DALLAS — A rising bond market has resulted in increased debt sales across the board in 2012, with some sectors rising higher than others.
That’s the lesson from the first half of the year, based on data collected by Thomson Reuters on the 10 distinctive sectors of debt issued by local and state governments.
The cumulative activity in those sectors led to a 65% increase in total debt sales to $192.9 billion in the first two quarters of 2012 from the $117 billion posted over the same period last year.
Every sector, from education to electric power, transportation to housing, came in with better numbers than in 2011 in volume and the number of sales.
The biggest percentage increases came from public facilities, with a 200% jump to $6.2 billion over 263 sales from $2.1 billion in 215 sales in the first half of 2011.
Utilities debt for water, sewer, sanitation and flood control also more than doubled in the period, with a 114% increase. Volume rose to $24.9 billion in 989 issues from $11.7 billion over 568 sales in the first six months of 2011.
The dimmest bright spot was development debt, with an 8% increase to $4 billion from $3.7 billion in 2011.
New money for development fell by almost half to $1.3 billion from $2.5 billion, but refundings pulled the sector into the black with a 385% increase to $2.4 billion from $488 million last year.
Refundings dominated during the period. The total of $86 billion in refundings topped the $69.2 billion of new money and $37.7 billion of combined offerings. Refundings were up 145%, while new-money issues topped 2011 totals by 11%. Combined tranches rose 93% in the period.
General-purpose bond sales totaled $56 billion in almost 2,000 issues, making it the largest single sector. The six-month total was up 84% from the $30.5 billion issued in 1,251 sales last year.
States were the biggest issuers, with $18.2 billion in 68 sales. Municipal issuers accounted for $17.5 billion of proceeds from 1,354 sales.
Refundings in the sector were up more than 250%, to $25.7 billion from $7.3 billion last year. New-money offerings totaled $19.4 billion, up 3.2%, with combined sales increasing 148% to $10.8 billion.
Issues dedicated solely or partially to refunding opportunities accounted for nine of the 10 biggest general-purpose bonds sales in 2012. The refunding sales included a $2.9 billion issue by the Michigan Finance Authority in June and May’s $2.3 billion refunding by Puerto Rico.
The education sector posted a 43% increase in volume, with $50.2 billion in sales from $35.1 billion in the first six months of 2011.
Sales included $37.2 billion for K-12 public education, up 46% from $22.5 billion in 2011, and $16.2 billion for higher education projects, up 66% from $9.7 billion last year. Student loan offerings fell almost 60%, to $1 billion from $2.5 billion in the first six months of 2011.
Educational sector refundings almost doubled, rising to $25.3 billion from $12.7 billion in 2011. New-money tranches were flat at $17.6 billion, while combined offerings totaled $7.3 billion for a 55% increase.
Glen Williard, who manages PFM Group’s K-12 efforts, said he expects refunding sales will continue to lead the market through 2012 and beyond.
Many local districts see the debt service savings realized from refunding their high-cost debt at lower interest rates as a means to stretch available revenues, he said.
“While we saw demand for some new money for larger projects that had been planned over last several years, we believe that refundings will continue to dominate the market for the next several months,” Williard said. “Most clients are focused on saving jobs and programs, and allocating resources for expected jumps in retirement costs.”
Public Financial Management was the lead financial advisor in the education sector, with $5.2 billion in 174 issues for a 15% share of the market.
Debt issued for water, sewer, flood control, and other utility needs more than doubled in volume over the period, to $25 billion from $11.7 billion last year.
Water and sewer efforts accounted for $23.3 billion of the proceeds, with combined utilities issuing $692 million of debt and natural gas utilities responsible for $661 million.
Utility refunding issues topped $10.6 billion, a 116% increase from $3.6 billion of refundings in 2011. New money totaled $9 billion, with $5.3 billion of combined issues.
Bond sales for electric power purposes totaled $7.6 billion, an increase of 46% from $5.2 billion in 2011. New-money offerings were up 59% to $2.3 billion, with $2.9 billion of refundings and $2.4 billion of combined sales.
Sales for transportation needs were up 66% from 2011, with $22.6 billion in 242 sales from $13.6 billion in 202 sales last year.
Highways, streets and toll roads accounted for $8.7 billion of the transportation total, with $8.2 billion for public transit and $4.4 billion of airport-related debt.
New money kept pace with refundings in the transportation sector based on sales, if not in percentage increases.
New-money proceeds totaled $9.1 billion, up 25% from $7.3 billion last year. Refunding issues more than doubled the 2011 pace, totaling $9.5 billion in 92 sales from $4.4 billion in 70 sales last year.
David Miller, managing director of PFM Group’s transportation group, said states and cities are looking for innovative ways to finance their highway, street, and public transportation needs.
PFM was the financial advisor for 33 issues totaling $2.9 billion in the first six months of 2012, and Miller sees the firm being involved in $4 billion to $5 billion of similar efforts over the next six to nine months.
If interest rates stay low, he said, refundings will continue to be attractive.
“Given the ongoing low interest rate environment, we will continue to see lots of refundings,” Miller said.
States and other transportation providers are having to be more creative in their project financing, he said, and are looking beyond traditional bonds to greater use of toll road revenues for highway maintenance as well as new construction.
Toll road finances are complex and difficult to structure, Miller said.
“Recent federal legislation in support of various transportation initiatives will be a help to issuers going forward,” he said.
Health care debt sales rebounded to a 39% increase after a 25% drop in the first quarter, thanks to an 82% increase in sales volumes in the second quarter. Sales totaled $15.8 billion in 223 tranches from $11.4 billion in 180 issues in 2011.
Refundings doubled from the year-earlier period to $5.6 billion from $2.8 billion in 2011. New money tranches totaled $5.2 billion, with $5 billion of combined new-money and refunding issues.