BRADENTON, Fla. — Municipal bond issuance in the Southeast during the first half of 2013 dropped nearly 12% to $30.8 billion from the same period of 2012.
Bond sales were down in eight of the region's 11 states.
Refunding opportunities drove issuers to the market for interest savings. Though refunding bond volume was down by 20%, the par amount of $13.3 billion in refundings still exceeded the $11.4 billion of new money debt that was sold.
Total muni bond volume in the region was down 9.7% year-over-year in the first quarter, and down 13.3% in the second quarter, reflecting rising interest rates, said David Moore, managing director at Public Financial Management Inc., and manager of the firm's southern financial advisory practice.
"I would say what really happened is there were still a lot refundings in first quarter and with interest rates trending up a lot of refundings were placed on the shelf" in the second quarter, he said. Refundings "may come back as rates flatten up."
Combined refundings and new money deals were up 1.2% to just over $6 billion in the first six months, according to Thomson Reuters.
Though some analysts and market experts attribute recent market volatility to Detroit's planned repudiation of debt and bankruptcy filing, Moore said he believes Treasury rates are the biggest factor causing rising muni bond interest rates.
"In our finance work, we really make sure to help the rating agencies and investors look at specific clients so they see how they run their finances and that they are managed well over time," he said. "We focus on the issues instead of explaining Detroit's challenges."
Because local governments are reporting growth in revenues, particularly in Florida, Moore said he expects issuers to transition from refundings driven by historically low interest rates to new money bonds possibly within the year.
During the first half, negotiated transactions, down nearly 19%, were the favored method of sale in the Southeast with $19.9 billion priced compared with $9.4 billion in competitive offerings, which were down 0.1%.
Bonds for general purposes were down 12.7% to $8.4 billion, though it was the largest category. Education bond sales were down 10.9% to $7.5 billion.
Issuers marketed $2.7 billion of bonds for development purposes, boosting sales for those needs by 440%, boosted by a $2 billion deal from the Florida Hurricane Catastrophe Fund Finance Corp.
That was also the largest single transaction in the Southeast.
The state-run Cat Fund's offering, sold to provide liquidity if needed to pay hurricane-related claims, also helped to increase the region's total taxable sales by 270% from first-half 2012 to $7 billion.
PFM has maintained the No. 1 financial advisory firm ranking for years in the Southeast, including the first half of 2013, as well as the past 15 years nationally.
First Southwest Co. catapulted from fifth place in the first-half of 2012 to become the second ranking FA in the first half of this year, credited with work on just over $2.7 billion of bonds.
Ed Stull, a managing director for First Southwest, said helping "communities do more with less during challenging economic times" made for a busy first half.
"In addition to funding new projects, we were successful in getting numerous refundings completed that resulted in substantial savings for our clients," he said, adding that First Southwest is continuing to expand in the Southeast.
Issuers throughout the region sold $23.4 billion of tax-exempt debt in the first half of the year. Debt that was subject to the alternative minimum tax was down 70.9% year-over-year to $363 million.
Some $20.95 billion of revenue bonds were sold, compared to $9.8 billion of general obligation debt. Fixed-rate debt sales were down 17.3% to $27.7 billion compared to $357.6 billion in variable-rate short-put bonds, up 126%. Sales of variable-rate debt without a put feature were down by nearly half to $243.4 billion.
The use of linked-rate securities was up 217% to $2.3 billion while sales of convertible bonds were up more than fivefold to $73.8 million. Issuers used bond insurance on $557 million of debt, a 7.1% increase, while letter of credit use plunged 74.7% to cover only three new transactions for $21.3 million of debt.
Private placements were up 48.7% to $1.5 billion, while the use of bank qualified bonds edged up to $1.2 billion, an increase of 1.5%.
State agencies were the entities that sold the most debt during the first half with $8.97 billion, though the volume was down by 12.9%. Local authorities sold $6.4 billion, representing the second-biggest type of issuer. Colleges and universities saw the biggest increase in sales with $1.3 billion, a nearly 15% increase.
Though issuance was off 10% from the year before, Florida remained the top issuer of bonds in the first half with $7.1 billion in sales. In addition to the Cat Fund's $2 billion deal, the Florida Division of Bond Finance sold $1.05 billion of refunding bonds for various state authorities, and $340.6 million of new debt for environmental and transportation purposes.
North Carolina issuers propelled the Tar Heel state to second place with a 27.5% increase in sales to $5.1 billion in the first half, compared to fourth place a year ago with just over $4 billion. Of the total sold, the state issued $1.3 billion of refunding bonds plus a $250 million limited obligation deal to fund various capital needs, and the North Carolina State Education Assistance Authority posted a $540.6 million taxable sale in January.
Louisiana was the fifth-largest issuer in the region, up from seventh place last year. The Pelican state posted a drop of 5.2% in volume to $2.3 billion compared to $2.4 billion a year earlier. Sales included $1.14 billion of new money debt and $1.12 billion in refunding issues.
Refunding opportunities may be limited through the rest of 2013, said Whit Kling Jr., director of the Louisiana State Bond Commission. New money issues almost doubled from $575 million in last year's first half, but refundings were off 40%.
"The number of refunding opportunities has declined and the number of actual refundings has reflected that fact," he said. "Due to the increasing interest rate environment the ability to effectuate economic refundings has diminished both at the state and local level."
A taxable refunding of state GO debt from 2005 is the only economic refunding opportunity the state is currently pursuing, Kling said. Proposed refundings of state gasoline and fuels tax bonds later in 2013 are not being done for debt-service savings.
Virginia dropped to third place in the first half, from second place last year, and its issuers' bond volume decreased 28% to $4.3 billion. Gilt-edged Fairfax County sold the biggest deal in the state with its $347.5 million of new and refunding public improvement bonds.
Across Georgia, issuers' sales fell by 35.9% to $2.8 billion. The volume was helped by the state's $685 million GO sale in June, the third-largest offering in the region.
Kentucky was one of the few states that saw an increase in volume earlier this year with sales of $2.2 billion, up 18% over last year. The Kentucky Higher Education Student Loan Corp. sold the region's fourth-largest deal, a $563.8 million taxable transaction in February.
In Tennessee, volume was down 16% on sales of $2.2 billion. Offerings included three from Nashville totaling $858.1 million.
South Carolina issuers saw a 31% decrease in sales to $1.9 billion, while issuers in Alabama brought $1.6 billion in transactions to market, a decline of 15.9%.
In Mississippi, bond sales spiked by 74% to volume of $765 million, while offerings from West Virginia declined by 22% to $368 million.
Citi maintained the No. 1 underwriting position in the Southeast with 59 deals and volume of just over $5 billion, compared to 62 deals worth $6.4 billion in the first half of last year.
Bank of America Merrill Lynch rose to second place with sales of $4.8 billion in 49 deals. Last year, BofAML was in third place with $4.7 billion in 65 transactions. Wells Fargo rose to third, credited with $3.2 billion in 44 deals.
JPMorgan dropped to fourth place with $3 billion in 26 deals, compared to last year when the bank held second place with $5.28 billion in 46 transactions.
Law firms serving as bond counsel in the Southeast typically don't change position drastically, but the first half of this year was different. Nabors Giblin & Nickerson PA was the top-ranked bond counsel with $2.56 billion in 20 deals, including Florida's $2 billion Cat Fund offering. Nabors did not make the top 10 last year.
Bass Berry & Sims PLC came in second credited 48 deals worth $1.6 billion, up from 10th place last year. Hunton & Williams LLP was the third-ranked bond counsel firm with $1.4 billion in 15 issues, compared to ninth place last year.