LOS ANGELES — Far West issuers sold $83.6 billion of municipal bonds in 2015, a 26.5% increase over the prior year, as refundings continued to drive volume.

Far West Yearend Review

First-quarter sales in the nine-state region hit $24.9 billion, according to Thomson Reuters data, more than doubling the first quarter of 2014.

In fourth quarter, year-over-year sales were off 25.6% to $15.2 billion ahead of the Federal Reserve’s interest rate bump on Dec. 15.

The first-quarter spike resulted from a confluence of three market conditions: persistently low interest rates, the prevailing idea the Fed would raise interest rates, and additional bonds eligible for refundings given the relatively elevated issuance in 2004 and 2005, said Michael Johnson, head of research/managing partner at Gurtin Fixed Income Management, LLC.

“I believe these conditions led to a front-loading of refundings in the first half of 2015,” Johnson said.

New money issuance in the Far West was off 10.9% from 2014, to $23.1 billion, but refundings were up 49.7% to $38 billion. There was a 52.3% increase in combined new money and refunding sales, to $22.5 billion.

A lot of issuers have a 10-year call protection and long-bond rates were close to 4.5% 10 years ago, but were below 3% for double-A long-term credits earlier in the year, said California Deputy Treasurer Tim Schaefer.

“For many issuers, the process of issuing bonds is a resource-intensive process, as such, when there is a rush to get refundings done, new money issues naturally get delayed,” Johnson said.

He anticipates slightly more new money issuance in 2016 as those delayed plans come to fruition, assuming interest rates do not go up materially.

Far West volume of $83.5 billion trailed only the Northeast, where issuers sold $102.9 billion. All regions experienced volume increases, but the Southeast experienced the biggest jump of 39.4% to $68.78 billion.

California issuers sold $543 billion, up 14.6% over 2014, to maintain the state’s dominance in the Far West region.

Issuance by California state government experienced a slight uptick to $6.4 billion over the $6.2 billion issued in 2015.

Gov. Jerry Brown intentionally kept issuance down over the past few years, said Johnson, adding that he expected issuance to tick up as municipalities tend to have a base amount of new issuance that is necessary for capital improvement programs.

While careful to say he did not want to speak for the governor, Brown’s focus, consistent with Treasurer John Chiang’s, has been “to use debt as smartly as we can,” Schaefer said.

“There is not anything wrong with debt, but it should be used at the right time,” Schaefer said. “I don’t think anyone would ever say that we should never borrow money – no one would agree with that. They would just say that we want to be smart about it, because you are looking at a long-term obligation.”

Refundings grew in every state, except Idaho, where they were down 44.2% to $338.3 million. States that experienced the biggest jump in refundings were Hawaii up 459.7% to $968.3 million, Alaska up 213.2% to $657.5 million, Nevada up 77.7% to $2.1 billion, and Oregon up 75% to $1.9 billion.

The region’s largest sale was a $1.94 billion California general obligation pricing on March 4. The state also sold $1.92 billion of GOs on Aug. 26 for the region’s second largest sale. Golden State Tobacco Securities Corp. snagged the No. 3 slot with a $1.69 billion sale on March 25. The Regents of the University of California earned the fourth slot with a $1.67 billion sale on March 13.

California plans to price $2.3 billion in GO bonds on March 8.

Washington’s state government had the Far West’s largest deal outside of California with a $998 million deal on Jan. 21.

Bank of America Merrill Lynch and JPMorgan were neck-in-neck for the title of top senior manager in the region, but B of A Merrill seized the top slot, credited by Thomas Reuters with $11.78 billion of volume compared to $11.75 billion for JPMorgan. Morgan Stanley came in third with $9.8 billion.

Public Resources Advisory Group led the rankings of financial advisors, credited with $10.4 billion of volume. Public Financial Management, which held the top slot last year, came in second with $8.4 billion. Piper Jaffray came in third with $7.1 billion.

Orrick Herrington & Sutcliffe continued its position atop the bond counsel rankings, credited with $27.6 billion. Stradling Yocca Carlson & Rauth came in second with $8.3 billion in volume. The third slot went to Foster Pepper with $7.2 billion.

The Far West region’s education sector saw the largest percentage growth at 58.2% to reach $29 billion. Utilities experienced 34.8% growth for the second highest volume at $8.7 billion. Transportation declined by 38.4%, but still represented the third largest sector at $7.2 billion.

Washington retained its slot as the state with the second largest muni volume in the region with a 64.1% increase to $14.3 billion.

Washington Treasurer James McIntire said the Evergreen State’s strong economy is powering issuance in the state.

“We’ve had a lot of strong growth,” McIntire said. “It’s only logical that our need for infrastructure is going to grow as well.”

The Washington education sector more than doubled to $3.4 billion, surpassing transportation even though that sector more than tripled to $2.7 billion. Utilities grew by 98% to $1.6 billion.

Hawaii experienced the biggest volume jump with a 107% rise to $3.2 billion. The City and County of Honolulu helped the state double its normal volume with two big sales. Honolulu priced $888 million on March 17 that included a $500 million refunding. It also sold $698 million in wastewater revenue bonds on July 22.

The third largest source of issuance in the region, Oregon, experienced a 57% increase in volume to $5.1 billion. Education volume more than doubled in the state reaching $2.3 billion.

What Nevada lacked in new money volume, down 40.7% it made up for with growth in refundings and combined new money and refunding deals. Issuance in the state grew by 56.4% to $3.6 billion.

Alaska’s issuance volume last year grew 33.8% to $1.5 billion.

Wyoming volume fell more than 30% to $277.9 million, while Montana volume was down 4.6% to $319 million.



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