DALLAS — With refunding opportunities fading, municipal bond issuance in the Southwest plunged in the fourth quarter of 2013, more than erasing nine months of growth, according to Thomson Reuters data.
For the year, volume in the Southwest region fell 13% from 2012 to $56 billion.
The 13% slump paralleled the national rate of decline. Across all states volume sank to $334.6 billion from $382.4 billion in 2012, according to Thomson Reuters.
With interest rates rising mid-year, refundings in the Southwest were 30% below 2012 levels at $19.99 billion.
"I'd say that higher rates slowed refundings down considerably," said Jon Bronson, managing director of Zions Bank in Salt Lake City. "We think lower volume is here to stay through 2014."
While Bronson has a lot of company with that outlook for 2014, not everyone agrees.
"I predict volume will be slightly higher in 2014 than in 2013 if rates stay in the current relative range and we don't have any market shocks," said Ryan O'Hara, managing director at BOSC Inc. in Houston. "We are seeing strong volume on new money issues and refunding in the Houston market."
The race to refund slowed to a crawl as Federal Reserve Chairman Ben Bernanke sent signals that the Fed would begin to "taper" its bond buying, and the federal government shut down for two weeks in October.
"We were sorry to lose a lot of the refundings," said Jack Addams, vice chairman of First Southwest Co. "But if the market's not there, the market's not there."
Despite flat year-over-year business, First Southwest maintained its position atop the financial advisor rankings in the region with $11.05 billion or 24% of the volume for 2013.
New money volume in the region increased about 6% in 2013 to $26.4 billion.
Even with 15.6% less volume, Texas remained the third largest source of municipal bond issuance behind California and New York. Issuance from the Lone Star State fell to $32.56 billion last year, against $38.6 billion in 2012.
Two of the region's eight states bucked the downward trend. New Mexico registered a 40% increase in bond sales to $1.55 billion, while Oklahoma's volume grew 28% to $2.93 billion.
In percentage terms, Utah saw the largest drop, falling 31% to $2.15 billion, followed by Kansas, down 26% to $2.57 billion, and Colorado, down 18% to $6.96 billion.
Arkansas volume was down slightly, falling 5.4% to $2.5 billion, as was Arizona's, down 3.1% to $4.83 billion.
Among the sectors, housing was the region's largest growth market with a 91% increase over 2012 to $1.47 billion. Health care issues grew 10.3% to $4.98 billion, while education volume increased 1.8% to $20.64 billion, representing the largest sector of the muni market.
"Texas is growing, so I anticipate we will continue to see K-12 issuances, including charter schools, continue to rise," said O'Hara. "Several Houston area districts are discussing voter authorized bond programs."
All other sectors fell, with utilities taking the largest tumble at 51.9% to $5.93 billion. Even transportation, one of the most critical issues in the booming states of Texas, Arizona, Colorado and Utah, fell 5% to $10.29 billion.
The largest long-term bond deal in the region came mid-year as the Grand Parkway Transportation Corp., a public-private entity created by the Texas Department of Transportation, issued $2.9 billion of revenue bonds for a toll loop around the fringes of the Houston metro area.
Without the Grand Parkway deal, which came as rates were beginning to show volatility, Southwest volume would have turned negative in the third quarter.
The deal also kept Estrada Hinojosa & Co. in second place among financial advisors in the region. It was followed by RBC Capital Markets, Public Financial Management Inc. and Southwest Securities.
Among senior managers, JPMorgan took the top spot away from last year's regional leader, Bank of America Merrill Lynch & Co. JPMorgan was credited with $5.78 billion of deals by Thomson Reuters, including $3.4 billion in Texas, where it also led the table.
RBC Capital Markets ranked second among senior managers with $4.98 billion in the Southwest.
BofAML fell to third place with $4.78 billion in the Southwest. It was followed by Citi with $3.73 billion in the region. Goldman Sachs & Co. ranked fifth with $3.42 billion. Goldman was senior manager on the Grand Parkway deal.
Among bond counsel, McCall Parkhurst & Horton ranked first regionally with $10.33 billion of deals, followed by Norton Rose Fulbright with $6.54 billion, Bracewell & Giuliani with $5.17 billion, Andrews Kurth at $3.58 billion and Kutak Rock with $2.87 billion.
Texas was home to seven of the top 10 issuers. Behind Grand Parkway came Dallas-Fort Worth International Airport with $2.07 billion, Denver with $887.8 million, San Antonio with $858.4 million, and Texas A&M University System with $849.2 million.
The more than $2 billion of debt from DFW marked its second straight year of heavy issuance as the airport hit its stride on a $2.3 billion remodeling of its four original terminals.
Airport officials are also floating the idea of building a sixth terminal to handle expected growth this decade.
The largest deal outside Texas was Denver's $719.9 million of subordinate-lien debt for Denver International Airport's new South Terminal rail station and hotel.
RBC Capital Markets took the top spot among Colorado senior managers with $1.5 billion while First Southwest ranked first among financial advisors with $852.9 million of bond sales. Kutak Rock ranked first among Colorado bond counsel.
The Arizona Transportation Board issued $715.5 million Jan. 16 through negotiation with JPMorgan and Wells Fargo and Co. That sent Arizona's volume soaring 95% for the first quarter compared to the year before, but the rest of the year was straight down, settling at a final volume 3.1% below 2012 numbers.
RBC Capital Markets ranked first among senior managers in Arizona with $1.1 billion of deals and first among financial advisors with $1.39 billion. Squire Sanders topped the Arizona bond counsel rankings with $2.2 billion.
In Utah, where debt is usually short and sweet, the Intermountain Power Agency ranked first among issuers with a $300 million refunding deal in February when opportunity was still knocking.
Morgan Stanley ranked first among senior managers in Utah, with George K. Baum & Co. as top financial advisor. Ballard Spahr led the state's bond counsel.
"Issuers are still feeling pinched financially," said Bronson, whose Zions Bank ranked second among financial advisors in Utah. "The loss, or potential loss of more federal funding plays a part in the new cautious attitude about spending and debt."
In New Mexico, the state government ranked as top issuer with $294.8 million.
Bank of America Merrill Lynch was top underwriter with $268.5 million, while RBC Capital Markets was the state's top financial advisor with $596.5 million. Brownstein Hyatt Farber Schreck was top bond counsel with $612.3 million.
In Arkansas, the state government also accounted for the lion's share of the debt with $670.4 million.
Stephens Inc. was the top underwriter with $762.2 million, while also ranking as top financial advisor with $966.1 million. Friday, Eldredge & Clark was the state's top bond counsel.
In Kansas, the Kansas Development Finance Authority provided the largest deal of $302.6 million. Piper Jaffray & Co. was the top underwriter with $666.7 million. Columbia Capital Management topped financial advisors with $515.9 million, while Gilmore & Bell ranked first among bond counsel with $1.8 billion.
To the south, Oklahoma had fewer deals but recorded a better than 28% increase in volume to $2.93 billion. The Oklahoma Student Loan Authority at $211 million was the largest issuer in the state. BofAML edged out home-grown BOSC among underwriters with $599.9 million. Public Financial Management was tops among financial advisors in the state, with Public Finance Law Group atop the bond counsel ranks.
