Southwest Volume Dips Despite BAB Burst

DALLAS — Municipal bond volume in the Southwest fell 13.8% in 2009 despite issuers in the region selling nearly $12 billion of Build America Bonds.

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In a year of extraordinary ­financial distress, the federally subsidized BABs lifted volume in the second half of the year after sales plunged about 30% in both the first and second ­quarters. Volume grew at ­slightly more than 3% in the third ­quarter and better than 11% in the fourth.

The eight-state region accounted for about 17% of the roughly $64 billion of BABs issued nationally in 2009 and for 15%, or $62 billion, of the $409 billion of total debt.

Nationally, volume for 2009 was the second highest ever.

Taxable issuance overall grew nearly 309% in the Southwest while tax-exempt bond sales

fell 24%.

Despite opportunities to capture interest savings and the ongoing need to retire auction-rate securities, refundings were down nearly 40% across the region, while new-money issues fell only 2.8%.

Texas — whose $32.8 billion of debt sales accounted for more than all the other seven states combined — saw its volume drop more than 21%, even though its 935 issues exceeded the 906 it brought to market in 2008.

While Texas issuance began to recover in the second half of the year, it never reached positive territory, falling 6.6% in the third quarter and 8.7% in the fourth. The worst quarter was the first, with volume down 45.4%, followed by a 21.2% drop in the second.

Three states saw healthy growth in issuance, with Arkansas up 37.5%, ­Kansas up 77.8%, New Mexico up 5.8% and Utah rising 30.5%.

The biggest decliner on a ­percentage basis was Arizona, down 31.7%, followed by Texas, down 21.2%, ­Colorado, down 14.8%, and Oklahoma, down 5.2%.

Texas was tops in BABs, with nearly $7 billion for the year. Taxable volume grew 607%.

Only one state, Arkansas, issued no BABs. In fact, Arkansas’ taxable issuance fell more than 62%, while neighboring Kansas saw taxable volume soar 1,758%. Only one other state, New Mexico, recorded a drop in taxable debt, and it wa down more than 43%.

Texas issuance also appeared to suffer from the absence of the Permanent School Fund, a bond guarantee program for local school districts.

Education volume there fell 31% to $9.6 billion, while only two other states, Arizona and Utah, also recorded declines in borrowing for schools of 44% and 11%, respectively.

The Texas PSF is expected to return to service in June after the Internal Revenue Service authorized a doubling of its bond capacity in December.

Transportation, a major target of ­stimulus spending, fell nearly 27% in the region, with only Kansas and Oklahoma showing an increase. Arkansas issued no transportation debt during the year.

Several of the largest deals in the ­region were transportation related. The North Texas Tollway Authority was the number-one issuer by volume: $1.77 billion in eight sales bolstered by BABs. Utah was the second largest issuer with $1.48 billion in eight sales, including a large tranche for its highway system.

While debt issues for colleges and universities were up nearly 31%, they fell to nothing in Arizona, one of the states hit hardest by the recession. Throughout 2009, state lawmakers struggled in vain to close a growing budget deficit. Colleges and universities endured some of the deepest cuts. Utah was the only other state where debt for higher education fell, down nearly 48%.

RBC Capital Markets claimed the prize among the region’s senior managers, working on $6.98 billion of debt in 193 deals for an 11.4% market share. While RBC rose from fourth place to first, JPMorgan remained second with $6.8 billion and an 11.1% share. Bank of America Merrill Lynch was third with nearly $6 billion on 56 deals and a 9.7% share.

Among financial advisers, First Southwest Co. topped last year’s leader RBC, with $11.9 billion of deals for a 24% market share. RBC’s $7.4 billion gave it a nearly 15% piece of the pie. Estrada Hinojosa & Co. retained the number-three spot with $3.7 billion and a 7.5% share.

McCall Parkhurst & Horton remained the region’s top bond counsel, working on 258 issues worth $9.4 billion. Vinson & Elkins retained second place with 125 deals valued at $6.5 billion, followed by Fulbright & Jaworski with 198 deals worth $6.1 billion.

Among the state governments, Arizona issued no debt in 2009, but its state agencies issued $1.1 billion, a drop of 67%.

On a percentage basis, Kansas saw the biggest increase in state agency issues, rising 149% to $1.1 billion in 35 deals, followed by Colorado, whose state government issuance rose 100% to $462 million. Debt from Colorado state agencies fell 50% to $1.2 billion.

Across the region, issuance by state governments rose by more than 148%, while bonds from state agencies fell more than 25%.

Texas deals accounted for the top three in size, with the NTTA number one for its August issue of $1.24 billion. Utah’s $982 million on Sept. 16 ranked fourth.

In Arkansas, the University of ­Arkansas Board of Regents was the largest issuer with $151 million, while Pulaski County’s $111 million sale was the largest single deal. The state’s $1.16 billion of total issuance represented a 38% increase from 2008. However, 2009 sales came in some $80 million lower than the $1.67 billion of public debt ­issued in 2007.

In Oklahoma, education-related bonds help take up the slack created by a significant decline in bond sales by state agencies. School district issues totaled $520.4 million, up from $443.4 million in 2008. Debt issued by colleges and universities rose to $293.8 million in 2009 from $71.1 million in 2008.

The largest municipal bond issuer in the state was the city of Tulsa with $157.2 million of bonds in four sales.

Build America Bonds accounted for some 12% of public debt issued in Oklahoma during 2009, with $298.6 million of BABs sold in 12 issues.

The top issuer in Kansas was a state agency, the Kansas ­Development ­Finance Authority, with $852.8 ­million in 31 issues. Other state ­issuers included the Kansas Department of ­Transportation with $176.7 million and Kansas Turnpike Authority with $77.4 million.

School district issues also posted significant gains, with $1.12 billion in deals that more than doubled the state’s 2008 total of $535.7 million.

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