Municipal bond insurers more than kept pace with the market’s growth through the first three quarters of 2015, with Assured Guaranty topping the rankings.
The insurance industry wrapped one-and-a-half times more bonds by par value, guaranteeing $18.851 billion through September, compared with $12.467 billion during the first three quarters of last year. The number of deals with insurance increased to 1,413 from 935, according to data from Thomson Reuters as of Oct. 1. The league tables also showed Orrick Herrington & Sutcliffe LLP and Hawkins Delafield & Wood LLP remained in the top two spots among bond counsel – well ahead of the rest of the pack.
Insurers’ 50.1% increase over the three quarters exceeded the 33% jump in muni volume from a year earlier, helping boost the insurance penetration rate to 6.1%, from 5.5% for the year 2014 and 3.4% in 2013. Market penetration edged higher even as insurers waited for higher interest rates that would enhance the value of their product. While some see a chance of a rate increase during the Oct. Federal Open Market Committee meeting, most industry experts believe a hike is off the table until 2016.
Assured Guaranty led the way for insurers during the first three quarters of the year, with the most par insured volume, market share and total number of deals. Assured insured $11.438 billion in par amount — good for 60.6% of the market — in 806 deals. The data includes Assured's subsidiary Municipal Assurance Corp.
“Assured Guaranty's financial strength and trading liquidity continued to produce market-leading demand for our insurance in the third quarter of 2015,” said Robert Tucker, managing director, investor relations and communications for Assured. “We guaranteed $3.1 billion of the new issues sold, representing 60% of the par and 56% of the transactions insured during the quarter. In the month of August alone, Assured Guaranty captured 72% percent of the insured par. And we saw additional demand in the secondary market, where we increased par insured by 22% compared with third quarter of 2014.”
Assured and MAC totaled $11.89 billion of principal amount insured, according to Tucker, who also said that Assured’s year-to-date new issuance performance led the industry, as market share in terms of both par and number of transactions insured has increased.
“Our new-issue par volume was 55% higher than our year-to-date volume in 2014, outpacing the overall municipal volume growth,” he said. “In total, including our secondary market activity, we have insured over $12.7 billion of par since the beginning of the year,”
Build America Mutual increased both its number of deals and par amount for the year to date, while its market share was flat at 37.3%, compared with 38% a year earlier. BAM completed the first three quarters with $7.027 of par amount wrapped in 645 deals, up from $4.735 billion in 457 deals in the same period of last year.
“The third quarter was one of BAM¹s most successful, with more than $2.5 billion of new par insured, including almost $300 million in the secondary market,” said Sean McCarthy, CEO of Build America Mutual. “Our par outstanding grew to more than $21 billion and our membership now totals more than 1,600 issuers. Those results, in turn, boosted BAM¹s financial strength: Claims-paying resources rose by the largest quarterly amount since the company was launched. The market also continues to embrace BAM's free Obligor Disclosure Brief credit summaries, which are published on our web site for every issuer we insure and updated annually: Downloads increased almost 70% from the third quarter last year."
McCarthy said higher interest rates will eventually help increase demand for insured municipal bonds. In addition to the lack of action on rates, secondary trading volume, which often drives secondary market insurance activity was “relatively low, he said. “The strong performance despite those headwinds is a sign of a more fundamental growth in demand for insured bonds that we expect to see carry forward into the coming quarters," McCarthy said.
National Public Finance Guarantee has wrapped $386 million in 16 transactions, good for 2% market share from $300 million in two transactions for 2.4% of the market at this time in 2013. NPFG’s principal amount insured was $386 million.
“National has made good progress in expanding its sales and marketing organization and we’ve expanded the number and scope of our transactional reviews to include standalone sureties and secondary market policies,” said Tom Weyl, Managing Director, Head of New Business Development at National. “It’s going to take some additional time for our efforts to increase our primary market share of new business.”
Weyl also said that the low interest rate environment continues to be the company’s largest challenge, though the company is now better positioned for the greater market opportunities that are likely to result from higher interest rates.
“In the meanwhile, given the long term nature of our business, short-term delays of interest rate hikes aren’t expected to have meaningful impacts on our financial condition,” Weyl said.
Orrick Remains No. 1 Bond Counsel
Municipal bond counsels are continuing to reap benefits from the year’s growth in, as numbers for all top 13 firms are higher than at this time last year.
Orrick completed the first three quarters with $31.08 billion in 311 deals, good for 10.4% market share.
“The market is up in both dollar amount and number of issues as it’s been a terrific year in public finance,” said Roger Davis, chair of Orrick's public finance department. “That tends to float everyone’s boat and for some reason our boat is floating just a bit higher,” he said. An increase in regulatory and enforcement risks, “is favorable to larger and more established, safer choice firms and senior firms with tax and securities and disclosure regulation experience. Another reason might be that Orrick has a very strong group of young partners and senior associates, with lots of energy and enthusiasm who will be taking over for some older, well established counsel.”
Hawkins remained in second place with $17.01 billion in 306 transactions or 5.7% of the market, followed by McCall Parkhurst & Horton LLP with $12.32 billion in 369 transactions, the most of any top 13 firm.
Norton Rose Fulbright is in fourth place with $11.74 billion in 287 deals and Kutak Rock LLP rounds out the top five with $10.24 billion in 305 issues.
Rounding out the top 13 are: Ballard Spahr LLP, Sidley Austin LLP, Gilmore & Bell PC, Stradling Yocca Carlson & Rauth, Chapman and Cutler LLP, Greenberg Traurig LLP, Squire Patton Boggs, Chiesa Shahinian & Giantomasi PC and Foster Pepper PLLC.
