First-half muni issuance was down in the Northeast
Northeast municipal bond issuance was down 8.2% in the first half of 2017 compared to the first six months of 2016.
The region’s issuers sold $53.8 billion of municipal bonds, according to Thomson Reuters data. Year-over-year volume was up 6.6% in the first quarter before sliding 18% in the second quarter. Bond volume across the nation was down 12% in the first half.
“There was more issuance last year than in prior years both in new money and refundings in part because issuers expected that a Fed tightening program could lead to higher rates in years to come,” said Citigroup municipal strategist Jack Muller. “Last year issuers had the expectation that rates could go up this year.”
The Northeast’s first half decline echoes other regions of the country with only the Far West seeing a spike of 13.2%. The Southeast had the biggest volume drop of 31% followed by the Midwest at 21.6% and Southwest at 19%.
Issuance volume was down in nine Northeast states, and was higher in New Jersey, Maryland, Rhode Island and the District of Columbia. The region also includes Puerto Rico and the Virgin Islands, from which no debt was issued.
Joseph R. Baxter, head of the municipal bond department at Macquarie Investment Management, Americas, said if Congress reaches agreement on raising the debt ceiling it could lead to an issuance pickup for the second half, but volume will still likely end the year down from 2016.
“We believe if the debt ceiling is raised without significant discord and delays, that supply could pick up and narrow the 12% gap from last year but do not believe it will make up the entire difference,” said Baxter. “The reason for this is coming off summer 2016’s low interest rates, supply was extremely heavy and will be hard to duplicate.”
Pennsylvania’s first half bond volume fell 16.7% to $7.95 billion in 246 deals, which Janney Capital Markets municipal analyst Alan Schankel attributes largely to a drop in refunding issues. He noted that the Pennsylvania Turnpike Commission, which issued one $284 million deal, has had no refundings so far this year after selling $1.2 billion of refunding debt in the first half of 2016. The state’s other large 2017 transportation issue was a $430 million new money deal for Delaware River Joint Toll Bridge Commission.
“As with national calendar, the sharp drop-off in refunding issues explains most of the volume decline,” said Schankel.
New York State was the region's largest source of muni issuance at $22.9 billion, a slight 3.9% drop from the year-ago period. The region’s four largest issues and nine of the top 10 came from the Empire State led by a $2.1 billion bond deal sold by the Hudson Yards Infrastructure Corp. on May 23. The three other largest New York transactions were $1.8 billion from the Empire State Development Corp. in March, $1.7 billion in refunding bonds from the Dormitory Authority of the State of New York in June and a $1.2 billion refunding sale for the Triborough Bridge & Tunnel Authority in January.
Massachusetts volume slipped 34.8% in the first half at $5 billion from 120 transactions. The state issued a combined $1.6 billion general obligation bonds in the second quarter. Refunding volume from issuers across the state was down 55.8% from a year before.
“We’re doing more steady refundings on a smaller basis rather than one big one like we did last year,” said Massachusetts Deputy Treasurer Sue Perez. “A slow and steady approach allows us to manage the refundings alongside the new money.”
Maryland had the largest uptick in first half bond issuance in the Northeast with a 20% jump to $4.95 billion paced by a $1.1 billion GO sale on March 8 that was the region’s fifth biggest single issue. The city of Baltimore also sold $486.4 million in refunding bonds on Jan. 27.
New Jersey’s first half borrowings rose 3.9% from a year earlier to $4.6 billion. The New Jersey Economic Development Authority sold $627.7 million in refunding bonds on Jan. 12 for the Garden State’s largest issue. Garden State volume was also boosted by a $600 million New Jersey Turnpike Authority deal on March 29 as part of the entity’s 10-year $7 billion capital improvement program that expires in 2018.
Connecticut bond issuance was off 11.6% for the first half compared to 2016 at $3.6 billion. The state government held a $747 million GO bond sale on March 29 for the 13th largest transaction in the region and issued $1.1 billion total during the first two quarters.
District of Columbia issuers had 13 bond sales in the first half of 2017 and, for a year-over-year volume increase of8.6% to $2 billion.
Bank of America Merrill Lynch remained the Northeast’s top senior manager, according to Thomson Reuters, credited with par volume of $8.9 billion. JPMorgan Chase and Citi were second and third, respectively, followed by Morgan Stanley and Goldman Sachs. RBC Capital Markets inched up from seventh to sixth while Wells Fargo dropped from fourth to seventh.
Hawkins Delafield & Wood LLP retained the top bond counsel spot for first half Northeast bond issuance. Orrick Herrington & Sutcliffe LLP moved from third to second while Norton Rose soared into third after placing outside the top 10 a year ago. Nixon Peabody jumped to fourth from ninth with Ballard Spahr staying in fifth place to round out the top five.
Public Resources Advisory Group claimed the region’s top financial advisor spot with $11.6 billion of volume in the first half. PFM Financial, which topped that chart after six months in 2016, was second followed by Acacia Financial Group, Hilltop Securities and Lamont Financial, which moved up from ninth. Yuba Group placed sixth a year after missing out on the top 10 with Capital Markets Advisors moving up from 10th to seventh.
Paul Burton contributed to this story.