Far West Volume Down in 2014

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LOS ANGELES — Municipal bond sales in the Far West were down slightly in 2014 as new money issuance slowed down across much of the region.

Issuance in the nine-state region dropped 3.2% from 2013 to $65.6 billion, according to Thomson Reuters data.

Nationally, municipal bond volume was up a slight 0.7%. The Far West mirrored the national drop-off in first quarter 2014 sales with a 42.5% year-over-year decline to $10.8 billion. The region saw a 20.7% jump to $17 billion in the third quarter and a 22% jump to $20 billion in the fourth quarter, but it wasn't enough to make up for the decline in the first half of the year.

New money volume in the region dropped 12.3% to $25.9 billion last year and refundings dropped by 3.4% to $24.9 billion.

Deals in the Far West classified as combined new-money and refunding were up 18.9% to $14.8 billion.

Less issuance on the state government side is likely the driver for the decline in volume, said Michael Johnson, managing partner and co-chief investment officer at Gurtin Fixed Income Management in Solana Beach, Calif.

Fluctuations in the numbers tend to be driven by the states, because the state government makes up a larger percentage of the issuance in states like California, Johnson said.

"I feel like I have seen a pick-up in local issuance, but not at the state level," Johnson said.

The push to refund bonds after several years of low interest rates has slowed as the amount of bonds in the refunding queue shrinks.

The volume of bonds issued 10 years ago that are now callable candidates for current refunding impacts today's refunding volume, Johnson said.

"Interest rates then were still higher than they are now," he said.

As the region's largest issuer, the Golden State's bond sales can affect volume for the region. Municipal bond issuance by issuers in California dropped 4.4% last year to $46.9 billion.

California new money issuance dropped by 11.5% to $18.5 billion while refunding volume dropped by 7% to $18 billion.

The California state government contributed $6.2 billion of general obligation sales in 2014, but $2.09 billion was for refunding, according to Jacob Roper, spokesman for Treasurer John Chiang.

"The new money amounts between 2014 and 2013 were very similar," Roper said. "We just didn't do as many refundings, because there were not as many opportunities to after we had gone through so much of the queue."

Since 2011, the treasurer's office has issued $10.3 billion of refunding GO bonds taking out $11.2 billion in bonds issued at higher interest rates, Roper said. The sales resulted in $2.5 billion in debt service savings over the life of the bonds and $1.74 billion in present value savings, he said.

Several states saw increased refundings.

Nevada's refunding volume grew by 6.1% to $1.2 billion; Washington's by 14.7% to $3.6 billion; Wyoming's almost tripled to $316 million; and Idaho refunding volume more than quintupled to $188.7 million.

The region's largest sale was a $2.3 billion California GO pricing on Sept. 23. The state also sold $1.9 billion of GOs on March 12 for the region's third largest sale. Los Angeles Community College snagged the No. 2 slot with a $1.8 billion sale on Dec. 10. Los Angeles Unified School District earned the fourth slot with a $1.6 billion sale priced June 12.

California plans to price $1.1 billion of refunding bonds and $790 million in new money GOs next week in what will be the first deal under Treasurer Chiang, who took office in January.

Bank of America Merrill Lynch took the title of top senior manager in the region, credited by Thomson Reuters with $8.2 billion of volume. JPMorgan, which held the top slot last year, came in second with $8.1 billion. Citi retained its third slot with $6.9 billion.

Public Financial Management Inc. seized the top slot of the region's financial advisers with $10.3 billion of volume. Public Resources Advisory Group, dropping down a slot from last year's top position, followed closely with $9.3 billion. KNN Public Finance came in third with $6.3 billion.

PFM demonstrated growth in all areas of its practice in 2014, said Peter Miller, managing director for the firm's Western region.

Brian Thomas, also a managing director in PFM's Western region, cited a number of specific growth areas in 2014. They included environmental finance, which nearly doubled from the previous year. In addition, the firm's Seattle office and new schools practice generated new revenues. Core businesses such as public power, airports and transportation experienced growth last year, he said.

"PFM is vigilant in analyzing our client's overall financial picture," Miller said.

"With interest rates remaining low, we help our clients to be well-positioned to reduce their debt service burden," Miller said. "Debt is not always the best way to fill a capital need, and PFM helps its clients analyze the range of funding alternatives without bias."

Orrick Herrington & Sutcliffe LLP continued its position atop the bond counsel rankings, credited with $24.2 billion in volume.

The region's development sector saw the largest growth percentage at 161% to reach $2.9 billion. Education, by far the largest sector with $18.3 billion in sales, declined by 15.2% from 2013. Transportation declined by 2.3%, but still represented the second largest sector at $11.6 billion.

Washington, the state with the second largest muni volume in the region, experienced a 3.2% increase to $8.6 billion from 2013.

The Washington electric power sector grew 118% over the prior year to $1.64 billion surpassing education, which grew 3% to $1.62 billion, as the Evergreen State's largest sector. Transportation was down by 46.2% to $843 million in Washington.

Idaho bond volume more than quadrupled in 2014 to more than $1 billion from $222 million.

New money volume declined in Washington by 26.9% to $2.9 billion; in Alaska new money was down 0.9% to $586 million; in Wyoming new money dropped by 53.9% to $60.5 million; in Nevada by 6.1% to $1 billion; and in Oregon new money was down 16.4% to $1.8 billion.

The third largest source of issuance in the region, Oregon experienced a sharp decline in volume, falling 30% to $3.3 billion.

As Nevada's economy continued to recover, issuance ticked up by 3.8% for the state to come in fourth in the region with almost $2.3 billion. The state, arguably the state worst-hit by the real-estate bust, began to gain economic traction in 2013.

Issuance in Hawaii grew by 15.9% to almost $1.6 billion. Education sector volume in the Aloha State increased twelvefold to $1.2 billion according to Thomson Reuters.

Alaska's issuance volume last year grew 22% to $1.1 billion.

Wyoming volume rose more than 50% to $411 million, while Montana volume was down 44.9% to $334 million.

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