Assured Guaranty and Orrick, Herrington & Sutcliffe LLP increased their leads in the municipal bond insurance and bond counsel rankings in the first half, expanding their businesses even as overall muni volume shrank amid political uncertainty.
Assured insured $7.01 billion of par insured in 435 transactions as its share of the insured market rose to 59.4% from 53.6% in first half of 2016, according to data from Thomson Reuters. Assured's insured par so far in 2017 is higher than the $6.93 billion in 466 deals during the same time the year before. The figures include Assured's subsidiary Municipal Assurance Corp.
Orrick accounted for $26.33 billion in 227 deals or 14.1% market share among legal counsel in the first half, up from $22.13 billion in 218 deals or 10.4% market share.
"Assured Guaranty increased its second-quarter par insured by 7% year-over-year, even though total second quarter par issued was down 16% and industry insured par was down 7%," said Robert Tucker, senior managing director of communications and investor relations for Assured. "Our primary market insured par for the quarter was $4.1 billion, 1.9 times that of our nearest competitor and representing 257 small, medium and large transactions.”
The par amount of insured transactions shrank industry wide as bond volume fell amid investor concern over U.S. interest rate and tax policy as President Trump took office. The municipal bond insurance penetration rate inched up to 6.05% for the first six months of the year, from 5.70% at the end of 2016. Assured, Build America Mutual, and National Public Finance Guarantee wrapped a total of $11.79 billion in 861 issues, down from $12.91 billion in 977 transactions during the first half of 2016.
“We continued to see increasing demand for our guaranty on larger transactions, which typically interest institutional investors, and were selected to insure seven transactions, each over $100 million in size, during the second quarter," Tucker said. "The 12 $100-million-plus transactions we insured in the first half of 2017 is the most for a first half since 2011. Also, our secondary-market activity for the first half was particularly impressive, as we issued 241 policies for a total of $1.2 billion of par, up 62% over the previous year’s same time period.”
Assured insured select maturities on some notable larger transactions during the second quarter including: The City of St. Louis for Lambert International Airport, the Economic Development Finance Authority, Ky., for Owensboro Health, Hayward Unified School District, Calif., Fresno Joint Powers Financing Authority, Calif., and Suffolk County, NY.
“With Assured Guaranty’s profitable financial operations and $12 billion in group claims-paying resources, the market has consistently seen the benefits of owning bonds we insure, both in the improved market liquidity and greater price stability typically seen on our insured bonds relative to the same issuer’s uninsured bonds, and in the certainty of timely debt service payments our guaranty reliably provides,” he said. “Additionally, our insured leverage ratios continue to improve, further strengthening the value of our guaranty, and on June 26th S&P affirmed the AA stable financial strength ratings of all our principal operating subsidiaries.”
BAM's insured principal amount dipped to $4.18 billion across 356 deals or 35.4% market share, from $5.61 billion or 43.5% market share the same time the year before.
“BAM had a strong quarter, with more than $2 billion of new issues insured in the primary market for more than 160 issuer members, and we again delivered on our principal financial goal: Growing our claims-paying resources and building on our financial strength,” said Bob Cochran, BAM’s chairman. “Those gains came despite a few weeks of uncertainty that limited our primary market business while S&P Global Ratings reviewed, and ultimately affirmed, our AA rating and Stable outlook. Now that S&P’s analysts have explicitly validated BAM’s mutual structure and exclusive focus on insuring U.S. municipal bonds, we have resumed our role as an important option for issuers, underwriters and investors seeking to improve their bonds’ credit quality and market access. We look forward to continuing on our mission to provide value to issuers and investors in the municipal market.”
National finished the half with $609 million of par insurance, up from $376 million for first half of 2016. Its market share rose to 5.2% from 2.9%. However, the second quarter was the final hurrah for the muni-only arm of MBIA Inc., as a two-notch downgrade from S&P on June 26 brought its rating down to A from AA-minus, curtailing new business and prompting the company to lay off 29 employees, including its entire new business team.
In a letter to owners, Jay Brown, CEO of MBIA and Bill Fallon, CEO of National and president and COO of MBIA said that S&P “pulled the rug right out from under National,” and that in doing so, S&P “missed the irony of having asked National to demonstrate market acceptance while requiring it to compete with the handicap of a lower rating level than its two bond insurance competitors.”
“The downgrade of National notwithstanding S&P’s evaluation that National satisfied its Triple-A financial strength criteria also highlights an overarching problem with the bond insurance industry: Having to rely on the rating agencies, given the potential for sudden and adverse changes to their rating criteria, can dramatically affect business fundamentals virtually overnight. Frankly, we believe that it is now much harder to make the case for deploying new capital in the bond insurance business,” said the letter.
According to Ipero, during the second quarter up until June 5th, Assured has 50% market share and 39% of insured transactions, while BAM has 43% and 49% and National has 7% and 11%.Those numbers compared to 61% and 51% for Assured, 33% and 40% for BAM and 5% and 8% for National. Those numbers give a sense of what the quarter was looking like before the S&P’s CreditWatch on June 6 disrupted things.
Justin Cooper, partner at Orrick, co-chair of its public finance practice and affordable housing finance group said the first half was similar to the first quarter, as refunding transactions fell in spite of unexpectedly low interest rates.
“We’re seeing a lot of activity in some newer sectors (PACE, student and faculty housing) and steady performance in some tried and true sectors (transportation, multifamily housing, healthcare and senior living). We continue to be bullish on the future of public finance, both in terms of meeting the core infrastructure and public service needs of our country and as an area of financial innovation.”
Hawkins Delafield & Wood LLP finished in second place with $12.88 billion or 6.9% market share with 183 deals, up from the $11.10 billion or 5.2% market share over 174 deals during the same period the year before.
"Relevant interest rate benchmarks have not increased in 2017 as predicted and that may have affected volume in the first half,” said Howard Zucker, managing partner at Hawkins. “In addition, one great ‘known unknown’, tax reform, has not advanced as quickly as some pundits had predicated and the Administration had originally suggested. In the second half of 2017, how tax reform advances, if at all, could have a major effect on the tax exempt bond market.”
Zucker said that as far as law firms are concerned, the clear and compelling trend for enhanced expertise and depth has continued because of need to advise clients in the navigation of the matrix of issues in the ever-increasing complexity of transactions, and the more intense regulatory compliance regimes in both securities law and tax law.
“Recent examples include the new issue price regulations that became effective for sales on or after June 7, 2017, and the proposed additions of two somewhat controversial material events under 15c2-12 secondary market compliance,” he said.
Hawkins finished first among bond underwriters' counsel, with a par amount of $13.66 billion in 56 deals or 10.3% of market share.
Back to the bond counsel rankings, Norton Rose Fulbright ranked third with $10.04 billion, followed by Kutak Rock LLP with $6.33 billion and McCall Parkhurst & Horton LLP with $6.32 billion.
Rounding out the top 10 are Stradling Yocca Carlson & Rauth, Nixon Peabody LLP, Ballard Spahr LLP, Gilmore & Bell PC and Squire Patton Boggs.