Municipal bond insurance continued its re-emergence during the first half of the year, as Assured Guaranty topped the rankings.
The insurance industry nearly doubled the par value of wrapped bonds to $14.213 billion, from $7.301 billion during the first half of 2014. The number of deals with insurance increased to 1,072 from 630, according to data from Thomson Reuters. The first half rankings also showed Orrick Herrington & Sutcliffe LLP and Hawkins Delafield & Wood LLP remained in the top two spots among bond counsel.
Bond insurance has been making a comeback since around the second quarter of 2014. Insurance penetration in the muni market rose to 6.6% during the first half of this year, compared with 5.1% for the first six months of 2014. With the Federal Reserve Chair Janet Yellen saying Wednesday that an interest rate rise is likely in 2015, the industry may get a long-awaited boost, as higher rates would widen the spread between insured and uninsured yields, making their product more valuable.
Assured Guaranty led the charge in the first half, with the most par insured volume, market share and total number of deals. Assured insured $8.719 billion in par amount — good for 61.4% of the market — in 591 deals. The data includes Assured's subsidiary Municipal Assurance Corp.
"Demand for our insurance increased significantly in the second quarter of 2015 to more than double that of second quarter 2014, and our large and seasoned underwriting team and well-established business infrastructure allowed us to provide excellent service for 315 small, medium and large new issues," said Robert Tucker, managing director, investor relations and communications for Assured. "We solidified our leading market position by guaranteeing $5.3 billion of bonds sold in the primary market, representing almost two-thirds of insured par and 56% of insured transactions. Of those transactions, 16 had underlying credit ratings of double-A, indicating the market's strong confidence in our financial strength."
Assured improved upon its numbers in the first half of last year, when it wrapped $3.898 billion in par amount in 298 deals, for 53.4% of the market.
"Assured Guaranty was also the insurer of choice among smaller issuers, with AGM and MAC together wrapping more bank-qualified issues than any other guarantor in both the second quarter and first six months," said Tucker.
Build America Mutual saw significant growth in both par amount and number of deals, with $5.269 billion of par in 476 deals in the first half, up from $3.403 billion in 332 deals last year, though its market share fell to 37.1% from 46.6%.
In terms of the number of deals, Assured and its subsidiary, MAC account for 55.1% of the market, BAM has 44.4%.
"BAM's second quarter was our most successful to date, with double-digit percentage growth in both our primary and secondary-market activity," said Robert Cochran, Chairman of BAM. "That performance allowed us to again expand our claims-paying resources, which are well in excess of the levels required for a triple-A rating under the Standard & Poor's rating criteria and earned an 'extremely strong' capital-adequacy score in S&P's most recent rating review."
Cochran said that BAM isn't counting on a specific interest rate environment to drive results for the rest of the year.
"We think that continuing to demonstrate to investors the stability of our guaranty and the usefulness of our Obligor Disclosure Brief credit summaries will make BAM insurance more valuable and allow us to maintain our momentum through the second half," he said.
National, which started writing new business in the third quarter of 2014, was involved in five deals in the first half, with a wrapped par amount of $225 million or 1.6% of the market.
"We're pleased by the progress we made during the first half of the year, as we saw a significantly greater number of transactions, continued to increase our market share and made several key additions to our team," said Tom Weyl, managing director and head of new business development for National. "We continue to believe that bond insurance has been undervalued since the onset of the financial crisis, but that with the increased stress in the municipal market its value to investors is becoming more compelling. We expect that as interest rates increase, the economics of bond insurance will improve, leading to more rational pricing and greater insured penetration for the industry as a whole and National in particular."
Orrick First in Bond Counsel Rankings
All the top 13 law firms increased their par amount of deals year over year. Orrick was No. 1 with a par amount of $20.699 billion in 205 deals, or 9.7% of the market, an increase from $11.497 billion in 137 deals, or 8% of the market, in the first half of 2014.
"It was a terrific first half in public finance in general, as the market is up almost 50% in dollar volume and 30% in number of issues," said Roger Davis, chair of Orrick's public finance department. "That is good news for everyone, including us. Our numbers are up more than the market in general, and that's attributed to a great team of bond and tax lawyers and great clients. We don't take our ranking for granted and the credit belongs to the whole team."
Hawkins remained in second place, as the firm's par amount almost doubled to $12.413 billion in 223 deals or 5.8% of the market from $6.374 billion in 135 deals or 4.5% of the market.
"We are first underwriters' counsel for the first half of this year, as we have been generally for the past few years, but overall our volume went up about 100%," said Howard Zucker, managing partner at Hawkins. "We are very fortunate to have many very loyal clients across the country; but by 'fortunate,' I do not mean 'lucky', we know we cannot rest on our laurels. We understand that we have to come to work each and every day to earn and re-earn the trust and confidence of our clients. The trend for years has been for greater and greater specialization in the bond counsel practice."
Zucker said that this is a response to the enhanced complexity of municipal bond issues, and the highly complicated and extensive regime of federal tax regulations that apply as well as the heightened disclosure expectations of the market and of the Securities and Exchange Commission.
"Today, law firms that want to be active public finance law firms have to be truly dedicated to this field, and have to commit significant resources to have the depth and breadth of expertise in order to be able to advise issuers and others in the navigation of the matrix of issues across the full range of sectors of public finance. Hawkins has among its 90 public finance lawyers, lawyers specializing in securities law and disclosure and 13 lawyers who specialize in tax law relating to tax-exempt bonds," he said.
The top 13 firms saw the overall par amount increase to $213.287 billion in 6,791 issues from $143.283 billion in 4,889 in the first half of 2014. The improvement in par amount is due to the fact that this year has seen a tremendous amount of overall muni issuance, thanks to astronomical refunding volume, as issuers have been taking advantage of low interest rates while they still can.
"The increased volume was a product of several factors, including historically low interest rates, especially as compared to rates in the 2005 era. According to the financial pundits, rates are expected to increase later inthe year, and thus there may be a slackening pace of refundings. But our philosophy has been that we cannot control many things, including interest rates, but if we stay focused on providing our clients excellent advice and service, we will do well," said Zucker.
Norton Rose Fulbright came in third, improving from their sixth place in the same period of last year. The firm's $9.697 billion in par in 215 deals, or 4.6% market share, compared with $4.367 billion in 169 deals or 3.1%.
McCall Parkhurst & Horton LLP dropped one spot to fourth, despite an increase in par amount and number of deals. The firm finished the half with $7.891 billion in 252 deals - the most of any firm on the list — and 3.7% of the market. That compares with $6.112 billion in 179 deals or 4.3% of the market during the same period of last year.
Rounding out the top five, is the firm that made the biggest jump in the rankings, Ballard Spahr LLP, which a year ago finished No. 18. The firm finished the first half of the year with $6.640 in 79 deals or 3.1% of the market, up from $1.943 billion in 35 deals or 1.4% a year earlier.
