Trend in the Region

California Hogs Much of Region’s Volume

SAN FRANCISCO — Issuers in the Far West sold almost $95 billion in municipal bonds during 2009, up more than 29% from 2008, including almost $19 billion of taxable Build America Bonds.

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One issuer alone — the state of California — was responsible for almost a quarter of the region’s volume, selling more than $23 billion in long-term debt in 2009. That was the most by a single municipal bond issuer in a calendar year, according to Thomson Reuters data going back to 1986. The previous record, also set by California, was $17.5 billion in 2004.

California’s volume almost tripled that of 2008, during which a long-running budget and cash crisis kept the state out of the market for much of the year, pushing billions of dollars of planned issuance into 2009. The state brought a half-dozen deals worth a billion dollars or more to the market last year — two of them in excess of $6 billion each.

Governments in the Far West sold $18.97 billion of Build America Bonds through 114 issues, taking advantage of the federal stimulus program enacted early in 2009, Under the program, issuers have the choice of receiving a 35% federal subsidy for interest payments on taxable bonds as an alternative to issuing the debt on a tax-exempt basis.

California took the most advantage of the new program; the state and its affiliates issued $9.589 billion of BABs, said Tom Dresslar, spokesman for Treasurer Bill Lockyer. That included $7.89 billion of general obligation bonds, $1.45 billion of University of California revenue bonds, and $250 million of California State Public Works Board lease-revenue bonds.

“In 2009, our infrastructure program was in critical condition — we had a lot of work to do to return it to health,” Dresslar said.

“We could not have gotten that job done without BABs,” he said. “It allowed us to access billions of dollars in the market we otherwise would not have been able to access.”

Though the BAB program is set to expire at the end of this year, the Obama administration has proposed making it permanent with a 28% subsidy, setting the stage for a debate over whether and how to extend the program.

Lockyer believes the proposed 28% subsidy level is too low, according to Dresslar.

“It needs to be somewhere north of 28% for continued participation in the BAB program to make financial sense for California,” he said.

If Congress defers a permanent decision and only grants a one- or two-year extension, than the subsidy should stay at 35%, Dresslar said.

Build America Bonds alone weren’t responsible for the surge in Far West volume — tax-exempt bond issuance was up more than 11% in the region.

The statistics reflect the changes the municipal bond sector has experienced in recent years, from the sidelining of most bond insurers to the spike in the price of liquidity for variable-rate debt, as well as the impact of municipal bond provisions included in the federal stimulus legislation.

Fixed-rate debt issuance in the Far West was up almost 70% year-over-year, topping $84.5 billion, while variable-rate debt issuance was less than $8.4 billion, down from more than $22.5 billion the previous year.

Only 214 issues amounting to $4.2 billion carried bond insurance, down from 369 issues worth $15.2 billion in 2008.

Under another stimulus program, school districts in the region sold $642.9 million of qualified school construction bonds, which provide investors with a tax credit in lieu of, or in addition to, coupon interest.

Citi retained its position atop the Far West league table for senior managers, credited with more than $20 billion in volume, while Bank of America Merrill Lynch edged JPMorgan for second place.

Piper Jaffray & Co. entered the region’s top 10 volume list for senior managers, credited with 159 transactions, more than any other firm in the region and up from 85 the year before.

Absent from the top 10 was UBS Securities, which closed its municipal bond underwriting unit in 2008 (though it continues to bid on a few small competitive deals).

It’s somewhat fitting for Piper to displace UBS, because the firm hired a dozen UBS bankers after the Swiss investment bank abandoned the muni market, said Mark Curran, managing director for Piper Jaffrey in San Francisco.

“Basically the firm expanded very substantially,” he said of Piper.

“We’ve also focused on what kind of senior bankers’ expertise and knowledge is best suited for the California market,” Curran added.

Public Resources Advisory Group topped the region’s financial adviser chart, ahead of Public Financial Management.

Orrick, Herrington & Sutcliffe LLP retained its usual position atop the Far West bond counsel rankings, credited with a 44.7% market share.

Issuers in California sold more than $72 billion of debt though 735 issues; volume in the state jumped more than 36%, though there were slightly fewer transactions. More than $15.6 billion of Build America Bonds were sold in the Golden State, and despite that new taxable bond product, tax-exempt issuance was up 13%.

Washington issuers sold almost $10.1 billion in bonds in 249 deals, an increase of more than 15% in volume. The state’s transportation sector was up more than 56%, according to Thomson Reuters.

The Washington state government’s $765 million sale of general obligation bonds in July was the year’s largest deal outside California, and the largest competitive deal in the region in 2009. JPMorgan had the winning bid for three tranches of the debt.

Barclays Capital nudged JPMorgan to be the top senior manager in the Washington, while Seattle-Northwest Securities Corp. was the top ranked financial adviser. Foster Pepper PLLC was the top bond counsel.

Volume and issuance increased in Oregon, to 114 issues for more than $4.3 billion, as volume in the state’s education sector more than doubled to top $1.3 billion.

There were 20 bond issues from Hawaii during 2009, for more than $2.5 billion, more than doubling 2008 in both number of issues and volume.

Largely because of a substantial drop in the education sector, Nevada’s volume dropped more than 19% to $3.3 billion, though the number of deals rose by nine, to 57.

The massive Clark County School District, a heavy issuer of debt most years, issued less than $130 million in 2009.

Municipal bond volume in Alaska increased more than 32% to top the $1 billion mark.

Idaho saw issuance decrease by 34%, to $724.9 million. Volume in Wyoming dropped more than 50%, to just under $330 million. Montana issuance declined by more than 32% to $172 million.



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