DALLAS - Issuance in the Southwest dropped a dramatic 37% in the fourth quarter while managing a 5.6% increase for all of 2007 to $68 billion.
The first quarter saw an increase of 50.8% in volume, reflecting a national municipal bond market going like gangbusters at the start of 2007. Second-quarter growth in the region was 22.8%, followed by a 13.2% increase in the third quarter, before volume fell in the final quarter, according to Thomson Financial.
The fourth-quarter decline reflected a worsening economy brought on by the subprime lending crisis and the related collapse of triple-A credits among the bond insurers, one market analyst said.
"Instead of greed, you're seeing more fear," said Jeffrey Timlin, vice president and portfolio manager for Sage Advisory Services in Austin. "As for insured paper, people seem to be avoiding that altogether."
Despite a decrease in the number of insured issues in the Southwest from 1,006 in 2006 to 985 in 2007, the dollar value of the insured issues rose by 7.6% to $26.5 billion.
While fixed-rate debt rose 16.9%, variable-rate issues fell sharply, as did auction-rate and zero-coupon bonds. Variable-rate long-term bonds fell 50.7%, while short-term variable-rate debt was down 15.3%. Auction-rate debt was down 18.6%.
"Now that we're in a new market, I think we may be coming back to a time of more simplicity," Timlin said.
Competitive deals grew at a faster rate of 11.4% than negotiated pricings at 5%. Timlin said that trend might continue as more issuers try to save on fees. The new climate will also put pressure on underwriters to be flexible to attract new business, he said.
"I would think the larger companies would have the greater ability to come in with lower prices because of their economies of scale," he said. "Yet, some of those big guys also have more exposure to the subprime mess."
Citi retained its title as top senior manager in the region with 72 deals worth more than $7 billion, giving the company a 10.5% market share, down slightly from 11.6% in 2006. JPMorgan came in a close second with a 10.3% share on 65 deals worth $6.96 billion. JPMorgan moved up from fourth place last year.
Last year's number two underwriter, RBC Capital Markets, ranked third with 190 issues valued at $5.9 billion for an 8.7% share. UBS Securities LLC held fourth with $5 billion worth of debt, followed by Morgan Stanley with $4.6 billion.
First Southwest Co. maintained its top place among financial advisers, with 423 issues worth $13.4 billion for a 19.9% market share. Coming in a distant second was RBC, whose 193 deals for $8.3 billion provided a 12.3% share. Estrada Hinojosa & Co. moved up to third from fourth in 2006 with 46 deals worth $3 billion. Public Financial Management Inc. dropped to fourth from third, with 18 deals valued at $2.8 billion, while Southwest Securities rounded out the top five with 114 issues worth $2 billion.
Fulbright & Jaworski LLP moved into first place among bond counsel from second in 2006, switching places with McCall Parkhurst & Horton LLP. Vinson & Elkins LLP remained in third, followed by Kutak Rock LLP and Andrews Kurth LLP.
Among the eight states in the region, Arizona saw the most dramatic growth, with 190 issues worth nearly $9 billion representing an increase of 63.7%. Kansas ranked second in rate of growth at 10.8% to $2.8 billion, followed by Utah's 8.3% increase to $2.5 billion.
Texas, the largest issuer in the region, saw the value of its deals increase by 3.5% to $39 billion.
Oklahoma's issuance dropped the most, falling by 19.4% to $2.5 billion, followed by Arkansas, down 14.4% to $1.6 billion and Colorado, down 6.1% to $8.3 billion.
A July 17 prepaid gas deal for the Texas Municipal Gas Corp., managed by JPMorgan, was the largest of the year at $1.9 billion. Second was the Texas Transportation Commission's $1.2 billion highway bond sale, also managed by JPMorgan. Citi's $1.1 billion transaction for the Salt Verde Financial Corp. in Arizona on Oct. 12 ranked third, followed by Morgan Stanley's $1 billion sale for the Texas Transportation Commission on June 7 and Goldman, Sachs & Co.'s $770 million on Feb. 8 for Dallas Area Rapid Transit.
The two mega-deals made the TTC the largest issuer at $2.3 billion, followed by Texas Municipal Gas Corp. with $1.9 billion, the Tarrant County Cultural Educational Facilities Corp. in Fort Worth with $1.5 billion, and San Antonio with $1.3 billion.
Texas had three strong quarters followed by a 55% drop in the fourth. Volume grew 64% in the first quarter, 11% in the second, and 57% in the third.
Despite a number of record deals, education issuance actually fell 12% to $14.7 billion. By dollar amount, education remained the largest category of debt in 2007. In percentage terms, development showed the strongest growth, climbing 119% to $258 million.
JPMorgan was top senior manager in the state, with First Southwest as top financial adviser and Fulbright & Jaworski as top bond counsel.
In Arizona, competitive sales were up almost 120%, with $1.6 billion in 31 deals, up from $751 million in 23 competitive deals in 2006. Arizona's 145 negotiated transactions in 2007 totaled $7.14 billion, an increase of almost 60% from $4.49 billion in 163 negotiated sales in 2006. Arizona's issuance was up in every quarter but the third, rising better than 128% in both the first and fourth quarters.
Salt Verde Financial Corp.'s pre-pay gas deal totaling $1.13 billion in September was the largest transaction. The nonprofit agency acquires and finances natural gas acquisition for the Salt River Project electric and gas utility.
On Jan. 15, 2008, Standard & Poor's lowered its senior secured debt rating on Salt Verde's $1.13 billion senior secured gas project revenue bonds to AA-minus from AA to reflect the downgrade of Citigroup Inc., which guarantees the obligations of Salt Verde's gas supplier, Citigroup Energy Inc. The rating agency said the action resulted from Citigroup's "significant fourth-quarter loss and expectations for a continued, difficult operating environment for U.S. banks in 2008."
A May sale by Phoenix provided financing for municipal projects associated with the expansion of Arizona State University's downtown campus.
The city took to market $342.7 million of tax-exempt GOs and $77.6 million of taxable GOs in a negotiated sale. A simultaneous competitive sale involved $187.4 million of GO refunding bonds.
Arkansas' issuance was down in every quarter. State government led issuers with $250 million of debt during the year, up from $33.6 million in 2006, with another $151.4 million by state agencies.
Little Rock was the second-largest issuer, behind the state, with five bond sales totaling $161.9 million.
In Colorado, issuance was up sharply in the first half, rising 137% in the second quarter and falling sharply in the second half, down 64% in the fourth quarter, leaving the state lower overall for 2007. Transportation rose 78.6% to $2.1 billion, followed by electric power's 65.3% increase to $145 million and utilities' 55% increase to $840 million. Education was down 7.1% to $2 billion. Housing also fell 29% to $718 million, and public facilities were down 56% to $386.6 million. New-money issues were down 31%, and refundings fell 3.4%.
In neighboring Kansas, bond sales were up almost 11% by volume, even as the number of issues dipped. Proceeds totaled $2.76 billion in 242 issues, compared to $2.49 billion in 282 issues in 2006.
The most active issuers were cities and towns, with $987.5 million of debt sold in 2007. School districts issued $805.5 million during the year, up more than 100% from 2006 sales of $373.6 million.
The state government issued no debt over the year, although state agencies did take to market 10 issues totaling $236.6 million.
Debt sales in New Mexico were up in the first and fourth quarters and down in the second and third. Overall, volume fell more than 9% in 2007. The total of $2.22 billion sold in 81 issues was down from $2.44 billion in 87 sales in 2006.
The state was the largest issuer in 2007 as in 2006, with $297.7 million in two issues by state government and $1.16 billion from 23 issues by state agencies. The New Mexico Mortgage Finance Authority was the largest issuer in the state, with $707.4 million in 15 sales.
Debt from Oklahoma issuers fell almost 20% in 2007, even though the number of sales rose slightly from 268 in 2006 to 277 in 2007. Sales totaled $2.54 billion in 2007, down from $3.15 billion in 2006.
Issues included $1.78 billion of negotiated deals, $672.5 million of competitive sales, and $94.4 million of private placements. Bond insurance enhanced 40 deals totaling $1.1 billion.
The Oklahoma Development Finance Authority was the largest issuer in 2007, with $573.6 million in nine issues.
The Chickasaw Nation will build a new health facility to replace its overcrowded hospital in Ada, Okla., with proceeds from December's negotiated sale of $90 million of hospital revenue bonds.
Utah's issuance was up in the first and fourth quarter and down the second and third. Volume rose 103% in the first quarter and 59% in the fourth, while falling 4.8% in the second and 51% in the third, ending higher for the year.
Education, the largest category, was up nearly 16% to $984 million, with development showing the largest percentage gain, 105% to $20.5 million.
Jim Watts contributed to this story.
