ALAMEDA, Calif. — Issuers in the Far West sold $86.7 billion of municipal bonds during 2010, a pace down 8.5% from 2009, according to Thomson Reuters data.
As is often the case, the region’s statistics were strongly affected by its largest issuer, the state of California.
California led the region by issuing $10.5 billion of debt, but that was $12 billion less than it issued in 2009, when the state set a municipal market record by selling more than $23 billion.
If the data excluded California as an issuer, volume in the Far West would have increased in 2010.
California issuance is likely to continue declining in 2011. In January, Treasurer Bill Lockyer announced that, in coordination with the budget proposed by Gov. Jerry Brown, California will not sell new-money general obligation bonds in the spring for the first year since at least 1988.
That means the next sizable California GO bond sale won’t come until the autumn.
Taxable bond issuance soared by 59% to top $37 billion, or more than 43% of total Far West volume, as issuers went to market before the year-end expiration of the Build America Bond program and its 35% federal subsidy on taxable interest rates as an alternative to tax-exempt issuance.
Far West issuers sold $47.9 billion in tax-exempt bonds in 2010, down more than 32% from the previous year.
The largest sector recorded in the Thomson Reuters data was education, with $17.4 billion in issuance, down almost 6% year-over-year. Electric power issuance almost tripled, to $12.3 billion.
Transportation issuance was $15.8 billion, a 48.1% increase over 2009.
The expiration of the alternative minimum tax holiday on Dec. 31 — the sunset date for bond programs in the federal stimulus package — will skew the numbers for 2010 and 2011, according to Mark Young, director and co-head of the western region at Loop Capital Markets.
Many issuers of debt typically subject to the AMT, such as airports and seaports, front-loaded their issuance into 2010 to take advantage of the “holiday.”
As an example, Young cited one of his clients, the Long Beach, Calif., airport, which accelerated design and development of a terminal project in order to issue debt in October 2010 and beat the AMT sunset date.
“Basically, for Long Beach, that finished up the bond-financed component of their capital improvement plan,” Young said.
That’s not to say airport and seaport debt will vanish completely; in many cases, he said, issuers sold commercial paper during the AMT holiday, and they’ll be able to refinance it this year or later with long-term bonds that won’t be subject to the AMT.
That’s good, Young said, because the current yield premium for AMT bonds over fully tax-exempt debt is 65 to 75 basis points — very high historically.
Far West issuers only used bond insurance to wrap 169 issues totaling $3.4 billion in debt, down more than 19% from 2009 and a far cry from the days when bond insurance had more than 50% market penetration.
Citi retained its position atop the Far West league table for senior managers, credited with almost $16.9 billion in volume, with Bank of America Merrill Lynch second and JPMorgan third.
Public Resources Advisory Group topped the region’s financial adviser chart, ahead of Public Financial Management.
Orrick, Herrington & Sutcliffe LLP retained its accustomed position atop the Far West bond counsel rankings, credited with a 36.1% market share.
Issuers in California sold more than $61 billion of debt though 863 bond issues. Volume in the state was down more than 15%, though the number of individual transactions was up 19%.
California taxable issuance was up more than 43% in the only full year of Build America Bonds, while tax-exempt volume dropped by more than a third.
Washington issuers sold $12.4 billion of bonds in 308 deals, a 23% increase in volume. The state’s electric power sector was up more than 290% to $2.8 billion.
The state government’s $1.15 billion sale of BABs to fund highways in May was the year’s largest deal outside California.
Citi was top senior manager in Washington, while Seattle-Northwest Securities Corp. remained the top ranked financial adviser. Foster Pepper PLLC also remained the top bond counsel.
Debt volume decreased by 11% in Oregon to $3.8 billion, while the number of issues increased to 143 from 114. Volume in the state’s housing sector more than tripled to $285 million, while general purpose issuance decreased 45% to $762 million from $1.4 billion last year.
“Last year given the BABs, we saw a lot of deals that were scheduled to fund things this year get pushed into the last half of last year to take advantage of the lower costs,” said Patrick Clancy, a financial adviser at Western Financial Group in Oregon. “In the near term, we are seeing the overhang.”
Nevada volume was up almost 15% to $3.8 billion. Citi was top underwriter, with more than $1.6 billion in volume, and the joint venture between Public Financial Management and Hobbs Ong & Associates dominated the Silver State’s financial adviser rankings.
There were 21 bond issues from Hawaii during 2010, for more than $2.9 billion, up more than 15% from 2009.
Municipal bond volume in Alaska dropped about 12% to $942 million.
Idaho saw issuance rise 5.5% to $764 million. Montana bonding more than tripled to $699 million. Volume in Wyoming rose modestly to $358 million.
