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Trend in the Region

Northeast Sells 3.3% More Than Last Year

States and municipalities in the Northeast sold $115.29 billion of debt in 2009, a 3.3% increase that was $3.72 billion above the region’s issuance in 2008.

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A burst of activity in the fourth quarter helped boost volume as issuers in the region sold $16.26 billion more debt from October through December than the same time in 2008. The region saw 2,195 transactions last year, 141 more deals than the prior year, according to ­Thomson Reuters.

The creation of taxable Build America Bonds, which have offered lower borrowing costs for issuers in comparison to traditional tax-exempt financing, helped boost volume in 2009. Taxable issuance last year increased to $20.78 billion from $9.33 billion, an increase of $11.45 billion, or 122.5%, compared to 2008. At the same time, tax-exempt debt sales dropped by 3.1% in 2009 to $94.21 billion, a decrease of nearly $3 billion.

The BAB program gives issuers a 35% interest subsidy from the Treasury Department. The program is set to expire at the end of 2010, though the Obama administration aims to make it permanent with a lower 28% subsidy.

“There’s been an acceleration of activity for BABs in the Northeast and it’s likely we’ll see that throughout the course of the year,” said Richard Ciccarone, head of research at McDonnell Investment Management. “Especially if credit conditions cause spreads to widen because wider spreads would benefit from the 35% subsidy even more than the lower spreads.”

Bond and note sales subject to the alternative minimum tax decreased. The region’s AMT issuance last year dropped to $294 million from $5 billion the year before. That 94% difference is due to the federal government temporarily allowing issuers to sell airport bonds and other securities that typically would be subject to the AMT to be sold as tax-exempt debt.

That AMT holiday for airport debt expires at the end of 2010. Also out of the AMT mix were new housing bond issues, which were exempted from the tax under a housing bill signed by former President George W. Bush in 2008.

“With the AMT holiday last year and this year, a lot of airports rushed in to take advantage of the fact that their bonds, certain types of debt that they issued, would not be subject to the AMT,” said Doreen Frasca, president of Frasca and Associates LLC, a financial advisory firm that specializes in transportation bonds.

Expensive liquidity facilities made it difficult for issuers to use short-term debt. Variable-rate debt with a short put dropped to $7.91 billion last year from $30.28 billion in 2008, a 73.9% decrease. Variable-rate debt with no put increased to $4.54 billion in 2009 compared to $1.25 billion in 2008, a jump of 260.6%.

Debt enhanced by letters of credit dropped by $15 billion to $5.35 billion in 2009, from $20.38 billion in 2008. Debt sold with a standby purchase agreement also decreased, falling to $809 million last year compared to $7.72 billion the year before.

A $4.11 billion Puerto Rico Sales Tax Financing Corp. bond deal topped the list of the largest transactions for the Northeast in 2009. Citi priced that sale on June 10.

The second-largest deal was a $2.59 billion New York Liberty Development Corp. escrow bond sale that Goldman, Sachs & Co. priced on Dec. 29. The corporation issued the debt on behalf of Silverstein Properties Inc. for redevelopment at the World Trade Center site.

The New Jersey Turnpike Authority sold $1.75 billion of debt, including BABs, on April 20 with Morgan Stanley as book-runner.

The region’s fourth-largest sale was a $1.47 billion Empire State Development Corp. deal that priced on Nov. 17.

The region’s largest issuers included the Dormitory Authority of the State of New York, which sold $7.5 billion of bonds last year in 47 transactions, and New York City, with $6.16 billion in 12 sales. The Puerto Rico Sales Tax Financing Corp. came in third with $5.57 billion of total debt sold. The New York City Transitional Finance Authority issued $4.34 billion of debt and Connecticut sold $3.78 billion in 2009.

Citi remained the top book-runner, underwriting $21.44 billion last year in 106 issues, 18.7% of market share, up from $15.5 billion it priced in 2008 in 138 issues.

The now-combined Bank of America Merrill Lynch came in second with $15.14 billion of debt in 141 sales, 13.2% of market share. In 2008, Merrill Lynch & Co. served as senior manager on $14.51 billion of debt while Banc of America LLC priced $5.71 billion.

Morgan Stanley priced $14.83 billion of Northeast paper in 2009, to account for 12.9% of the market, up from $10.89 billion it underwrote in 2008.

JPMorgan followed with $13.17 billion of debt last year, 11.5% of market share, an increase from the $12.85 billion it priced the year before.

In looking at financial advisers, Public Financial Management Inc. retained its top position in the Northeast last year, advising on $18.64 billion of bonds, 21.1% of the market, in 295 transactions. In 2008, PFM worked on $15.05 billion of debt in 227 issues. Following in second place again is Public Resources Advisory Group with $11.65 billion, 13.2% of market share, up from $7.93 billion in 2008.

The Government Development Bank for Puerto Rico, the commonwealth’s fiscal agent, advised on $8 billion of debt last year due in large part to $5.57 billion of sales tax debt sold in 2009. The year before, the GDB worked on $6.06 billion of bonds.

A.C. Advisory Inc. advised issuers on $6.19 billion of debt in 2009, up from the $5 billion it worked on the year before.

Among bond counsel, Hawkins Delafield & Wood LLP again placed on top, working on $14.68 billion of transactions in 2009, 12.8% of market share. In 2008, Hawkins Delafield did $14.05 billion of bonds, 12.7% of market share, which was down from $16 billion of debt that it worked on in 2007 when it took up 15% of the market.

Sidley Austin LLP placed second among bond counsel in 2009, working on $13 billion of debt, or 11.3% of market share.

During the prior year its presence in the municipal bond market was similar, with $13.22 billion of debt, or 11.9% of the market. Orrick Herrington & Sutcliffe LLP rose to third place in 2009 from fifth place the year before, with $8.76 billion of debt compared to $7 billion in 2008. Edwards Angell Palmer & Dodge LLP stayed in fourth place last year with $6.8 billion, 5.9% of market share.

New York issuers sold the most debt in the region, $43.98 billion, a 9.4% increase compared to the $40.22 billion sold in 2008. The nearly $44 billion of 2009 issuance includes DASNY’s $7.5 billion of debt as well as New York City’s credits — general obligation, the New York City Transitional Finance Authority, and the New York City Municipal Water Finance Authority — which ranked second, fourth, and 10th, respectively, in the region, selling a combined $12.94 billion of debt.

Pennsylvania’s borrowing increased to $19.45 billion last year from $15.69 billion in 2008, a rise of 23.9%. The additional debt was due in part to $2.94 billion that the Pennsylvania Turnpike Commission sold in 2009, up from $1.53 billion it issued the prior year.

Massachusetts issuers sold $9.97 billion in 2009, a 19.8% decrease from the year before when it issued $12.43 billion.

New Jersey issuers sold $10.78 billion last year, a 8.3% dip, compared to $11.76 billion in 2008. While transportation and general purpose borrowing increased, issuers sold less debt for education and health care.

Puerto Rico’s 2009 issuance dropped to $8.27 billion from $9.46 billion of bonds that the commonwealth issued in 2008, a difference of 12.6%. Puerto Rico’s general obligation debt issuance decreased to $586 million last year from $2.93 billion the year before.

Connecticut volume totaled $6.57 billion in 2009 compared to $7.23 billion the year before. The majority of that debt, $3.79 billion, was state-issued.

Maryland issuers sold $6.43 billion of debt last year, down slightly from $6.72 billion in 2008. District of Columbia issuance totaled $4.51 billion, more than double the amount sold in 2008 — for a 65% increase. Delaware issuers also increased total sales to $1.33 billion in 2009 from $846 million in 2008, up 57.3%.

Issuance in Rhode Island fell 23.2% to $997.9 million. The state pushed into 2010 an $80 million to $100 million state GO deal that had been tentatively scheduled for the end of the year and has yet to go market. 

While issuance in New Hampshire rose to $1.44 billion from $977 million, Maine and Vermont saw less debt sold last year. Maine’s debt sales decreased by 4% to $1.22 billion and Vermont’s dropped to $313 million from $927 million, a 66.2% decrease.

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