Refunding has represented a substantial share of Washington's bond issuance, said the state's treasurer, James McIntire.

LOS ANGELES — Far West issuers sold to $27.97 billion of municipal bonds in the first half of 2014, almost 25% less than during the same period of 2013, according to Thomson Reuters data.

The most significant decline came during the first quarter, which was off more than 43% from first-quarter 2013, but volume built up to $17.3 billion in the second quarter, only 5.8% behind the 2013 pace.

California issuers sold $19.9 billion of bonds in the first half, down 26.7%, and the Golden State slipped behind Texas as the nation's leading source of municipal bonds.

The California state government was the region's leading issuer with $2.56 billion, despite a downtick in issuance.

Midwest Midyear Review

According to the State Treasurer's Office, California state general obligation bond issuance was down 52.2% from first-half 2013.

New money issuance was down 26.7% to $1.7 billion, and refunding issuance was down 73% to $794 million from $2.94 billion.

"Our GO issuance volume is driven by the cash flow needs of our infrastructure projects and the refunding potential provided by the market," said Tom Dresslar, spokesman for the California Treasurer's Office.

Gov. Jerry Brown has set a theme of reducing the state's debt.

The Brown administration "determines which projects need money and how much, and we go out and raise the required amount in new-money sales," Dresslar said."And when opportunities present themselves to reduce taxpayers' debt service costs with refundings, we pursue them aggressively. Those opportunities have not been as prevalent this year."

Among all California issuers, first-half new money issuance was down 19.1% to $9.7 billion, according to Thomson Reuters. California refundings fell by 36.9% to $6.9 billion during the same period, while combined new money/refunding issuance fell 22% to $3.1 billion during first half of 2014.

"With such strong refunding activity over the past several years, there is no real deep backlog of refundings," said Michael Johnson, managing partner, co-chief investment officer and head of research at Gurtin Fixed Income Management, LLC. "As such, I posit, had volume in 2014 tracked at a more normal rate, new money bonds would have far exceeded refunding bonds."

Education represented the largest sector in the Far West, with $8.8 billion sold, down 31.7% from the year before.

The transportation sector, at $4.9 billion in the first half, was down 7.5% from the year before; general purpose bonds were down 34.7% to $4.4 billion.

Education sector volume was driven by school district bonds — largely of the general obligation variety, Johnson said. General obligation community college bonds also showed higher than average volume, he said.

"I believe we are seeing above average volume from K-14 education in California, because many school districts have only recently reached a level of comfort after several years of threatened state aid cuts and overall economic weakness," Johnson said. "As more school districts have come from under the overhand of the state's previous financial issues and have reached this comfort level, the volume of their debt issuance has increased."

The majority of California issuance in the first half was classified as revenue bonds, $12.1 billion, a 17% decrease in volume, followed by $7.8 billion in general obligation bonds, a 38% decrease from first half 2013.

The California state government scored the single largest individual sale during the first half with its $1.8 billion GO sale that it priced on March 12.

Los Angeles Unified School District finished second, pricing $1.6 billion in GO bonds on June 12. Washington state government's GO sale on June 25 came in third at $1.15 billion. The Regents of the University of California had the fourth biggest deal, pricing $970 million on April 3.

Washington also retained its rank as the second largest overall issuer with $1.87 billion in sales during the period.

Washington State Treasurer James McIntire said the state finances its capital and transportation projects with bond proceeds, but in 2014, refunding has represented a substantial share of its bond issuance.

The state refinanced more than $880 million in outstanding motor vehicle fuel tax and various purpose GO bonds, for a total of $60 million in net present value savings, according to the treasurer.

"Growing strength in the state's economy, Washington state's prudent financial practices, solid liquidity, and a commitment to sound debt management were confirmed by all three rating agencies when they reaffirmed the state's strong credit ratings with a stable outlook," McIntire said.

The total issuance from all state and local issuers in Washington declined 4.2% from the first half of 2013 to $4.5 billion.

Issuers in the state sold $951 million in education and $799.9 million in the transportation sector. Volume in both of those sectors rose was up from the previous year with a 1.9% increase in education and a 5.6% bond sales from 2013.

Following Washington as next largest source of issuance in the region, at $1.2 billion, was Oregon. The state experienced a 52.6 % decrease in volume from the first half of 2013. The drop-off was relative to a big bump experienced from 2012 to 2013 when sales volume increased by 39.7%.

Oregon's biggest drop-off in volume occurred in refundings, down 62.3% from the first half of 2013 to $407.2 million. New money issuance declined 33.1% to $546.6 million. Combined new money/refunding deals fell 60% to $296 million.

Education was the state's busiest sector with $265.7 million in sales, a 79.4% drop year-over-year. The electric power sector was up dramatically to $271.3 million from $9.2 million. Healthcare also increased significantly growing by 283% to $230.8 million.

First-half volume was down in every state in the Far West except for Idaho, where it more than quintupled to $599 million.

Idaho's education sector was up 325.6% to $252.8 million.

Idaho's increase was split evenly between new money, at $310.5 million, up 599.3%; refunding at $155.6 million, up 425.7%; and combined new money and refunding at $132.9 million, up 584.8%.

Declines for the Far West's other states were 52.2% to $296.5 million for Alaska, 51.2% for Hawaii to $68.7 million, 46.3% for Montana to $205.9 million, 11.7% to $1.09 billion for Nevada, and 76% to 42.6 million for Wyoming.

While Nevada experienced a decline in overall issuance compared to the first half of 2013, new money volume was up 31.5% to $458.5 million.

Refunding was down 30.1to $595.4 million.

The Far West's top senior manager was JPMorgan, credited with $3.5 billion, followed by Citi with $3.1 billion, and then Bank of America Merrill Lynch with $2.7 billion.

Public Resources Advisory Group again secured the top slot in the region's financial advisor table, credited with $3.7 billion, ahead of Public Financial Management at $3.02 billion and KNN Public Finance with $2.2 billion.

Orrick, Herrington & Sutcliffe LLP continued its dominance atop the Far West's league table for bond counsel. Foster Pepper PLLC was second, and Stradling third.

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