Assured Guaranty and Orrick, Herrington & Sutcliffe LLP increased their leads in the municipal bond insurance and bond counsel rankings in the first quarter, as political uncertainty and higher interest rates cut into the volume of transactions.
Assured insured $2.95 billion by par value in 181 transactions as its share of the insured market edged up to 56.7% from 53.9% in first quarter of 2016, according to data from Thomson Reuters. Assured's insured par so far in 2016 slipped from $3.11 billion in 199 deals the same time the year before. The figures include Assured's subsidiary Municipal Assurance Corp.
Among legal counsel, Orrick accounted for $12.63 billion in 104 deals or 14.6% market share in the first quarter, up from $8.38 billion in 82 deals or 8.8% market share.
The municipal bond insurance penetration rate inched up to 5.91% in the first quarter, from 5.87% in the same period of time in 2016. The three active bond insurers – Assured, Build America Mutual, and National Public Finance Guarantee – wrapped a total of $5.19 billion in 377 issues in the first three months of 2017, down from $5.76 billion in 434 transactions in the same time of 2016.
“We continued to lead the industry, insuring 150% of the new-issue par amount insured by the next most active bond insurer,” said Robert Tucker, senior managing director of communications and investor relations for Assured. “While total first quarter par issued was down 10% year over year, insurance penetration rose slightly, and Assured Guaranty increased its primary market share to 57% from 54% in first quarter 2016. Additionally, we continued to see solid demand for Assured Guaranty’s insurance on larger deals. With our approximately $12 billion in claims-paying resources, Assured Guaranty is in a distinct position to take on larger transactions without any single transaction representing a material amount of exposure relative to our claims-paying resources. During the first quarter, we were selected on five different transactions to insure more than $100 million of par.”
Demand for insurance in the secondary market grew as institutional investors recognized the value of the product, he said.
“The $711 million of secondary market par we insured in the first quarter of this year was nearly double what it was in the first quarter of last year. To support the greater demand, we have added staff to our secondary market desk,” said Tucker, who also noted that Assured’s aggregate primary and secondary insured par totaled approximately $3.7 billion for the first quarter of 2017.
BAM's insured principal amount dipped to $1.98 billion across 162 deals or 38.2% market share, from $2.47 billion or 42.8% market share the same time the year before.
“BAM’s guaranty was in strong demand from both retail and institutional investors facing a volatile first quarter,” said Sean McCarthy, chief executive officer of BAM. “In the primary market, while lower refunding activity held overall market volume down, there was an uptick in new-money transactions entering the market after last November’s strong bond-election results – sales like an $81 million issue from the Oxnard, Calif., School District that BAM insured in March.”
Underwriters utilized BAM insurance to meet investor demands on retail-oriented portions of larger transactions, he said, citing a $624 million revenue bond issue for San Jose International Airport.
“Both of those trends are positive for the industry overall, and we expect a growing volume of transactions like that over the rest of the year," McCarthy said. "BAM’s secondary market activity more than tripled as compared with the same period in 2016, totaling more than $345 million par insured, and we continued to see market demand for the BAM Credit Profiles, which are now available at the time of pricing for most new-issues we insure.”
National finished the quarter with $263 million of par insurance, up from $188 million for Q1 of 2016. Its market share rose to 5.1% from 3.3%.
“National had a very successful first quarter of 2017, as we continued to carefully and thoughtfully expand our new business activities,” said Tom Weyl, head of new business development at National. “In what is traditionally the slowest quarter of the year for bond issuance, National had its second best quarter by number of transactions insured and its third best quarter by par insured since re-entering the market in 2014. At the same time, we increased the diversity of the types of transactions that we insured and we wrote business in seven new states during the first quarter after adding five new states during all of 2016. With the market increasingly recognizing the value of National’s wrap and as our trading differential with our competitors continues to narrow, we remain very optimistic about the ongoing growth of National’s franchise.”
Orrick maintained its lead among legal counsel in the challenging environment.
“The rise in rates probably accounts for most of drop-off in refundings, but I’m also wondering if we are seeing the beginning of the ‘BABs hangover’ where deals that would otherwise be advance refunding candidates around now are not because they were done as taxable bonds with make-whole calls,” said Justin Cooper, partner at Orrick and co-chair of its public finance practice.
“We were pleased to be ranked number one again as bond and disclosure counsel and also to see a pick-up in our underwriter’s counsel work,” said Cooper. “We also are seeing an increasing amount of work that doesn’t fit neatly into traditional categories like ‘bond counsel,’ such as regulatory and advisory work, new product development, secondary market transactions, and post-issuance compliance. It’s exciting to help our clients in new ways as they push into new areas.”
Hawkins Delafield & Wood LLP finished in second place with $6.06 billion or 7% market share with 86 deals, up from the $5.07 billion or 5.3% market share over 68 deals during the same period the year before.
“The first quarter was not as robust as [inthe first quarter] of last year as far as volume is concerned, but that was expected," said Howard Zucker, managing partner at Hawkins. "The long-term volume in 2016 was approximately $448 billion, the average projection by leading investment banking firms for this year is about $385 billion. In addition, rates are going higher than obtained during much of 2016 and of course, a change of administration in Washington always brings uncertainty."
Hawkins finished first among bond underwriters' counsel, with a par amount of $5.17 billion in 16 deals or 8.6% of market share. Along with retaining its standing for underwriters and bond counsel, Zucker noted that the firm moved up to second from fourth in the disclosure counsel ranking.
“Lawyers in all nine of our offices were very busy in all major sectors, including health care, transportation, tobacco securitizations, tax securitizations and governmental purpose,” he said. “The trend has continued for increased and enhanced specialization and depth because of the ever-increasing volume and complexity of municipal bond regulations, especially in the tax and securities areas. Law firms that desire to be or continue to be leaders in public finance have to be willing to invest significantly to have a full range and depth of expertise in order to advise clients in the navigation of the matrix of issues in complex financings and regulatory compliance.”
Norton Rose Fulbright ranked third with $4.57 billion, followed by Kutak Rock LLP with $3.61 billion and McCall Parkhurst & Horton LLP with $3.59 billion.
Rounding out the top 10 are Stradling Yocca Carlson & Rauth, Ballard Spahr LLP, Squire Patton Boggs, Gilmore & Bell PC and Butler Snow LLP.
“To me, perhaps the most positive development at least psychologically in the municipal market was the announcement that UBS [Wealth Management Americas], which had exited this market a number of years ago, decided to re-enter with a blue chip department head,” said Zucker, referring to UBS' hiring of Peter Hill from Wells Fargo. “After more than a generation of firms deciding to leave the municipal space, to have UBS re-enter was a very encouraging sign.”