Michael Johnson

LOS ANGELES — Sales of municipal bonds in the Far West bucked the national trend in 2013 by rising from 2012, as new money swapped with refundings as the market driver in the region, according to data provided by Thomson Reuters.

2013 Far West Statistics

Issuance in the nine-state region rose 3.5% to $67.6 billion from $65.3 billion in 2012, as state and local economies began to recover.

Slideshow: Far West Volume: Up Nearly 4% in 2013

New money volume in the region grew by 40.6% to $29.6 billion last year while refundings — hot while interest rates remained low — fell 5.6% to $25.7 billion as interest rates began to creep up.

Deals in the Far West that combined new-money and refunding bond sales fell 27.5% to $12.4 billion.

"I would say there may have been a bit of depressed bond issuance in a few of the previous years with local governments in California because the credit stress of the state, and the trickle-down effect from the state's credit stress," said Michael Johnson, managing partner and co-chief investment officer at Gurtin Fixed Income Management in Solana Beach, Calif.

As the state, local governments and school districts began to recover, new money issuance experienced an uptick, Johnson said.

As for the decline in refundings, Johnson said, a lot of issuers completed what refinancings they could get done while interest rates remained low during the three prior years.

Overall refundings declined 5.6% in the region, but varied state-by-state. Nevada and Montana saw significant increases in refundings, up 32.7% to $1.09 billion and 54.4% to $308 million, respectively, while Hawaii and Idaho saw significant decreases, down 87% to $26 million and 93.4% to $36.5 million, respectively.

The volatility in interest rates also likely had an impact on refundings in 2013, particularly later in the year, Johnson said.

"It was also the uncertainty that came with that," he said. "You didn't know how far rates might creep up during the coming-to-market process."

Issuers that hadn't started the process, or were in the beginning of the process, and started to see rates go up, might have decided it makes sense to sit on the sidelines, he said.

Issuers in California, the nation's most populous state, led the region and nation with $49 billion in bond sales in 2013, up by 15.4% over the prior year.

California new money issuance grew by 55.5% to $20.9 billion, while refunding volume increased 13.6%.

The California state government's contribution to that total was $8.7 billion of general obligation sales in 2013, but $4.2 billion, or nearly half of that, was refunding, according to Tom Dresslar, a spokesman for Treasurer Bill Lockyer.

The region's largest sale was a $5.5 billion California GO sale that priced on Aug. 15. The state also sold $2.09 billion on Oct. 22, the region's fourth largest sale. Regents of the University of California snagged the No. 2 slot with a $2.5 billion sale on Sept. 26 and the Foothill/Eastern Transportation Corridor Agency in Orange County Calif. had the third largest sale with the $2.3 billion it priced on Dec. 12.

The growth in California state government GO sales from the prior year's total of $5.6 billion was primarily new money. In 2012, the state issued $1.89 billion in new money, while refundings, at $3.87 billion, were about the same.

"We have been pretty aggressive in taking advantage of refunding opportunities to save money for taxpayers on debt service," Dresslar said.

The short answer as to why California state new money sales jumped in 2013 was that the programs needed the funds for projects, be it schools, road, environmental work or parks, he said.

Gov. Jerry Brown "has been much more keen to spend bond proceeds that already have been raised before going to market to sell new bonds," Dresslar said.

Brown has pushed to make state agencies use up bond proceeds from previous sales before issuing new debt, which has helped keep state sales down since he took office in 2011.

In December 2010, according to Dresslar, the state had $13.9 billion of unspent GO bond proceeds. At end of October 2013, that number had been reduced to $3.5 billion.

"That has helped reduce our presence in the new money market," he said.

The state has a general obligation sale planned for March 12-13, but an amount has not been decided upon. A retail order period on March 12 will be followed by institutional sale and pricing on March 13. Bank of America Merrill Lynch and RBC are joint senior managers.

The state usually holds spring and fall sales. In 2011, it skipped the spring sale.

Lockyer said during the Bond Buyer's California Public Finance conference held in Los Angeles in September that the state plans to sell $12.5 billion in debt over the next 18 months.

JPMorgan took the title of top senior manager in the region, credited by Thomson Reuters with $9.3 billion of volume. BofAML, which had held that distinction for the previous two years, came in second with $8.9 billion. Citi, in second place in 2012, dropped to third with $6.8 billion.

"We have continued to invest nationally," said Alex Burnett, JPMorgan managing director and head of public finance for the Far West region.

The firm's rank is a reflection of a national strategy of dedicating more resources to the sector, Burnett said.

Achieving this distinction is "illustrative of our strategy of attracting more clients and more types of clients," Burnett said. It is also "a reflection of the resources of the firm and the quality of the people."

Public Resources Advisory Group led the table of the region's financial advisers, ahead of Public Financial Management Inc. in second, and KNN Public Finance in third.

Orrick Herrington & Sutcliffe LLP continued its position atop the bond counsel rankings, credited with $25.2 billion in volume.

A 25% increase in education bond issuance - the largest sector in the Far West — to $21.6 billion added to the regional growth. The transportation sector grew by 45.9% to $11.9 billion while utilities, a significant sector in the prior year, experienced a 41% decline to $5.8 billion.

Washington experienced a 35.5% decline in issuance from 2012 down to $8.3 billion, but remained the Far West state with the second highest muni volume.

Although down 41% from the prior year, the education sector was the Evergreen state's largest seller with $1.5 billion in volume. Transportation, also down by 41% in the state, came in second with $1.5 billion in sales.

"The state of Washington has been engaged in an intensive period of capital construction over the past several years - mostly funded by bonds - that has capitalized on historically low interest rates and unusually low construction costs," said Ellen Evans, Washington's deputy treasurer for debt management. "A large portion of these financings have been for significant transportation projects."

Washington, Wyoming and Idaho saw declines in new money issuances of 12.3% to $4.04 billion; 33.4% to $131.2 million; and 65.6% to $164.7 million, respectively. New money sales grew in Hawaii by 157.3% to $293 million, Nevada by 132.2% to 1.07 billion, Montana by 72.3% to $239.2 million and Alaska by 102.3% to $591.3 million.

Washington issuers refunded 51.1% less in 2013 over the previous year, dropping to $3.1 billion, and combined sales declined 38.9% to $1.2 billion.

"The state's overall issuance declined somewhat in calendar year 2013 as the result of fewer refunding opportunities," Evans said.

As the third largest source of issuance in the region, Oregon experienced a jump in volume, rising 45% to $4.7 billion. Refunding volume rose 10%, combined deals by 78%, and new-money sales rose 65%.

As Nevada's economy recovered, it more than doubled its issuance coming in fourth in the region with $2.2 billion. The state, arguably the state worst-hit by the real-estate bust, began to gain economic traction last year.

Issuance in Hawaii declined by 44% dropping to $1.3 billion. General purpose was the Aloha state's largest sector of issuance at $870 million.

Alaska's issuance volume last year dropped 20.3% to $948 million.

Idaho, Montana and Wyoming retained their placement as the region's three smallest states by volume.

Montana was up 79% to $605.8 million, Wyoming volume rose a meager 0.6% to $272.6 million, and Idaho's volume fell by 80% to $222 million.

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