BRADENTON, Fla. — Southeast issuers sold $70.2 billion of municipal bonds last year, an increase of 6% over 2008.
With federal stimulus incentives available, most notably Build America Bonds, issuers across the region increased the use of taxable debt by more than 280% on volume of $11.5 billion, according to Thomson Reuters. That figure included about $8 billion of BABs.
The 11 Southeast states increased bond sales in three quarters of last year — particularly in the last quarter, when sales were 60% higher than in the same period of 2008.
New-money sales were $40.3 billion, an increase of 13.2%, while issuers took advantage of market conditions and refunded $19.6 billion of debt, an increase of 20.6%.
With the federal stimulus bill offering a holiday from the alternative minimum tax, the number of AMT deals tumbled to $238 million, a drop of 94.6%. Issuers still favored tax-exempt bonds, selling $58.4 billion, down by only 0.5% from 2008, while at the same time boosting taxable sales because of BABs.
“The Build America Bond program certainly provided issuers with unique opportunities to access the market,” said Ed Stull, managing director at Dallas-based First Southwest Co., which rose to third place from fifth last year among top financial advisers in the Southeast.
“Many of our clients in the Southeast have large ongoing capital improvement projects and as a result there was a lot of issuance even as some scaled back because of budget cuts,” said Stull, who looks for issuance to remain steady this year because of historically low interest rates and lower construction bids.
As budgets continue to contract, though, Stull said some issuers that historically used pay-as-you-go for projects are now considering financing them, and some clients continue to seek opportunities to refund variable-rate debt because of the increased expense for liquidity facilities and letters of credit.
That trend was evident last year as borrowers brought $61.5 billion of fixed-rate debt to market, an increase by half over the previous year. Conversely, the use of variable-rate bonds with a short put plunged by 68.1% on volume of $7.5 billion. Only $9 billion of bonds were insured, a drop of 31.2%.
As issuers continued to fix variable- and auction-rate debt, standby purchase agreements and letters of credit slumped by 91% and 70.5%, respectively.
Issuers sold $49.5 billion of revenue bonds, a decrease of 9.3%. But general obligation bond sales increased by 78.2% on volume of $20.6 billion. Some $54.5 billion of deals were sold by negotiation, an increase of 0.1%, while competitive transactions increased by 34% with the sale of $14.8 billion of debt.
State agencies were top borrowers, issuing $21.9 billion of bonds, an increase of 2%. The states themselves pumped up sales last year by 256.5% on volume of $6.5 billion. Counties and parishes increased sales by 53%, while cities and towns saw issuance rise by 25.3%. Bond sales from special districts, local authorities, and direct issuers were also down.
Bonds sold for general purposes rose by nearly 70% on volume of $19.2 billion, utilities saw a 38.2% increase in sales, and bonds for educational purposes rose 27.6%. The use of debt last year for environmental projects plummeted to $1.3 billion, a decrease of 61.3%, while sales for electric power dropped to $4 billion, a decrease of 46.5%.
For the second year in a row, issuers from Florida, Georgia, and North Carolina sold the most bonds — $15.1 billion, $10.7 billion, and $10 billion, respectively.
However, borrowing from Florida dropped by 17.5% as plunging property values and voter-approved property tax restrictions took hold, and the unemployment rate hit 11.8% in December — nearly 2% higher than the nation’s rate.
The Florida Citizens Property Insurance Corp. sold the largest amount of debt in a single offering with just over $1 billion last May. In 13 transactions, the Florida State Board of Education borrowed just over $2 billion for the year and Miami-Dade County sold a total of $1.8 billion that included funding for airport improvements and construction of a professional baseball stadium.
The state of Georgia was the top overall issuer in the Southeast last year, with sales topping $2.5 billion — the largest total amount the state has sold in each of the prior four years. While the state sells debt only when projects are ready for financing, it also delayed sales in the second half of 2008 due to market conditions, which pushed an additional $600 million of bond sales into 2009.
Georgia also sold the second-largest single amount of bonds, a November GO deal of nearly $800 million for various projects that included $523.5 million of BABs — the state’s only tranche of the taxable debt last year.
North Carolina issuers did $10 billion of deals, up 32.7% from 2008. Issuance rose even as health care deals — the largest sales sector in 2008 — dropped by half in 2009. Issuers sold $1.1 billion of health care bonds, down from $2.2 billion in 2008.
The drop in health care volume was partly due to auction-rate security refinancings in 2008, said Christopher Taylor, assistant secretary at the North Carolina Medical Care Commission, the conduit issuer for the state’s health care providers. The commission issued $863.7 million last year, making it the state’s fifth-largest issuer.
The weak economy played a significant role in dragging down health care issuance last year so “people were hesitant to go out and get into more debt,” he said.
“There is a need there that hasn’t been dealt with,” Taylor said, predicting that as the economy rebounds, more health care deals will get done.
Taylor noted the popularity of bank-qualified bonds among North Carolina health care providers. North Carolina’s volume of bank-qualified bonds increased 13-fold last year to $198.1 million as provisions in the American Recovery and Reinvestment Act made the bonds more popular.
The stimulus law increased to $30 million from $10 million the annual small-issuer limit for bank-qualified bonds. The stimulus also allowed the $30 million limit to be applied to individual borrowers and not a conduit issuer, like the commission. Previously, the commission could never issue bank-qualified bonds because it always issued more than the limit, Taylor said.
Both ARRA bank-qualified provisions expire at the end of 2010.
Thanks to the North Carolina Turnpike Authority’s $623 million bond sale in July for the Triangle Expressway System, the state’s transportation deals more than doubled to $1.1 billion last year.
Virginia issuers sold the fourth-largest amount of debt last year in the Southeast, borrowing $9.3 billion, an increase of 23.5%. Kentucky came in fifth and increased total sales last year by 27.3% on par volume of $5.2 billion.
Tennessee sold $4.8 billion of debt — the sixth-largest amount in the Southeast but still a decrease of 17.7% from 2008. Issuers in Alabama stepped up sales by 87.1%, borrowing $4.2 billion. South Carolina also saw a decrease in sales by 8.3%, borrowing $3.66 billion. Louisiana saw a significant drop in overall sales to $3.6 billion, a decrease of 25.2%. Mississippi issuers stepped up their sales last year, borrowing $2.7 billion, an increase of 49%.
Coming in last, by par volume and the largest decrease in the region, West Virginia issuers sold only $808.6 million of debt, which was a drop of 38.5%.
There were no surprises last year in the senior managers’ rankings over 2008. Bank of America Merrill Lynch came in first with a par amount of sales and market share, $11.9 billion and 17.2%, that were nearly identical to the prior year. Citi came in second with a market share of 13.9% and Morgan Keegan & Co. was third with 10.5%.
Public Financial Management Inc. once again was the top financial adviser, with $9.8 billion in sales and a market share of 19.1%. Public Resources Advisory Group remained in second place with a market share of 12.2%. First Southwest jumped to third place from fifth with a market share of 7.4%.
Among bond counsel, Squire Sanders & Dempsey LLP rose to first place from second on $4.3 billion in sales and a market share of 6.2%. King & Spalding dropped to a close second place from first with 6.1% of the market share. Hawkins Delafield & Wood LLP rose to third place from fifth with a 4.9% market share.