DALLAS – Despite a contracting bond market, uncertainty over federal tax law and a shifting investment climate, muni players still see opportunity in fast-growing Texas based on recent moves in the industry.
“With every change comes opportunity,” said Todd Brewer, vice chair for public finance at Orrick, Herrington & Sutcliffe’s Houston law office that opened in 2016. “There continues to be a pent-up demand for infrastructure, especially in Texas. There’s a lot of work to be done.”
Brewer and other industry officials will converge on Austin this week for The Bond Buyer’s Texas Public Finance Conference, where market conditions, regulatory changes and opportunities in the Lone Star State will take center stage.
Brewer and four other attorneys formed the nucleus of Orrick’s public finance practice in Texas two years ago. Now, the firm is expected to announce the addition of 20 to 25 bond attorneys to the practice from the well established Houston firm of Andrews Kurth Kenyon. If the hires are confirmed, Texas would have Orrick’s second-largest public finance team after its home state of California.
Andrews Kurth, which ranked third in Texas in bond counsel volume in 2017, plans to continue its public finance practice, according to a source. Neither Brewer nor other Orrick officials would discuss the matter.
Dennis Hunt, executive vice president and head of public finance at Stephens Inc. in Little Rock, Ark., recently announced hires in Dallas and Austin, with plans to add more to the financial advisory and investment banking firm’s staff.
“Surging population growth in Texas creates demand for greater resources and infrastructure improvements,” Hunt said.
Another firm, FTN Financial, a division of First Tennessee Bank, last year acquired Houston-based Coastal Securities, which has a strong presence in San Antonio.
At $42.2 billion, 2017 bond volume in Texas was off nearly 20% year-over-year, according to data from Thomson Reuters. A 38% surge in the fourth quarter offset sharp declines of 29% in the first quarter, 41% in the second and 28% in the third.
The fourth-quarter surge was due in large part to uncertainty over how Republican congressional tax reform legislation would affect tax-exempt private activity bonds and advance refundings. As it turned out, PABs were spared, but tax-exempt advance refundings were outlawed.
“The volume of deals pushed through the end of year certainly led to a slow January,” Brewer said. “Everybody had to take a few days just to catch their breath. We’ve seen this before since the last tax reform in 1986. I’m cautiously optimistic that the slowness in January is not going to be a year-long thing.”