Municipal bond insurers and legal counsel rode out another quarter of declining issuance as the new tax law and rising interest rates started to bolster demand for their services.
The par amount of bonds insured fell 21% from a year earlier in the three months ending Sept. 30, while bond counsels' par amount slipped 12%, as the pace of the decline slowed from 23.2% and 17%, respectively, in the first half. Assured Guaranty and Orrick Herrington & Sutcliffe LLP remained atop the muni bond insurance and counsel rankings.
Municipal bond issuance through three quarters has decreased 15% from the same period of 2017, largely reflecting the ban on tax-exempt advance refundings that took effect at the beginning of 2018. .
Assured insured $7.49 billion of par value in 442 transactions in the nine months of 2018, according to data from Thomson Reuters. That compares with $9.79 billion in 635 deals a year earlier. The figures include Assured's subsidiary Municipal Assurance Corp.
“Our 56% share of insured new issue volume sold in the third quarter of 2018 reflects Assured Guaranty’s continuing market leadership and the appeal of our guaranty across a broad range of bond types and transaction sizes,” said Robert Tucker, senior managing director of communications and investor relations for Assured. “In addition to leading in volume insured, with $2.4 billion of insured par, we led in the number of transactions insured, with 160 transactions, or 53% of the insured new issues.”
Assured guaranteed 11 new issues with underlying ratings in the AA category, indicating investors’ appreciation of the firm's value proposition, Tucker said.
“In one important transaction, we helped Montefiore Health System achieve a lower all-in cost for its $1.2 billion offering by insuring $302 million of federally taxable revenue bonds,” he said.
Other highlights included insuring $135 million of revenue bonds to finance a new wastewater treatment facility for the West Rankin Utility Authority, Mississippi and $109 million of parking revenue bonds for the New Orleans Aviation Board.
“We saw an increasing number of institutional investors placing greater value on our guaranty," Tucker said. "We led in guaranteeing very large transactions, providing more than $100 million of bond insurance for each of 9 new issues during the first nine months of the year.”
Assured started off the fourth quarter strong, as it insured $500 million of ProMedica's $1.2B, mostly taxable transaction last week.
Bond insurance industry penetration edged up to 5.33% as of Sept. 30, from 5.29% at the end of 2017. Rising interest rates should stir some more appetite for the product.
Build America Mutual finished the first nine months of the year with a par amount insured of $5.80 billion in 486 transactions or 43.6% market share. That compares to the $6.43 billion over 355 deals or 38.2% market share during the first three quarters of 2017.
“Interest rates were generally rising in the third quarter, and that highlighted the liquidity benefits of insured bonds, especially for mutual fund managers who began to see cash outflows,” said Sean McCarthy, CEO of BAM. “That demand from larger buyers drove BAM’s average primary-market transaction size up 13% compared with the third quarter of 2018, and led to strong results for our secondary market insurance wraps and risk-adjusted pricing. Combined, those trends supported continued organic capital growth even as overall new-issue volume continued to trail its 2017 pace.”
Legal counsel
Orrick accounted for $30.35 billion in 272 deals, or 12.8% market share among legal counsel through three quarters of 2018, down from $36.50 billion in 327 deals, or 13.5% market share.
“We are very proud to be ranked No. 1 bond counsel both in dollar volume and number of issues,” said Justin Cooper, partner at Orrick, co-chair of its public finance practice and affordable housing finance group. “This has been a down year for the public finance market generally, but we have been fortunate to work with clients in several growth areas such as gas prepays, tobacco refundings, municipal securitizations, multifamily housing, P3 and PACE.”
Norton Rose Fulbright was second with $16.11 billion in 229 deals or 5.9%, compared with $16.19 billion and 229 deals and Kutak Rock LLP was third in bond counsel rankings with $11.17 billion.
Hawkins Delafield & Wood LLP came in fourth with $10.91 billion or 4.6% market share, dropping from the second place at this time last year with $17.04 billion. Hawkins was also ranked first in the underwriters' counsel rankings.
“For the first nine months of 2018, municipal bond volume was down 15% for the market as a whole; however, lawyers in all nine of our offices have been extremely busy in 2018,” said Howard Zucker, managing partner of Hawkins.
“This achievement is due to our relationship with our clients, and the quality and experience of our attorneys,” Zucker said. “The trend for many years has been for increasing expertise specialization and depth due to the ever-expanding sophistication of municipal bond tax regulations and securities law rules, and the increasing complexity of transactions. Today, more than ever before, law firms that aspire to be, or continue to be, leaders in public finance law, have to commit significant resources to have the full range and depth of expertise in order to advise clients how to navigate the matrix of legal issues to come to market and regulatory compliance post-issuance. There is simply no substitute for such expertise."
Though Hawkins is 164 years old, and has been doing public finance for over 135 years, the the firm can't rest on its laurels, Zucker said. "The culture of our firm is that we come to work each and every day to earn and deserve the trust and confidence of our clients," he said.
McCall Parkhurst & Horton LLP was next with $9.60 billion, followed by Chapman and Cutler LLP, Squire Patton Boggs, Bracewell LLP, Nixon Peabody LLP and Stradling Yocca Carlson & Rauth.
