DALLAS – Issuers in the Southwest sold $42.85 billion of bonds in the first half of 2016, only 0.6% behind the record pace of the same period last year, according to Thomson Reuters data.
The numbers tell a tale of two quarters, with volume in the first three months down 13% compared to the same period of 2015 and the next three months rising 12%.
Of the eight states in the region, only Colorado and Texas saw higher volume.
Volume in Texas was up 11% to $29.6 billion, representing more than 69% of the region's volume. Colorado's rose 34% to $3.7 billion.
Utah notched the biggest drop at 46%, followed by Arizona at 37.5%, Arkansas at 29%, and Kansas at 25%. New Mexico's volume was down 18.6% while Oklahoma's fell 8%.
In the first half of 2015, every state's volume rose substantially, led by Utah with a 116% increase. The region ultimately recorded a record $77.7 billion of issuance.
Oklahoma state bond advisor James Joseph said he expects volume for his state's issuance to exceed that of 2015 by year-end.
"If all issues listed come to market prior to calendar year-end, the state's volume will exceed 2015 levels and be more in line with prior years," Joseph said.
"Thus far 2016 has not been what we would have expected," said Douglas Benton, vice president at Cavanal Hill Investment Management in Addison, Texas.
In the energy producing states, "intuitively the negative impact of lower energy prices should have led to widening credit spreads in those parts of the country most impacted," Benton said.
"While there have been noteworthy downgrades in some areas, the municipal bond market seems to be ignoring them," he said. "That or managers don't have other choices if they want to remain long municipals but to buy into names experiencing credit weakness."
Noe Hinojosa Jr., whose firm Estrada Hinojosa & Co. ranked second among financial advisors in Texas and the Southwest, said the company has had "a pretty decent year."
"We were up about 5% compared to last year," Hinojosa said. "Normally, the third and fourth quarters are very good for us."
In a reverse of last year's first half, refundings in the Southwest were down nearly 13%, while new money issues rose almost 30%. In the first half of 2015, refundings soared 89% while new money fell 16%.
Across all regions, net negative supply in 2015 was about $75 billion, and the trend continued in 2016, according to the investment management firm Litman Gregory.
"That marked the fifth consecutive year of negative net supply—with municipalities retiring more bonds than they issued," analysts wrote in a recent report. "As more money absorbs fewer bonds, muni prices have moved higher."
Despite worries about the energy economy, the Texas supply line should remain full after voters approved $4.5 billion of bonds in May with another multi-billion-dollar ballot coming in November.
Hinojosa said that his clients on the Texas-Mexico border are not sweating presidential candidate Donald Trump's pledge to build a wall along the Rio Grande, a move that could dramatically impede cross-border trade.
"All of us in the industry are aware that our economies are intertwined globally," Hinojosa said. "We don't want to be in a place where we're not as competitive as the countries around us."
No issuer broke the billion-dollar barrier with a single deal in the first half, but the North Texas Tollway Authority came close with $987.8 million negotiated deal with senior manager JPMorgan on May 12.
Houston had the second-largest single issue, pricing $955 million through Wells Fargo Feb. 10. With other deals, Houston ranked first among issuers for total volume with $1.5 billion. NTTA ranked second on the strength of its only deal, followed by Colorado Health Facilities Corp. with $892 million, the University of Texas System with $808 million, and the Texas A&M System with $801 million.
The Texas Transportation Commission, which has led issuers in recent years with multi-billion-dollar deals, ranked eighth with $615 million but is expected to accelerate in the second half with a $712 million deal in September. The TTC won a dramatic increase in funding for its projects in a 2015 statewide referendum.
Among senior managers, JPMorgan came out on top in the Southwest, credited by Thomson Reuters with $5.26 billion of volume. More than $4 billion of those bonds were issued in Texas, where JPMorgan was also first.
Citi ranked second with $4.1 billion, including $3 billion in Texas. Third place went to RBC Capital Markets with $3.67 billion, followed by Bank of America Merrill Lynch at $3.64 billion, and Raymond James with $3.6 billion.
Dallas-based Hilltop Securities, which combines First Southwest Co. with former rival Southwest Securities, remained well atop the list of financial advisors with more than $14 billion of bond sales. Estrada Hinojosa was second in the region and in Texas with $3.52 billion. Rounding out the top five were RBC Capital Markets with $2.77 billion, followed by Samco Capital Markets with $1.86 billion, and Public Financial Management with $1.45 billion.
McCall Parkhurst & Horton stayed comfortably atop the region's bond counsel table, credited with $8.75 billion, followed by Norton Rose Fulbright with $5.46 billion, Bracewell with $4.58 billion, Andrews Kurth with $4.1 billion, and Gilmore & Bell with $1.3 billion.
Negotiated sales were down 3.3% to $33.67 billion while competitive rose 21% to $8.18 billion.
Arkansas' top issuer was the University of Arkansas with $165 million of bonds, and Raymond James led senior managers with $213.3 million. Stephens topped financial advisors with $233 million, and Friday, Eldridge and Clark led bond counsel with $757 million.
Arizona's top issuer was Pima County with $405.9 million. RBC was top senior manager with $952 million and top financial advisor with $451.9 million. Gust Rosenfeld led bond counsel ranks with $1.27 billion.
Colorado Health Facilities Authority topped the state's issuers with $892 million, while BofA Merrill Lynch led senior managers with $521 million of deals. Kutak Rock was top bond counsel with $894.9 million. Ponder & Co. topped the financial advisor table there.
The Kansas Development Finance Authority was top issuer in the Sunflower State with $222 million. Piper Jaffray was top senior manager with $471 million, while Springsted led financial advisors with $306 million. Gilmore & Bell topped bond counsel ranks with $1.32 billion.
The state government was New Mexico's top issuer with $302 million, and BofA Merrill Lynch ranked first among senior managers with $269.1 million. RBC Capital Markets was top financial advisor with $255.9 million, and Modrall Sperling ranked first among bond counsel with $425.8 million.
In Oklahoma, the state government was top issuer with $122 million, and D.A. Davidson was top underwriter with $369.2 million. Stephen H. McDonald's $496.6 million of deals made the firm top financial advisor. The Floyd Law Firm was top bond counsel with $536 million.
In Utah, the state government was top issuer with $241.5 million, and Wells Fargo ranked first among senior managers with $240.6 million. Zions Bank remained top financial advisor with $439.6 million. Ballard Spahr was top bond counsel with $663.9 million.
