Education remained the largest of the 10 public finance sectors tracked by Thomson Reuters, accounting for almost one-third of the $175.6 billion of bonds sold in the first half of 2013. Sales for all sectors combined fell 10% from the same period of 2012, led by a 28% plunge in general-purpose bond issuance.
The primary factor in the sales volume volatility of the first six months — with January’s 53% surge and a 44% plummet in June — were interest rates, according to Don O’Brien, a senior member of Raymond James’s municipal underwriting team in New York.
“The increase in rates in May and June fairly crushed the refunding supply,” he said. “The scope of the rise in interest rates from early May to the end of June exceeded the one in September 2008, when some of the biggest firms were on the sideline or on the way out.”
Education, the perennial largest sector, continued its growth in 2013. The total of $55.8 billion issued in the first half of 2013 marked a 10% increase from $50.5 billion in 2012. Refundings outpaced new money $24.7 billion to $22.1 billion, with $9 billion in combined issues.
The lion’s share of the education debt offerings funded K-12 education, with $35 billion issued in 2,362 sales. Local school districts issued $28.4 billion in the period.
Higher education issues totaled $24.7 billion, up from $16.3 billion in the first two quarters last year.
Bonds issued to fund student loan programs surged four-fold in the first half of 2013, to $4.1 billion from $1 billion a year earlier. The increase came in 15 issues.
Student loan issues included $956 million by the Missouri Higher Education Loan Authority in mid-June and the Kentucky Higher Education Student Loan Corp.’s $563.8 million tranche in February.
The largest education bond offering in the first half of 2013 was the $2.25 billion issued in January by the New Jersey Economic Development Authority, with second place going to the University of California’s $1.6 billion sale in March.
General-purpose bond sales plummeted to $40 billion from $55.7 billion in the first half of 2012. Sales were off in the first quarter by 18% before dropping by 36% in the second.
The total includes $32 billion of GO bonds and $8 billion of revenue debt.
State issuers accounted for $16 billion of sector sales, with counties and cities issuing another $19.5 billion.
The largest general-purpose issues in 2013 included California’s $1.49 billion tranche of combined new-money and refunding debt in April and $1.3 billion of GOs from Illinois in late June.
Revenue-supported general purpose debt dropped by more than 50%, to $8 billion from $16.6 billion last year. GO debt was off 18%, to $32 billion from $39 billion.
The transportation sector beat the overall 10% decline with a drop of more than 6% to $21.15 billion. Transportation bond issues rose almost 30% in the first quarter, to $10.1 billion from $7.9 billion in 2012, then fell by 25% in the second quarter. Sales in the April-June period slipped to $11 billion from $14.8 billion in the same span in 2012.
States and state agencies issued $13 billion of transportation debt in the first quarter of 2013.
The largest transportation issuer so far in 2013 is the New Jersey Turnpike Authority. The agency is responsible for the largest single issue, a $1.4 billion offering in March, and the eighth-largest, a $646 million refunding in May.
The 12% decline in street, highway and toll road bonds kept pace with the overall decline as sales slipped to $7.7 billion from $8.7 billion in 2012. Mass transportation efforts were steady, with $8.15 billion in 36 issues from $8.22 billion in 45 sales.
Debt issued for seaport projects almost doubled, to $301 million from $155 million last year.
Revenues will support $16.8 billion of the transportation debt issued in the first half of 2013, with $4.4 billion of general obligation debt.
Development debt posted the second-largest year-to-year sector increase, with a 78% jump to $7.2 billion in 2013 from $4.1 billion in 2012. Sales were strong throughout the first six months, with an increase from 2012 of 156% in the first quarter and 41% in the second.
Development totals include $5.7 billion for economic development efforts, $1.4 billion for industrial development and $134 million of office buildings.
States and state agencies took the lead in development sales, with $4.5 billion. Direct issuers accounted for $1.5 billion with another $671 million from local authorities.
Florida Hurricane Catastrophe Fund Finance Corp. took the top spot in development sales with a $2 billion taxable issue in April.
Health care debt was off by more than 20%, with sales dropping to $14.2 billion from $18 billion in the first half of 2012.
Activity was brisk in the first quarter, with sales of $6.3 billion from $3.8 billion last year, but in second quarter sales fell to $8 billion from $14.2 billion a year earlier.
Debt issued for general acute-care
hospitals totaled $10.7 billion, down almost 30% from $14.9 billion in the first two quarters of 2012.
Health care sales included $4.9 billion of refunding tranches and $3.4 billion of new-money deals. Combined issues totaled $6 billion. The California Health Facilities Finance Authority’s $450 million of new-money issuance in April was the largest sale during the period. The authority also sold $290 million of new-money and refunding bonds in January.
Utility bond sales fell to $18.6 billion, down from $25.2 billion in 2012. The total includes $16.6 billion of revenue debt and $2 billion of GO debt.
Debt issued for water and sewer ¬operations dropped to almost $8 billion from $11.8 billion in the first half of last year.
The New York City Municipal Water Finance Authority took the top two spots in utility issuer ranks, with a $456 million new-money sale in February and a $543.3 million refunding in March.
Housing sector bond deals almost doubled from 2012, with sales of $7.45 billion in 2013 from $4.2 billion last year.