Healthcare and utilities municipal bond issuance grew by a combined $27 billion in 2016 year-over-year.
They were the sectors with the first and third biggest growth in terms of par value in the year. The general purpose sector saw a $13 billion expansion but had a smaller 14% growth.
For the year, healthcare grew 47.7% and utilities grew 25.4%, the first and third largest percent expansions from 2015. Environmental facilities had the second largest percent expansion with 45.4% but only grew by about $770 million in par value.
Total municipal volume was up 11.2% from a year earlier.
The sectors that saw the greatest percent decreases were electric power (down 17%), public facilities (down 12.9%), and development (down 9.1%).
All dollar totals and percentages are for par value of issuance and based on Thomson Reuters data.
The sectors with the greatest amount of issuance were education with $130.3 billion, general purpose with $106.3 billion, transportation with $51.9 billion, utilities with $51.8 billion, and healthcare with $51.1 billion.
To explain the increase in healthcare issuance, veteran municipal market analyst and Bond Buyer contributing editor John Hallacy pointed to the Affordable Care Act. This led to increased outpatient facilities use and consequently increased building of these facilities.
In the healthcare sector, general acute care hospital issuance increased 61% and $16.1 billion and continuing care issuance increased 39.3% and $1.6 billion.
Mergers and acquisitions increased in 2016 and institutions probably sold bonds to finance them, said Citi municipal strategies team associate Jack Muller.
The 25.4% growth in utility issuance was "likely a result of water and sewer issuers repairing their infrastructure," Muller said. "Given the water contamination crisis in one city, other water providers all got a strong reminder that properly functioning and well maintained infrastructure is a must."
Hallacy said that most of the expansion was in refunding volume, with utilities trying to take advantage of the low rates found during most of the year. Refunding grew 11.5% and combined issuance grew 93.5% while new money rose only 6.9%. Drought conditions and population growth in some areas also promoted greater water and sewer bond sales.
Muller explained the electrical sector's 17% decline by saying, "Continuously low natural gas prices have put pressure on electric utilities, because it means power is available for cheap in the wholesale market. The way power utilities deal with financial pressure is rate increases and cost cutting measures, which means less investment and therefore less debt issuance."
Hallacy said that power refundings are generally very sensitive to rates and were hurt by the increase in rates later in the year. "New money was probably curtailed due to the change in administrations and [concern about] what the new proposed policies would be from the Clean Air [Act] perspective."
In the housing sector refunding was down 7.7% even as it was up 8.3% for all bonds. To explain this, Muller said, "Housing finance agencies today are shifting their business model from lending out mortgages and selling them into the secondary (mortgage-backed securities) market, to lending the mortgages and keeping them on their balance sheets instead. To do this, they have to raise money for the loans in the municipal market. Therefore, the focus for HFAs this year has been new money issuance, rather than refundings."
Though public facilities issuance was down 12.9%, the libraries and museums subsector issuance was up 62.9% in what Hallacy said was a late economic expansion phenomenon. Governments usually green light their projects late in the economic cycle. "Certain select venues have had rising number of visitors and need to expand and to update to stay competitive with other venues," Hallacy said.
The airport subsector of transportation was up 16.5% or about $2 billion. In this subsector, "airlines are profitable and [there are] good airport utilization statistics, which leads to terminal improvements to help in gate issues and maximize concession spending," said Evercore director of municipal research Howard Cure.
Seaport subsector issuance shot up 46.8% due in part to the United States' "ever expanding trade deficits," Hallacy said. This had led to increased cargo loads passing through the ports triggering greater infrastructure needs for the ports. "The new Super Ships that are traversing the [2016 widened] Panama Canal require ports with deeper drafts. Many efforts are focused at dredging and improving dockside facilities and transfer operations. This activity is especially keen on the East Coast since the ports are in intense competition for business."
Muller agreed that greater use of the seaports probably contributed to the increased sales of bonds.
Environmental facilities issuance's growth of 45.8% was because some Clean Air Act standards were phased in over the last several years, Hallacy said. Some plants were replaced and others fitted with updated equipment. He also noted that while there as a large percent increase, the total was back at the trend line from earlier years.
