Regional News

Northeast Issuance Drops in 2013 First Half

Issuers in the Northeast sold almost $44.3 billion of municipal bonds in the first half of 2013, according to Thomson Reuters data, down more than 25% from the same period a year earlier.

Northeast Midyear Review

A promising $23.79 billion first quarter, in which Northeast volume outpaced 2012 numbers by 9.2%, was followed by a second quarter drop-off to $19.49 billion, down more than 47% from the year before. The region encompasses 11 states, Puerto Rico and the District of Columbia.

The almost $11 billion decline in New York’s second quarter compared to the second quarter of 2012 — volume dropped more than 65% — contributed to the regional swing, Lamont Financial Services Corp. President Robert Lamb said.

The first half’s biggest issuers were New York City with $2.35 billion, the New Jersey Economic Development Authority with $2.3 billion, and the New Jersey Turnpike Authority with $2.14 billion.

The growth or decline of the region’s states varied markedly. Delaware’s issuance jumped 81%, the fourth highest growth of any state. New Jersey was just a few steps behind at 77%. By contrast, Puerto Rico issuers didn’t issue any bonds. The District of Columbia also saw a big contraction, dropping 47%.

The Northeast states with the most issuance in the first half were New York with $15.4 billion, New Jersey with $9.3 billion, Massachusetts with $5.1 billion, Pennsylvania with $5 billion, and Maryland with $3.6 billion.

Though Puerto Rico issuers, which issued $7.5 billion in the first half of 2012, issued no bonds in the first half of this year, they are expected to be active in the second half, beginning with Wednesday’s $673 million Puerto Rico Electric Power Authority pricing.

Issuance from New York was down 39% from the first half of 2012 after the second quarter drop-off.

The jump in interest rates in the second quarter made borrowing more expensive, Lamb said. In this context, refundings fell off the table.

New York State agency issuance plunged 58% in the first half compared to the first half of 2012. These agencies had some large refundings last year, Lamb said. The agencies had done the bonding they wanted to do, so they did not return to the market. Higher interest rates in the second quarter also shrunk or eliminated refundings.

In  the next six months of 2013, Lamb said many capital projects are needed and he expects new money bonding to increase.

In the near future, the Dormitory Authority of the State of New York is expected to sell $526 million in revenue bonds the week of Aug. 19, the Empire State Development Corp. is expected to sell $813 million in personal income tax revenue bonds in early September, and the Battery Park City Authority is expected to sell $1.1 billion in bonds in mid-September.

The region’s second biggest source of issuance, New Jersey, is an outlier this year. In a period of declining issuance for the nation, total bond issuance exploded by 77%. State agency issuance explained most of the half’s growth: it went to $6.38 billion from $2.69 billion.

For the agencies’ state-backed bond issues, the state “continued to pursue large refunding opportunities that offered us interest savings because of the historically low rates prevailing in municipal debt markets,” New Jersey Treasury spokesman Bill Quinn said.

The state did two large refunding issues in the half, Quinn said. The New Jersey Economic Development Authority sold $2.25 billion of school construction refunding bonds -- the largest deal of the first half in the entire region -- and the Transportation Trust Fund Authority sold $877 million in refunding bonds. Additionally, through the agencies, the state sold $474 million in new money bonds, Quinn said.

Interest rate movements will affect volume in the coming months, Acacia Financial co-president Noreen White said. Some localities may sell notes rather than bonds.

The third largest issuer in the region, Massachusetts, saw volume decline only 0.5% in the first half, compared to the national decline of 10.1%. An underwriting professional in Massachusetts suggested that the state may have had more infrastructure needs, particularly for schools. Education bonding was up 23%.

The state’s healthy muni sectors also included general purpose, up 29%, and housing, up 251%. These two sectors grew by $501 million and $314 million, respectively, year over year. There was little housing issuance in 2012 in the state, so it may be playing catch-up, the source said.

In the year’s first half Pennsylvania was the fourth biggest issuer in the Northeast.

While transportation funding went down 7% nationally, it went up 77% in Pennsylvania. While utilities bonding went down 26% nationally, it went up 113% in the state. Though taxable issuance went up 90% nationally, it went up 231% in the Keystone State.

The coming months in Pennsylvania look quiet, according to financial advisor Public Financial Management.

“With the climb in rates over the last two months, magnified by the huge spike in mid-June largely sparked by Fed comments, it appears that several refundings that were expected to sell in the second half of the year may be postponed,” PFM managing director Brad Remig said.

“What may offer the Pennsylvania market some activity in the second half of 2013, however, will be the issuance of debt for new money projects where issuers are concerned about a further increase in rates in 2014,” he said.

“Also, several clients that have bonds that are advance refundable are considering locking in rates now before the market gets away from them where they might see savings evaporate if they were to wait until the original call date,” Remig said.

The Northeast region’s fifth largest issuer, Maryland, saw a 35% issuance increase in the first half. The sectors that saw big increases in both percent and dollar terms were education, up 112%, health care, up 98%, and utilities, up 57%. Counties increased their bond sales by 83%, an increase of $490 million.

In Maine, issuers sold $728 million in the first half.

The first quarter saw a 69% leap that was followed in the next quarter by a 48% drop year over year. Joseph Cuetara, senior vice president at financial advisor Moors & Cabot, said his firm’s professionals suspected rates might be going up soon and successfully encouraged Maine issuers to sell refundings and new money bonds in the first quarter to lock in the lower yields. Moors & Cabot ranked first among Maine’s financial advisors.

Puerto Rico was the missing player in the first half though it won’t remain so.

“During the first half of 2012, the Commonwealth was taking advantage of market conditions and investor demand to execute its already disclosed financing plan,” the Government Development Bank of Puerto Rico said in a statement. “Most of the financing plan was executed during that time.  During the [second half of 2012], market conditions were not ideal for the Commonwealth to place bonds so it was decided to cease capital market activity until after the [gubernatorial] election.

“Since [the Gov. Alejandro García Padílla] administration took office in January 2013, efforts have been focused on reforming the government’s main retirement system, balancing the budget, and identifying additional revenues for the Highway and Transportation Authority before returning to market,” the GDB continued. “We have also been working on finalizing the 2012 comprehensive annual financial report in order to come to market with central government related credits.”

The Northeast region’s biggest senior managers by volume remained Bank of America Merrill Lynch in first, JPMorgan second, and Citi third. Compared to the first half of 2012, the market share of all three increased. B of A Merrill in particular improved, increasing its market share by 2.7 percentage points to 22%.

Among the region’s financial advisors, Public Financial Management remained in the lead. First Southwest, which had been seventh in the first half of 2012, jumped to second with an 11% market share in 2013. Public Resources Advisory Group was third.

The biggest two bond counsel firms were the old hands Hawkins Delafield & Wood LLP and Nixon Peabody LLP, in first and second on the table. However, McCarter & English was third place, jumping from 20th place in the first half of 2012 list, credited with almost $3.2 billion of volume on 14 transactions. Its market share exploded to 7.4% from 1%.




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