BRADENTON, Fla. - Municipal bond issuance in the Southeast last year took the largest tumble of any region in the country. Volume fell in all four quarters of 2008 as the credit crunch worsened and - as one financial adviser put it - the rules kept changing.
Bond sales among the 11 states that comprise the Southeast dropped 25.4% to $66.1 billion compared to $88.6 billion in sales during 2007, according to Thomson Reuters.
Foreclosures, plummeting real estate values, and property tax reform helped push issuance from Florida down 34.7%. The state remained the Southeast's largest issuer by volume but with diminished sales of $18.4 billion compared to $28.13 billion in 2007.
Georgia issuers sold the second-highest volume of debt in the region last year - $8.6 billion. That's down 18% from 2007, while North Carolina came in third with $7.44 billion of debt sales, a decrease of 5%.
While new-money issues throughout the Southeast were slashed almost by half last year to $35.6 billion from $63 billion in 2007, refundings were up 37.3% to $16.3 billion. Fixed-rate debt was the preferred mode of issuance, although sales were down 33.6% on volume of $40.9 billion.
No auction-rate debt sales were reported in 2008 compared to $10.6 billion in such sales in 2007. However, conversions of such debt to other modes helped to push issuance of short-put variable-rate debt up by 69%, to $23.4 billion from $13.8 billion in 2007.
"Last year was very tough," said David Moore, managing director at Public Financial Management Inc., which maintained the top financial adviser position in the Southeast last year on $8.1 billion of transactions compared to $8.5 billion in 2007.
"It was very difficult to pin down the optimal approach to each financing because the players and the rules were changing constantly," he said. "We would start down a logical path and either the insurer, underwriter, or the LOC bank, or all the above, would change."
As conversions took place last year, use of letters of credit soared by 194.5% on a volume of $16 billion, compared to $5.4 billion the year before, while the use of standby bond purchase agreements went up 8.7% on a volume of $4.6 billion.
Moore noted that many issuers face renegotiating their LOCs this year. That's because they could only get one- or two-year LOCs last year as market turmoil continued to impact creditor's balance sheets. Some issuers may continue to face problems with bond insurers, he added.
The use of bond insurance last year plunged by 66.8% to end the year with $13.1 billion of insured debt compared to $39.5 billion of debt insured in 2007.
Most debt sold last year was for education although issuance in that sector was down nearly 40% on sales volume of $12.6 billion. Issuance in the development category, which includes industrial and economic development, plunged 65% to only $1.5 billion last year, while housing-related issuance declined by 60% to $2.4 billion.
Debt sales among all categories of issuers declined last year, except for colleges and universities, which increased their debt sales by 17% on volume of $1.4 billion.
The top issuer in the region last year was Miami-Dade County with just over $2 billion of volume. Many of the county's sales were for new money, but it also was forced to restructure much of its variable-rate debt and pay $120 million for swap termination payments on two water and sewer offerings.
Georgia had two big deals. The state sold $522 million of general obligation bonds, while the Georgia State Road and Tollway Authority issued $600 million. The authority on Tuesday expects to begin pricing $600 million of federal highway grant anticipation and highway reimbursement revenue bonds.
Tax-exempt issuance in North Carolina fell 5.1% last year with $7.54 billion in sales compared to nearly $8 billion in 2007. Issuance in many sectors declined as the state grappled with a looming budget deficit that could reach $2 billion this year, newly elected Gov. Beverly Perdue said in January.
The health care sector showed resilience in North Carolina where issuers sold $2.23 billion of debt, up 12.8% from 2007, and second in the Southeast to Florida's $2.40 billion. The North Carolina Medical Care Commission was the fourth-largest overall issuer in the region with $1.72 billion in sales.
North Carolina's health care providers have benefited from strong population growth and state regulation that has tempered hospital expansion. But the state has taken health care business from other states that experienced rapid growth earlier this decade, said Moody's Investors Service analyst John Hahn.
"We're hearing North Carolina is the new Florida," he said.
Virginia issuers sold the fourth-largest amount of debt last year with $7.5 billion of bonds in 117 deals, which is 8.5% less than 2007 when they sold $8.2 billion in 128 deals. The largest was the Capital Beltway Funding Corp.'s sale of $589 million of bonds on June 11, which helped to finance high-occupancy toll lanes on Interstate 495.
Tennessee issuers sold $5.8 billion of debt, down 8.8% from the previous year. Nashville-Davidson County was the 13th-largest issuer in the Southeast selling a combined total of $663 million of debt in five transactions throughout the year.
Debt issuance by Louisiana state and local governments fell more than 20% in 2008 from 2007 figures, with a total of $4.8 billion in 134 sales. Debt sales during 2007 totaled $6.1 billion in 211 issues.
The largest single sale during 2008 in Louisiana and the Southeast was $1 billion of Gulf Opportunity Zone bonds issued by the Lake Charles Harbor and Terminal District in late March to finance a $1.6 billion, synthetic natural-gas production facility.
Issuance from Kentucky was down 18% last year with sales volume of $4.1 billion compared to just over $5 billion in 2007. The largest sale from the state was the Kentucky State Property and Building Commissioners' $375 million deal in October.
Issuance in South Carolina grew 3.4%, the only Southeast state to post a dollar amount increase for the year. Like several states in the region, South Carolina electricity and health care issuers increased volume as overall financing declined.
The South Carolina Public Service Authority, commonly known as Santee Cooper, issued the fourth-largest deal in the Southeast with a $667 million sale for electric power development in October amid one of the worst months nationally for new deals.
Issuance in Alabama declined to $2.25 billion last year. That compares with nearly $7 billion in 2007 debt sales, which included the Alabama Public School and College Authority's $1.07 billion sale that year.
A similar situation played out in Mississippi last year where deals plummeted by 51.4% on volume of $1.8 billion. In 2007, Mississippi issuers sold $3.7 billion of debt, which included $1.3 billion of sales by the Mississippi Business Finance Corp.
Issuance in West Virginia, the smallest issuer by dollar amount among the Southeast states, fell 33% in 2008. Health care issuers there bucked the downward trend in issuance with sales of $641.9 million in 2008, up from $44.6 million in 2007.
West Virginia is one of only four states not suffering from a budget deficit amid national economic recession.
There were a few surprises in the finance team rankings for the Southeast last year, but not in the top senior manager position, which was retained by Citi with $10.2 billion in sales, down from $14.6 billion in 2007.
Morgan Keegan & Co. jumped into second place last year, from seventh in 2007, with $6.5 billion in sales compared to $5.7 billion, respectively. Goldman, Sachs & Co. rose to third place last year, up from eighth, with sales of $6.3 billion compared to $4 billion. Merrill Lynch & Co. dropped to fourth place from second managing $5.8 billion last year compared to $11.2 billion in 2007.
Following Public Financial Management in the top financial advisory slot was Public Resources Advisory Group with just over $4 billion in sales, up from fourth place and $3.6 billion in sales during 2007. Ponder & Co., which focuses on health care, rose to third from seventh place, advising on deals worth $2.8 billion last year, up from $2.26 billion in 2007.
King & Spalding rose to become the top-ranked bond counsel last year on $3.85 billion worth of transactions, up from eighth place in 2007 when the firm worked on deals valued at $2.8 billion. Squire Sanders & Dempsey LLP was the second-ranked bond firm last year on $3 billion in deals, sliding down from the top spot in 2007 when it worked on deals worth $5.2 billion. McGuireWoods LLP rose to third place from sixth, counseling on offerings worth $2.93 billion compared to $3.2 billion in 2007.