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Northeast Issuance Bounced Back After Skimpy 2011

Municipal bond issuance in the Northeast and Puerto Rico bounced back in 2012.

Northeast Yearend Review

Long-term issuance jumped to $112.3 billion in 2012, according to Thomson Reuters data, after falling to $92.9 billion in 2011 from $118 billion in 2010.

Regional issuance trends were less volatile then those of the nation as a whole. While national issuance fell 31.9% from 2010 to 2011 and jumped up 30.7% from 2011 to 2012, Northeast issuance slipped 21.2% from 2010 to 2011 and then expanded 20.8% from 2011 to 2012.

The Northeast’s more stable history of issuance might have been partly due to the major capital projects going in New York, said Bob Lamb, president of Lamont Financial Services Corp.

For example, the New York City Municipal Water Finance Authority and the Port Authority of New York and New Jersey sold large chunks of bonds in 2011 for their projects, he said.

Furthermore, when California Gov. Jerry Brown returned to power in 2011 he cut back on state bond sales dramatically, Lamb said — enough to create a ripple in the national statistics. The Golden State’s issuance of 40% less debt that year, compared to 2010’s total, made a significant contribution to the national drop in issuance in 2011.

As was the case in the nation overall, in 2012 the Northeast was shifting to refunding rather than issuing new money. Even though total issuance was up in 2012, the region cut its issuance of new money by 8.7%.

The Northeast states with the biggest issuance in 2012 were New York with 48.8 billion, Pennsylvania with $16.2 billion, New Jersey with $10.7 billion, Massachusetts with $9.1 billion and Maryland with $6.1 billion. These are total long-term municipal bond issuance figures from all issuers in each state.

The growth or decline of states’ issuance levels varied markedly.

Vermont led the pack with 647% growth to 2012 from 2011. Maine brought up the rear with a 21% decline in the period.

In 2012 the Vermont Student Assistance Corp. converted about $980 million of auction-rate notes to floating-rate notes, said Steve Wislowski, deputy treasurer with the Vermont treasurer office. That almost entirely explains the state’s jump in issuance to $1.569 billion in 2012 from $210 million in 2011, Wislowski said.

While issuance in New York State as a whole this past year grew by 32.7%, the jump concealed a decrease in direct state government issuance to zero from $1.159 billion in 2011.

The state’s lack of bond sales was simply a matter of timing, according to New York budget office spokesman Morris Peters, and did not reflect any change in the state’s outlook on debt.

New York State agencies and authorities were plenty busy in 2012, with an 83% increase in issuance to $24.9 billion. City and town issuance was up 91%, districts were up 79% and counties gained 47%.

In the next few years state government issuance should move both up and down. According to the adopted New York fiscal 2014 capital program, the state anticipates personal income tax and sales tax bonds to increase from $2.97 billion in fiscal 2013 to $4.79 billion in fiscal 2016.

On the other hand, the plan anticipates general obligation issuance to decline from $436 million in fiscal 2013 to $66 million in fiscal 2017. Total state-supported issuance is expected to go from $4.48 billion in fiscal 2013 to $6 billion in fiscal 2016 and then decline somewhat in the following years.

New York City government combined with the city’s authorities reported issuing $13.6 billion of debt in fiscal 2011 and again in fiscal 2012. The city’s fiscal year ends June 30. 

About $9.3 billion of New York City’s $13.6 billion of issuance in fiscal 2012 was new money, or about 68%. A similar proportion of the city’s fiscal 2011 issuance was new-money debt.

New Jersey muni issuance increased by 20% in 2012. State government issued nothing but its agencies accounted for about 57% of total issuance in the state.

“A major goal of our bond issuance last year was to take advantage of the favorable interest-rate environment in the markets to achieve savings on refinancings,” New Jersey communications director William Quinn wrote in an email.

“We focused on refinancing larger bond issues to maximize the savings from each transaction,” he wrote. “These have generally been issued by state agencies, which is why we were most active in that sector.”

In 2012 in New Jersey refunding was up 68% and new money was down slightly.

The development category of New Jersey issuance jumped to $1.073 billion in 2012 from $150 million in 2011. That was because the New Jersey Economic Development Authority issued $1.041 billion of cigarette-tax revenue refunding bonds in 2012, Quinn wrote.

“That offering restructured the bond terms to shorten maturities by five years. It also lowered interest rates, garnered ratings upgrades from Moody’s and Standard & Poor’s, and achieved net present-value savings for the state of more than $80 million,” he said.

Total New Hampshire issuance went down 8.3% to $1.36 billion in 2012. There was a 142% increase in city and town issuance to $327 million and a 156% increase in state government debt to $364 million. State authorities’ issuance, meanwhile, tumbled 45% to $658 million.

No major forces increased state government issuance in 2012, according to New Hampshire Treasurer Catherine Provencher. The state issues turnpike and grant anticipation revenue vehicle bonds “sporadically” when the need arises, she said. The state issued $110 million of the former, $98 million of the latter and $91 million of general obligation bonds this year, she said.

With a 21% decline in issuance, Maine saw the greatest regional drop in total issuance in 2012. That was almost entirely due to sharp decreases in state government and authority issuance.

Maine had a lot of bond authorization built up for 2011, said deputy state treasurer Barbara Raths. In 2012 the state was using up the remaining authorization.

Maine has $105 million in bonds that have been authorized but not issued. Gov. Paul LePage is asking the legislature to approve the state paying money it owes to state hospitals before he goes ahead with selling the $105 million.

The year’s top five Northeast issuers were the New York State Dormitory Authority with $7.028 billion, the Metropolitan Transportation Authority with $6.581 billion, New York City with $5.707 billion, the New York City Transitional Finance Authority with $5.662 billion and the Port Authority of New York and New Jersey with $3.695 billion.

The MTA had $1.6 billion in issuance in 2011. The expansion to $6.581 billion was due to a large amount of refunding, said Aaron Donovan, MTA spokesman. The refunding saved the agency nearly $1 billion, Donovan said.

The increase in MTA issuance contributed to transportation seeing the biggest dollar increase of any sector in the Northeast in 2012. Sector volume almost doubled to $20.87 billion in 2012.

Bank of America Merrill Lynch led the regional underwriting table, credited by Thomson Reuters with $19.6 billion in par over 121 issues.

Hawkins Delafield & Wood LLP topped the bond counsel chart, with $16 billion in volume.

Public Financial Management Inc. was top financial advisor, with $22 billion and 317 issues.

In the second spot, Lamont Financial Services Corp.’s share of par value advised increased 14.5% from 5.7%. Lamont was advisor to the MTA, said Lamont’s Lamb.

The MTA and others did a lot of refundings and Lamont advised them on these, he said.

Financial advisor A. C. Advisory Inc. saw its share in the Northeast grow to 5.1% in 2012 from 4.0% in 2011 as it finished fifth in the table.

“Our clients had increased activity triggered by refunding opportunities from the low rates,” explained A.C. Advisory president Adela Cepeda.

Acacia Financial Group’s share in the Northeast grew to 4.9% in 2012 from 2.0% in 2011 as it placed sixth in the volume ranking.

“I think our goal has been strategic growth from a national perspective,” said co-president Kim Whelan. “We were looking to expand in the areas where we already had a presence or in areas that strategically met our goals. What you see in the Northeast is really what we were trying to do nationally.”

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