aa3 insurance financial-strength ratings of both companies, and also removed its credit watch from AGC. Fitch Ratings assigns AGC a AA-minus and AG Muni a AA. Standard & Poor’s rates each company AAA.
“Since we have come off of credit watch from Moody’s, we believe the value proposition of our credit enhancement is being validated,” said Sean W. McCarthy, chief operating officer of Assured.
He pointed towards two major deals insured by last week by AG Muni — a $709 million transaction for Arizona and a $209 million deal for Chicago.
The remaining 1.8% of the 2009 insurance market was taken by Berkshire Hathaway Assurance Corp., which insured seven issues worth a total of $634.2 million. Berkshire first entered the market in January 2008 but despite high ratings chose not to insure any municipal securities — at least in the primary market, where Thomson Reuters data is available — after mid-April.
Ajit Jain, head of the company, was unavailable for comment.
In 2009 rankings for bond counsel, Orrick Herrington & Sutcliffe LLP, a firm with a 146-year history, took the top spot for the seventh year in a row.
Its eight U.S. offices took equal credit on 434 issues totaling $55.0 billion, compared with 406 issues totaling $34.4 billion in 2008.
Roger Davis, Orrick’s head of public finance, said 2009 was an outlier year and he was surprised how well things turned out.
“It’s amazing how quickly we forget, but at this time last year nothing was happening. The markets were completely frozen, there almost was a financial panic, it was nearly impossible to get any debt out into the market, and rating agencies’ judgments were not granted a great deal of confidence,” he said.
Recognizing that the Obama administration’s stimulus efforts were going to be welcome in the market, Orrick was “very early and consistently active” in working on Build America Bonds, Davis said.
Orrick was bond counsel on 46 stimulus program bonds — most of which were BABs — totaling $13.8 billion. That represents a 20.6% of all deals — a greater market share than the next six firms combined, according to Thomson Reuters.
Orrick worked as bond counsel mostly on negotiated issues, where it captured a 15.3% market share on 332 issues worth $53.3 billion. Negotiated issues accounted for 86.0% of all transactions last year.
Hawkins Delafield & Wood LLP was second overall among bond counsel in 2009. The firm, with seven national offices, has ranked second for five straight years. Last year it had a 5.8% market share on 292 deals worth $23.6 billion, less than the 6.6% market share in 2008, when it counseled on 326 deals worth $25.3 billion.
Hawkins ranked first as underwriter’s counsel. The firm served in that capacity on 151 deals totaling $24.0 billion, giving it a 7.7% market share versus a fourth-place ranking and a 4.1% share on $12.3 billion of debt in 2008.
Sidley Austin LLP ranked third among bond counsel overall. The firm worked on 77 deals — fewer than any other firm in the top five, indicating they worked big deals — capturing a 4.8% market share on transactions worth $19.7 billion.
Together, the top three firms opined on nearly one-quarter of all transactions by volume. None of the other firms worked on more than 3%.
Each of the top three firms had significant business in California, which was by far the largest issuer last year. Total issuance from issuers in the state was $72.3 billion in 2009.
For competitive issues, Seattle-based Foster Pepper PLCC maintained its first-place ranking. The firm was bond counsel on 27 competitive issues worth $3.2 billion, giving it a 5.5% market share, up from 4.9% in 2008.
In terms of small issues, which saw 6,631 deals last year worth $22.8 billion, Chapman and Cutler LLP took top honors. The firm had a 5.1% market share on 405 issues worth $1.16 billion.
Among disclosure counsel, Orrick Herrington was also first, as its market share more than doubled to 23.8% from 11.0% in 2008.
Bond trustee rankings were relatively stable. Bank of New York Mellon held on to its top spot, working on $90.1 billion of debt in 947 issues for a market share of 40.7%, when trustees are ranked by principal amount. U.S. Bank NA and Wells Fargo continue to rank second and third, respectively, working on deals worth $58.5 billion and $65.5 billion.
For letters of credit, which provide a guarantee of payment, usually from a commercial bank, 2009 was a rough year.
Use of LOCs fell 68% to $22.8 billion last year after rising by more than 240% to an all-time high of $71.8 billion in 2008.
The top provider of LOC enhancements in 2009 was JPMorgan Chase. It captured 16.0% of the market, providing $3.6 billion on 59 separate letters. Yet in 2008, it had done nearly twice as much business, even though it had ranked third.
The earlier jump in LOCs followed the collapse of the auction-rate securities market in 2008. Municipalities looking to continue in the variable-rate debt market flocked to the use of LOCs. But in 2009, many of the LOC providers were downgraded, so LOCs became scarcer and more expensive. Total volume in 2009, for instance, was eclipsed by the top three providers of 2008 alone.