SAN FRANCISCO — Sales of municipal bonds in the Far West region grew almost 22% in 2012 compared to 2011, spurred by record-low interest rates that prompted issuers to refund.

2012 Annual Far West Review

Issuance in the nine-state Far West region rose to $64.5 billion last year from $53 billion in 2011, the lowest volume since 2001, according to data from Thomson Reuters.

Issuance was driven by high demand for municipal bonds that helped push down rates to record lows, allowing issuers to grab savings by refunding debt.

Across the region, refundings jumped by 40% last year from 2011, offsetting a 4% drop in new-money sales. Deals in the Far West that combined new-money and refunding bond sales rose 38%.

Nationally, bond volume last year increased 31% to $376 billion from 2011, while refundings rose 73% to $156 billion. Issues combining new-money and refunding bonds rose 47% to $75 billion, according to Thomson Reuters.

“Low interest rates and higher refundings are probably the biggest drivers,” said Michael Johnson, managing partner and co-chief investment officer at Gurtin Fixed Income Management in Solana Beach, Calif. “You also started to see in 2012 less of a market penalty for being a California issuer as well.”

Issuers in California, the nation’s most populous state, sold 19% more municipal debt in 2012 than a year earlier. The return of the state’s spring general obligation bond sale — a combined $3.2 billion  over two dates — after a hiatus in 2011 helped push up volume to $42 billion out of California.

Refunding volume in the Golden State rose by 33% to $17.1 billion and combined new-money and refunding sales increased 51% to $11.9 billion. New-money deals dropped by 11% to a volume of $13.1 billion.

The California state government sold only $1.89 billion of new-money voter-

approved general obligation bonds in 2012, according to the treasurer’s office.

California’s budget saw signs of improvement last year, culminating in an upgrade of the state’s Standard & Poor’s general obligation bond rating in January to A from A-minus. The state’s GOs are rated A1 by Moody’s Investors Service and A-minus by Fitch Ratings.

The three largest deals in the region last year were California state GO sales that mixed refundings and new money, topped by a $1.9 billion issue in March. A $1 billion competitive Washington GO refunding sale came in fourth.

California Gov. Jerry 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.

Bank of America Merrill Lynch barely held on to the title of top senior manager in the region for the second year in a row, credited by Thomson Reuters with $9.56 billion of volume. Citi took second place with $9.5 billion. The next closest competitor was JPMorgan with $6.9 billion, keeping the top three the same as last year.

John Lawlor, head of public sector banking and markets at Bank of America Merrill, said in a statement that gaining the top spot is a reflection of the firm’s strength and innovation. 

Public Resources Advisory Group again led the table of the region’s financial advisers, ahead of Public Financial Management Inc. in second and Seattle-Northwest Securities Corp. in third.

Orrick, Herrington & Sutcliffe LLP retained its accustomed position atop the bond counsel rankings, credited with 35% market share.

A 35% increase in education bond issuance — the largest segment in the Far West — to $17 billion also added to the regional growth. The utilities sector also grew by 48% to $10.1 billion and transportation rose 35% to $7.9 billion.

Washington had the Far West’s second- highest amount of issuance with 52% growth to $12.8 billion. Refundings in the Evergreen State grew by 96% from a year earlier to $6.4 billion of volume in 2012, and combined issues increased by 13% to $1.9 billion. New-money deals rose 29% to $4.5 billion.

A 146% rise in education bond sales to $2.6 billion contributed to the state’s increase. Bond sales in the public facilities and transportation sectors also saw increases of about 150%. Competitive sales out of the state also more than doubled last year, helped by the state government’s use of the method. 

As the third largest source of issuance in the region, Oregon saw only a slight increase with volume, rising 14% to $3.2 billion. Refunding volume rose 79%, combined deals by 15%, and new-money sales dropped by 17%. Bond sales in the health care sector rose 254% to $473 million, while education as the largest segment only rose 6% to $836 million.

Hawaii came in as the next largest source of issuance in the region last year with $2.4 billion of deals, a nearly 5% increase. It saw a more than doubling of utility bond sales to $350 million, although general purpose debt made up most of the issuance volume.

A $912 million GO sale by Honolulu in October, the seventh-largest deal in the region in 2012, help raise the state’s total, as did an $867 million GO bond issue from the state government in November, the region’s 10th-biggest deal of 2012.

Honolulu issued almost $1.2 billion in 2012. The city’s October deal drew $2.7 billion in orders; officials from both state and local governments have credited enhanced marketing efforts using a broader underwriting base for helping their sales.

Alaska and Nevada bucked the trend in the region and saw a falloff of issuances. Nevada, arguably the state worst-hit by the real-estate bust, saw overall issuance slide 18% to $1.4 billion.

“Nevada’s real estate market has been one of the hardest hit and there is no capacity in property tax to do bonding,” said Jeff Mohlenkamp, director of the Nevada Department of Administration.

Alaska’s issuance volume last year dropped 15% to $1.2 billion.

The region’s three smallest states by issuance volume — Idaho, Montana and Wyoming — all saw increases.

Idaho’s volume rose by 71% to $886 million, Montana was up 67% to $339 million, and Wyoming volume rose 29% to $271 million.

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