LOS ANGELES — Far West issuers sold $50.2 billion of municipal bonds in the first half of 2017, up from the $44.9 billion sold in the first half of 2016, according to Thomson Reuters data.

The region's 13.2% increase contrasts with a 12.4% nationwide decline in the first half.

Sales were nearly evenly split between the first and second quarters with $23.8 billion in first quarter and $27 billion in second quarter.

California issuers sold almost $37.9 billion, up 17.7% over first half 2016, vastly more than any other state. New York issuers sold $22.9 billion and Texas issuers sold $19.1 billion.

"I have read that so many wealthy people, particularly from Silicon Valley, are trying to maintain their wealth, so they buy munis at any level, no matter what," said Marilyn Cohen, of Envision Capital Management. "There is a big bid for anything in California."

The state government holds issuer ratings of A-plus, Aa3 and AA-minus from Fitch Ratings, Moody’s Investors Service and Standard & Poor’s. All three rating agencies have boosted the state’s ratings over the past two years.

The administration of Gov. Jerry Brown has taken a conservative stance on debt issuance. It paid off the recovery bonds issued during the Schwarzenegger administration – and has consistently had a higher volume of refundings than new money issuance.

With vast infrastructure needs, schools making renovations that speak to a different technological future, and a $64 billion high speed rail project underway, the state could increase issuance. Volume has been low compared to the pre-recession years, but most states and municipalities have held the line on issuing debt even as infrastructure needs continue to grow.

Tim Schaefer, California's deputy treasurer of public finance, said he does not see any reason why the state could not continue its conservative stance on bond issuance.

“I don’t see any reason why these three [K-14 schools, high speed rail, and transportation bonds] popping up, would cause him to change his attitude,” Schaefer said of Gov. Brown. “We still have to look at whether the financing plan is sound.”

State Treasurer John Chiang “has limited discretion” when it comes to the purposes the bonds are being issued for, said Schaefer. “His job when a request comes from another department of the state is to sell the debt consistent with the requirements of due diligence."

California typically executes a large general obligation issuance in March and another in November to cover the cash-flow needs of infrastructure projects, said H.D. Palmer, a spokesman for the state’s Department of Finance.

The California state government was the region's top issuer during the first half, selling $4.6 billion of debt.

That's an increase of about 5% from the year before, Schaefer said. The breakdown for 2016 was $1.62 billion in new money and $2.8 billion in refunding.

The state issued $546.4 million in new money from January to June 2016 and $1.24 billion during the same six-month period in 2017, according to Palmer. That reflects a $701.6 million increase in the first six months of 2017 versus last year, he said.

A rendering of a California high-speed train.
California priced $1.25 billion for its high-speed rail project in April. California High-Speed Rail Authority

The state refunded $2.81 billion from January to June in 2016 and $2.88 billion from January to June 2017, a difference of $66 million.

“The only real difference is that we had the big high-speed rail sale, which was taxable – so the only real difference was that the largest percentage went to taxable,” Schaefer said.

The treasurer’s office is concerned how any changes to the tax-exemption for municipal bonds from the Trump Administration might impact the state, Schaefer said.

It is more of a concern for smaller issuers, because the state has such good market presence in the tax-exempt and taxable market that there wasn’t a significant price differential.

“If the tax exemption for municipal bonds is eliminated, it could hurt smaller units of government, because it would be much harder for them to access the taxable market,” Schaefer said.

California issued March 7 $2.8 million in GOs through co-managers Citi and Morgan Stanley -- the region's largest bond sale of the first half. The state also issued $1.28 billion in taxable GOs April 20, partly to support the high speed rail project, the region's third largest deal.

A $1.7 billion California Health Facilities Financing Authority deal in April, for Kaiser Permanente, ranked second in the region. The deal helped propel CHFFA to the second rank among Far West issuers in the first half, credited with more than $3.1 billion.

Among all California issuers, first-half issuance was up 17.7% to $37.8 billion, according to Thomson Reuters.

New money deal volume more than doubled to $17.3 billion, while California refundings fell 23.2% to $10.7 billion during the same period, while deals that combined new money and refunding fell by 5.9% to $9.8 billion.

Education represented the largest sector in the Far West, with $17.5 billion sold, according to Thomson Reuters, up 16.6% from the year before. General purpose debt represented the second highest volume, down 19.8% to $8.6 billion.


Issuance from Oregon increased 162% to $4.3 billion.

Washington state's issuance dropped 32.5% to $3.9 billion from $5.8 billion allowing Oregon to edge into the second place slot for the region.

The state of Hawaii was credited with the Far West's largest deal outside California, an $854 million GO sale on May 10 that ranked seventh in the region.

Washington had the eighth-largest deal, pricing $649 million Jan. 10 in a competitive deal won by Bank of America Merrill Lynch.

"Based on conversations with our financial advisor, in general, we believe there has been a statewide decline in issuance through this point in the year because of a lack of refunding activity," said Johnna S. Craig, Washington's acting deputy treasurer for debt management.

"The spike in interest rates at the end of last year is in part to blame, and our financial advisor has noted that they are seeing refunding activity pick up as rates have trended down since the beginning of the year," Craig said.

"There also seems to be a sense that there aren't quite as many opportunities available overall, primarily due to the make-whole call provisions on Build America Bonds," she said. "The state's debt portfolio is a good example of this with a significant portion of MVFT that essentially can't be refinanced."

Increases for the Far West’s other states were recorded in Wyoming, up to $74.2 million from $3.4 million; a 13.9% increase to $1.25 billion for Hawaii; and a 57.5% gain for Montana to $473.8 million.

Alaska experienced a 72% decline in sales falling to $166 million from $594.5 million. Idaho volume fell 14.1% to $469.1 million. Nevada sales fell 16.2% to $2.3 billion.

The Far West’s top senior manager was Citi, credited with $8.3 billion, followed by BAML with $7.2 billion then Morgan Stanley with $5.2 billion.

Public Resources Advisory Group again secured the top slot in the region’s financial advisor table, credited with $11.1 billion, ahead of Public Financial Management at $6.8 billion and KNN Public Finance with $5.7 billion.

Orrick, Herrington & Sutcliffe LLP continued its dominance atop the Far West’s league table for bond counsel. Hawkins, Delafield and Wood was second, and Stradling, Yocca, Carlson & Rauth third.

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