Northeast first half issuance down following tax overhaul

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Municipal bond issuance in the Northeast was down 11.7% in the first half of 2018 compared to a year earlier, reflecting a national trend driven by federal tax law changes.

Issuers in the region sold $47.95 billion of municipal bonds from January through June 30, according to Thomson Reuters data.

“Muni supply has declined year to date primarily due to the federal tax law changes in 2017, which eliminated advanced refundings,” said James Iseli, a senior portfolio manager and head of municipal fixed income at Neuberger Berman. “In addition, the uncertainty around tax reform at the end of 2017 created a supply surge in the fourth quarter of 2017. As a result, some early 2018 supply was pulled into 2017.”

Bond volume across the nation was down 23.2% in the first half.

Issuance was down in all five regions. The Midwest had the biggest volume drop at 28.3% followed by the Far West at 27% and Southwest at 15.9%. Only the Southeast fared better than the Northeast, down 5.7% from the first half of 2017.

Bond volume was down in seven Northeast states and the District of Columbia and was higher in New Jersey, Delaware and Pennsylvania. Massachusetts was essentially flat with a 0.1% increase. The region, which stretches from Maine to Washington, D.C., also includes Puerto Rico and the Virgin Islands, which had no first-half borrowings.

Despite a 15.5% drop in volume New York State still had an active first half with $19.7 billion of muni issuance in 275 deals.

Four of the top five Northeast issuers and five of the top 10 were in New York, led by the Dormitory Authority of the State of New York, which finished as the region’s top first-half issuer with $3.2 billion.

New York's Metropolitan Transportation Authority sold $2.6 billion, New York State sold $2.3 billion, the New York City Transitional Finance Authority sold $2.3 billion and the New York Transportation Development Corp. sold $1.4 billion.

Pennsylvania was the Northeast's second-biggest source of muni bonds with $8.5 billion, a 7.5% increase from the same period in 2017. The Pennsylvania Commonwealth Finance Authority was the region’s sixth-largest issuer with $1.9 billion in debt sold, fueled by a $1.5 billion tobacco master settlement payment revenue bond sale in February. The state government sold $1.45 billion of bonds to finish ninth in the regional rankings.

“Although Pennsylvania first half volume was impacted by the tobacco deal, which raised funds to partially plug a fiscal year 2018 state budget hole, I believe most of the sharp year-over-year volume increase reflects catching up with deferred infrastructure investment,” said Alan Schankel, a municipal analyst at Janney Capital Markets in Philadelphia.

Schankel said Pennsylvania’s new money issuance increase of 141% was way ahead of the national pace of 22%. The state’s $1.25 billion general obligation bond sale in May was geared entirely toward capital projects including construction and rehabilitation of state buildings and $350 million for transportation initiatives.

New Jersey experienced the biggest first-half borrowing jump with a 19% boost to $5.5 billion of issuance in 87 deals. The New Jersey Tobacco Settlement Finance Corp. led the charge with a $3.2 billion refunding transaction in April that marked the largest individual issue in the Northeast for the first half and made the corporation the region's number-two issuer. New money issues were up 24.8% and refundings were down 69% compared to the first half of 2017.

“We have seen a tick up in new money issues which has to some degree offset the absence of advance refundings,” said Dave Thompson, chief executive officer of Phoenix Advisors in Bordentown, New Jersey. “There is also an increased focus on long-term debt planning – especially among local schools.”

He said New Jersey volume appears down slightly among county and municipal issuers.

Maine’s first-half issuance fell 6.4% at $514 million compared to $549 million in the first six months of 2017, a statistic influenced by some unusual state bond sale actions.

Maine priced $112.9 million in general obligation bonds through two separate competitive transactions on June 11 that were ultimately canceled after Gov. Paul LePage refused to authorize the securities. The bonds were later sold through negotiation in July and will be land in the second half volume data.

Bank of America Merrill Lynch was once again the region’s top senior manager with Thomson Reuters data crediting the bank with par volume of almost $11 billion. Citi moved up to second place from third while Jefferies rose to third spot in the table from eighth. RBC Capital Markets rose to fourth from sixth place and Morgan Stanley fell one spot to fifth.

Norton Rose Fulbright, credited with $4.9 billion in business, claimed the Northeast’s top bond counsel position from a third place finish for the 2017 first half. Orrick Herrington retained the second place position while Hawkins Delafield & Wood dropped to third from first. Ballard Spahr moved to fourth place from fifth and Mintz Levin Cohn Ferris rounded out the top five after placing seventh a year ago.

PFM Financial finished as the top financial advisor in the Northeast for the first half, credited with $11.6 billion following a second place finish a year ago. Public Resources Advisory Group moved down to second place from first with $9.2 billion while Frasca & Associates placed third. Acacia Financial Group took the fourth place spot a year after finishing third and Hilltop Securities moved down slightly to fifth from fourth.

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