BRADENTON, Fla. - Municipal bond issuance in the Southeast increased by 6.8% to about $89 billion in 2007 despite turbulent market conditions at the end of the year as the credit crunch spread to the tax-exempt market.
The 11 states comprising the Southeast saw bond issuance increase in each of the first three quarters then decline 16.3% in the fourth quarter as liquidity dried up and deepening troubles for the bond insurers hobbled the market for auction-rate securities, problems that have recently spilled over into variable-rate deals.
Issuance fell last fall as transactions took longer to bring to market and some issuers with variable-rate exposure were forced to restructure or protect their debt with letters of credit - all scenarios that continue so far this year, said David Moore, managing director at Public Financial Management Inc.
PFM ranked first among financial advisers in the Southeast last year, with 106 issues totaling $8.57 billion.
"This is a very, very uncertain time for issuers to figure out the way to go," Moore said. "I would expect this year we'll have a lot restructuring as people work through variable-rate deals in the first few months and then I expect people will begin to focus on new-money deals."
Borrowing for education and general governmental purposes were the top categories in the Southeast in 2007, according to Thomson Financial.
For the second year in a row, the Florida Hurricane Catastrophe Fund Finance Corp. sold the single-largest deal in the region - a $3.5 billion taxable transaction to pay claims, if needed. That sale alone made the Cat Fund the largest issuer by volume in the Southeast in 2007. The proceeds were invested to provide liquidity, but no claims were paid during a calm 2007 hurricane season.
The Florida Citizens Property Insurance Corp. sold just over $1 billion of refund and new-money debt to become the region's third-largest overall issuer.
The Southeast's second-largest transaction, $1.63 billion of student loan-backed bonds, was sold last year by Tennessee-based Educational Funding of the South Inc. EdSouth sold an additional $399 million of bonds in a separate transaction, making it the second-largest overall issuer in the region. EdSouth did not sell any debt in 2006, according to Thomson.
The EdSouth deals helped propel Nebraska-based Kutak RockLLP to become the second-ranked bond counsel firm in the Southeast last year, up from 14th place in 2006. The firm's forte in public finance nationwide is student loans and housing. In the Southeast, Kutak Rock also represented housing agencies in Georgia, Kentucky, and Louisiana as well as utility, economic development, and general governmental issuers in 40 offerings worth $4.6 billion - more than double the volume in 2006.
Squire Sanders & DempseyLLP retained its position as the top bond counsel in the region on 34 issues with $5.23 billion in sales, up just slightly from $5.2 billion in 2006.
"The markets last year were generally very favorable for the issuance of student loans and single-family housing bonds," said David Amsden, managing partner in Kutak's Atlanta office. "So far this year the market is less than favorable for those types of transactions, so it's really hard to gauge what our production level will be this year."
Amsden said the firm currently is working more on restructuring outstanding transactions than with new debt issues because of insurer problems, while adding that it's increasing the number of housing agencies it represents in Georgia and Florida. Kutak Rock has 15 offices around the country, with 130 of its more than 375 lawyers practicing in the public finance area.
Two tobacco bond issues made the list of top 10 deals in the region.
The third-largest single sale of the year came from the Virginia Tobacco Settlement FinancingCorp.'s $1.63 billion deal, which refunded $466 million of debt and provided $614 million of new money for economic revitalization in the state's depressed tobacco-growing region. The West Virginia Tobacco Settlement Finance Authoritysold $911 million of bonds and used proceeds to help the state reduce its teacher's pension liability. It was the seventh-largest deal sold last year in the Southeast.
New-money volume of $63.6 billion represented only a 4.7% increase throughout the Southeast last year. Refundings were up 8% on $12 billion of volume sold. Negotiated deals were up only 5.8% but still dominated with $68.5 billion of volume compared to competitive offerings, which increased 14.1% to $18.6 billion.
General obligation bonds sales were up 25.6% to $16.5 billion, while revenue bonds sales were up 3.3% on $72.3 billion in volume. Fixed-rate was still the favored method to sell bonds with $61.7 billion, an increase of 9.4%. Some $13.5 billion of variable-rate short put bonds were sold, down 20.4% compared to last year, while auction-rate bonds were up 308.4% on $10.6 billion of volume.
Florida issuers sold the most debt of any Southeastern states last year with $28.1 billion, an increase of only 4.2% compared to issuance in 2006, which was up 35% over 2005.
The Sunshine State suffered from the insurance and liquidity problems like the rest of the country - issuance was down nearly 21% in the fourth quarter compared to 2006. Issuers were reluctant to sell some types of debt because of a Florida Supreme Court case involving the legality of tax increment financing and certificates of participation as well as tax reform initiatives. A soft real estate market was another negative.
West Virginia saw the largest percentage increase in sales last year, up 82.2%, primarily because of its tobacco securitization. Alabama had the second-largest increase, up 55.6%, largely because of a $1.07 billion bond sale for capital improvement funding by the Alabama Public School & College Authority, which was the fifth-largest single sale of the year. Alabama was also the only state in the Southeast to show year-over-year increases in bond sales during all four quarters.
Mississippi issuers sold $3.7 billion in debt, which was a 50.3% increase over 2006, including a $650 million offering by the Mississippi Business Finance Corp. Georgia saw its debt sales increase by nearly 30% last year to $10.4 billion, which included two sales by the state totaling $1.19 billion.
Virginia issuers picked up the pace last year with a 24.2% increase to $8.3 billion of sales, boosted by its large tobacco settlement securitization. The Virginia Housing Development Authoritysold $863 million of debt in nine issues. The Virginia College Building Authority issued $529.3 million of debt via five issuances in 2007.
Virginia is preparing additional bond issues in 2008 to address anticipated revenue shortfalls. Gov. Tim Kaine has introduced to lawmakers a $1.6 billion bond proposal to finance construction and renovation at state colleges.
North Carolina and Kentucky also saw increases in debt issuances last year of 10.3% and 7.8%, respectively. North Carolina's top offerings included the sale of $502 million of COPs by the state and $434 million of student loan bonds sold by the North Carolina State Education Assistance Authority. The Kentucky Asset/Liability Commissionsold $911 million of debt last year while the Kentucky Public Energy Authoritysold $450 million.
Three Southeastern states saw declines in issuance last year. Louisiana posted a 1.7% decline in dollar totals, with $6.13 billion in 204 issues last year compared to $6.23 billion in 145 issues during 2006. The largest issue in the state was $1 billion of Gulf Opportunity Zone bonds sold by St. John the Baptist Parish to finance a portion of Marathon OilCo.'s $3.2 billion refinery expansion near New Orleans. The largest issuer by volume sold in the state in 2007 was Louisiana Public Facilities Authority, with $1.58 billion in 17 issues.
South Carolina and Tennessee saw issuance decline 33.7% and 32.8%, respectively. The biggest transaction in Tennessee was a $431 million sale by the Johnson City Health & Educational Facilities Board.
There was no change in the top three ranking for senior managers last year. Citi remained in first place with 147 issues and $14.6 billion of sales representing about $1 billion more in business over 2006. Merrill Lynch& Co. worked on 102 issues with total volume of $11.2 billion, which was $2.2 billion more than 2006. Banc of America SecuritiesLLC came in third again with 142 issues totaling $7.01 billion, down about $200 million from 2006.
Raymond James & AssociatesInc. was the second top financial adviser with $5.5 billion in three issues, including sales by Florida's Hurricane Catastrophe Fund and Citizens Property Insurance Corp. First Southwest Co. rose to third place last year, up from eighth in 2006, with $4.1 billion in 46 issues.
Peter Schroeder and Jim Watts contributed to this story.
