Houston Controller Ronald Green: "We have had nothing but success in the first half of the year."

DALLAS — Texas led the entire nation in bond issuance during the first half of 2014 as municipal bond issuance across the Southwest rose 1.9% compared to the same period of 2013, according to Thomson Reuters data.

Across the eight-state region, volume reached $30.46 billion versus $29.9 billion in the first half of 2013. New money issues rose 44% while refundings fell nearly 24%.

The rise in the Southwest bucked a national trend in which issuance fell 14.8% to $152.6 billion through June 30.

Despite the region's growth, the Southwest represented the lowest dollar volume of the nation's five regions.

Southwest Midyear Review

Of the eight states in the Southwest, Utah grew the most in percentage terms at 28% to $1.15 billion while Colorado's 57% plunge to $1.34 billion proved the steepest.

Arizona fell 26% to $3.1 billion, nearly matched by Arkansas' 25% drop to $790.3 million. Kansas gained 21% to $1.55 billion as Oklahoma dropped 18% to $1.57 billion, and New Mexico shed 25% to $859.7 million.

Volume in Texas rose more than 23% to $20.1 billion, putting the Lone Star State ahead of California's $19.9 billion and New York's $15.8 billion.

"I think one of the reasons Texas went ahead of the rest of the country is the economy is so strong here," said Pete Stare, managing director for First Southwest Co., the region's top financial advisor. "The assessed value was high enough that issuers didn't have to raise taxes to issue debt."

The fact that voters across the state approved nearly $6 billion of bonds in the May 10 elections bodes well for the second half of the year, Stare said.

"There's a lot of pent-up demand for school districts," he said.

Nick Polyak, head of institutional sales at BOK Financial, said the rapid population growth of Texas is driving bond issuance in the state.

"We're taking people from other parts of the country and moving them to Texas, and you're going to need infrastructure," Polyak said.

Predictions for the remainder of the year remain challenging.

"It will definitely be slower for us in the second half of the year," said Houston Controller Ronald Green, whose city ranked second among issuers in the Southwest with $2.15 billion.

The Texas Transportation Commission came out on top with $2.43 billion through June, but early in the second half Houston retook the lead with another $300 million deal in July.

"We saw some great opportunities and the timing was right," Green said. "For us, we have had nothing but success in the first half of the year."

Indeed, large issuers with high ratings got the red-carpet treatment in a market where volume was in short supply.

"You've got a situation where there's too much cash out there and there's too much cash chasing too few bonds," Stare said.

"We have seen times where bonds are eight to 10 times oversubscribed," Stare said. "What we're seeing in demand are the A-rated bonds where you can pick up 10 to 20 basis points. DFW (Dallas-Fort Worth International Airport) is 30 basis points tighter than they were a couple of years ago. You can pick up another 60 basis points in additional yield versus a high-grade deal."

Paul Steets, executive vice president of The GMS Group broker-dealer in Houston, said the narrowing spreads on highly-rated Texas debt have prompted some investors to look outside the state for more attractive yields.

"While demand remains high we have seen some retail buyers wanting to look at shorter maturities," Steets said.

Of the top 10 issuers in the Southwest, only one came from outside of Texas. Colorado's Regional Transportation District ranked eighth with nearly $441 million of debt sold.

Behind Houston, the Texas Public Finance Authority ranked third with $1.2 billion, followed by the Grand Parkway Transportation Corp., a Houston-area toll-road entity operated by the Texas Department of Transportation, with $733.5 million.

Rounding out the top five was the University of Texas with $721 million.

Dallas-Fort Worth International Airport, the top issuer in the first half of 2013, dropped to sixth place with $548.7 million, followed by the Tarrant County Regional Water District with $520.9 million.

San Antonio ranked ninth with $403.9 million, followed by the Texas Veterans Land Board with $338.6 million.

Among the sectors, transportation and utilities were the only risers in the first half of the year, up 51% and 79% respectively from the first half of 2013. Even education fell nearly 6% to $11.2 billion. Healthcare was also down 37% to $1.59 billion.

Issues for new money grew 44% to $13.7 billion, while refunding deals fell 24% to about $10.8 billion.

Bank of America Merrill Lynch, which managed a $1 billion refunding by the Texas Transportation Commission, emerged as the region's leader among book runners in the first half, credited with deals worth $3.44 billion, ahead of Citi with $3.18 billion, JP Morgan with $3.09 billion, RBC Capital Markets with $2.05 billion and Goldman Sachs with $1.83 billion.

Others in the top 10 were Raymond James with $1.796 billion, Piper Jaffray at $1.73 billion, Wells Fargo with $1.38 billion, Robert W. Baird & Co. with $1.29 billion, and Morgan Stanley at $1.23 billion.

First Southwest Co. easily retained its rank as top financial advisor with $7.25 billion of issues, a nearly 24% increase over the same period last year. Estrada Hinojosa placed second at $4.09 billion, followed by RBC at $1.65 billion, BOSC at $1.31 billion, and Southwest Securities with $1.06 billion.

Specialized Public Finance ranked sixth with $1.01 billion, followed by George K. Baum at $1.01 billion, Public Financial Management at $764 million, Stifel Nicolaus at $695 million, and Kipling Jones with $649 million.

McCall, Parkhurst & Horton topped the ranks of bond counsel with $6.1 billion of issues, nearly double that of runner-up Andrews Kurth with $3.54 billion. Bracewell & Giuliani ranked third with $3.097 billion, followed by Norton Rose Fulbright at $3.04 billion, and Gilmore & Bell with $1.23 billion.

The top 10 included Kutak Rock at No. 6 with $884 million, followed by Squire Patton Boggs at $811 million, Ballard Spahr with $806 million, Bates & Coleman at $743 million, and Butler Snow with $734.8 million.

Among the states, Arizona saw its largest increase in the utilities sector with a 78% increase to $265 million, while environmental facilities issues evaporated completely from $184 million in the same period last year. La Paz County Industrial Development Authority was the largest issuer with $297 million. New money issues were up nearly 44% while refundings fell 28%.

Arkansas, the smallest issuer among the eight states, registered big gains in development bonds, which rose to $191 million from $6.3 million the first six months of 2013.  Public facilities also rose about 1,000% to $37.7 million from $3.4 million. Healthcare, meanwhile, fell 97% to $4.3 million from $131 million the year before.  Arkansas Development Finance Authority was the largest issuer with a $144 million deal.

Colorado's volume was down about equally in both quarters of the first six months of 2014 compared to the year before, with education bonds down 81% to $271 million from $1.43 billion the previous year. The RTD's $441 million of bonds was more than that of the other top five issuers combined. Most of the Colorado issues were for new money, a category that rose 228% to $947 million. Refundings fell nearly 87% to $302 million.

The nearly 47% increase in volume from Kansas came mostly from education, which rose nearly 98% to $878 million.  Utilities also saw strong growth, rising 272% to $291 million. Kansas Development Finance Authority was the largest issuer with $275 million.

New Mexico's biggest sector was transportation, with 150% increase to $105 million. Education issues were down 31% to $385 million. Counties and special districts represented some of the top issuers, rising 67% and 142% respectively. Bernalillo County, which includes Albuquerque, was the top issuer with $184 million of bonds.

Oklahoma saw a 58% increase in education bond issues to $1.12 billion, as transportation issues rose 62% to $50 million. The Oklahoma Capitol Improvement Authority, which issues debt for state agencies, ranked first among issuers with $276 million.

Utah registered a 397% increase in education bonds to $681 million, the major driver of that state's 28% volume increase. New money issues rose 256% to $521 million, while refundings fell 34% to $492 million. The Utah State Board of Finance was top issuer with $317 million of bonds.

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