BRADENTON, Fla. — Municipal bond issuance in the Southeast last year was propped up by a nearly 95% increase in the use of Build America Bonds.
Issuers in the 11 states that comprise the region boosted debt sales to $77.2 billion, or 9.5% more than in 2009, according to Thomson Reuters. Most of last year’s 1,859 deals were offered in the first and fourth quarters.
BABs comprised $15.3 billion of the bonds sold, a 94.4% increase over the previous year. That pushed the amount of total taxable debt sold to $21.3 billion, an 82.5% increase over 2009. Tax-exempt bonds were still the most favored, with $55 billion of volume.
Schools issued $1.53 billion of qualified school construction bonds in 53 offerings last year, an 86.7% increase over 28 transactions in 2009.
With the expiration of the popular BAB program at the end of last year and most states still seeking to close big budget gaps, issuance may be affected this year as the region’s eight Republican governors evaluate their capital plans, according to John Hallacy, managing director at Bank of America Merrill Lynch, the top senior manager in the Southeast for the third straight year.
“I would say that the volume would be down at least 10 to 15%,” he said. “If some of the new governors are really concerned about expenses, there’s a chance [bonds] might get trimmed. I’m seeing some folks saying, 'I want to put off even the basic issuance until I absolutely have to.’ ”
Bank of America again led senior managers with a market share of 16.4%, or $12.52 billion in 160 deals last year. Citi maintained second place for the third year with $11.6 billion in 121 issues to capture a Southeast market share of 15.2%. Goldman, Sachs & Co. handled $8.5 billion in 48 deals to rank third.
State and local governments took advantage of continued low interest rates last year and refunded $19.7 billion of bonds, though that volume represented a mere 0.3% increase over 2009.
With predictions about inflation and so-called headline risk about the quality of municipal bonds, Hallacy said refunding opportunities are expected to diminish going forward as interest rates rise.
Issuers in the region last year sold most bonds for general improvements, agriculture, and insurance, with $20 billion of volume increasing issuance in the general-purpose sector to 3.8% over the previous year.
The second-largest amount of bonds was sold for education, though the $14 billion in volume represented a 14.3% decrease over 2009. The development sector, which includes industrial and economic development, saw a 201.6% increase in sales last year, with $4.65 billion.
The sale of revenue bonds was favored among issuers, with $59.3 billion of sales compared to $17.8 billion of general obligation issuance.
The use of credit enhancement plummeted 34.4%, with only $5.9 billion of debt being insured.Some $70 billion was sold as fixed rate while the use of variable-rate bonds increased by 128% to of $1.23 billion.
Florida and Georgia retained their status as the regions’s most prolific issuers, selling a total of $19.8 billion and $9.6 billion, respectively.
A $2.4 billion bond sale on March 24 made the nonprofit, state-run Florida Citizens Property Insurance Corp. the largest issuer in the Southeast.
The Georgia Municipal Electric Authority brought in the second- and third-largest deals of the year with $1.25 billion on March 3 and $1.02 billion on March 5 to pay for its share of two new nuclear units at Plant Vogtle near Augusta — the first U.S. nuclear power project in nearly three decades.
Louisiana posted the largest percentage increase in debt sales, going up 81% to $6.54 billion last year from sales of $3.62 billion in 2009. More than $5 billion of the bonds sold by Louisiana issuers went to market in the final two quarters of the year.
The volume of bonds supporting economic development skyrocketed by more than 650%, with sales of $2.2 billion last year from the $296.3 million issued in 2009.
Louisiana issuers accounted for four of the country’s 10 largest economic development bond issues. St. James Parish issued $600 million of development bonds in two $300 million tranches on Nov. 22.
Whit Kling Jr., director of the Louisiana State Bond Commission, said last year was an anomaly, with sales expected to fall back to a more normal level in 2011.
“Based on the filings we’ve seen from January to date, we expect somewhat of a downturn in 2011,” he said. “Certainly, it is not an active market.”
A significant portion of bonds issued last year in Louisiana were Gulf Opportunity Zone bonds, Kling noted, and that post-Hurricane Katrina stimulus effort is almost depleted.
“There is only about $400 million of GO Zone bond capacity remaining,” he said.
Kling said the state will not be too active in the municipal market in 2011. Some $300 million of GOs selling early next month may be the only issuance of that kind this year, he said.
“There will be no gas and fuel bonds issued this year,” he said. “At best, there could be some refunding, but that is highly unlikely at this point due to interest rates.”
Two large deals in the Carolinas helped drive up issuance in the education sector. Both stemmed from the 2008 financial crisis and required student loan issuers to refinance auction-rate securities.
The South Carolina Student Loan Corp. in November sold $920 million of London Interbank Offered Rate-based variable-rate notes and redeemed a portion of its outstanding ARS, according to Chuck Sanders, chief executive at the corporation. ARS were redeemed at par as a result of the refinancing, he said.
The North Carolina Education Assistance Authority issued $438 million of Libor notes to refinance a privately placed deal from 2008 with the state’s employee credit union.
The 2008 deal provided the agency with a buyer when the market for student-loan debt froze. Last year’s refinancing on the open market gave the authority a better interest rate, said general counsel Julia Hoke.
The authority still has $388 million of ARS outstanding, or about 35% of its total debt outstanding, Hoke said.
Virginia was the region’s third-largest issuer with $8.6 billion priced for the year, down 7.3% from 2009.
The state saw a surge in transportation issuance last year to $1.2 billion and may see an increase in the sector this year if Gov. Robert McDonnell’s transportation funding package is approved by the General Assembly.
Overall issuance in North Carolina fell 22.8% in 2010 to $7.8 billion, the largest year-over-year volume decline in the Southeast. Still, it was the region’s fourth-largest issuer last year.
South Carolina’s total issuance increased 41.2% from 2009 to $5.2 billion. Education deals increased to $2.1 billion, representing the largest sector of debt issuance in the state. South Carolina sold $725.2 million of BABs.
Tennessee issuers boosted volume last year by 25.8%, placing just over $6 billion of bonds into the market.
Issuance in Mississippi also increased by 13.3% on issuance of just over $3 billion.
Alabama’s sales dropped by 3% on sales of $4.09 billion.
West Virginia’s bond issuance increased by 24.3% to $1 billion, giving it the smallest volume of any state in the region. Most debt was for education, with $414 million in sales last year, more than double that of 2009. Issuers sold $88 million of BABs last year and none in 2009.
Public Financial Management Inc. maintained its years-long position as the top financial adviser in the Southeast, advising on 162 deals worth $10.9 billion for a market share of 20.3%.
First Southwest Co. had a market share of 12% and advanced to second place, up from third in 2009, with 70 deals worth $6.5 billion.
Third-ranked Public Resources Advisory Group captured a market share of 7%, advising on $3.8 billion in 41 deals.
Squire Sanders & Dempsey LLP remained the top-ranked bond counsel for the second straight year on $5.3 billion in 37 transactions, for a market share of 7%.
Orrick Herrington & Sutcliffe LLP shot up to second place from 13th in 2009, counseling on 17 deals worth $3.56 billion, a 4.7% share.
McGuireWoods LLP rose to third place from fifth with a market share of 4.4%, advising on 65 deals worth $3.3 billion.
