The transportation and utilities sectors grew by $7.9 billion in the first half of 2016 from a year earlier.
Even though environmental facilities grew more in percent terms, transportation grew by $4 billion and utilities grew by $3.9 billion while environmental facilities grew by the less impressive $450 million.
In this year's first half, total muni volume was down 1% from the first half of 2015 by par value. The sectors with the most growth were environmental facilities (64%), transportation (19%), and utilities (18%). The sectors that contracted the most were electric power (-27%), development (-12%), and education (-10%).
All dollar totals and percentages are for par value of issuance unless otherwise stated and based on Thomson Reuters data.
The sectors with the biggest amounts of issuance were education with $71.4 billion, general purpose with $53.6 billion, utilities with $25.5 billion, transportation with $24.7 billion, and health care with $22.2 billion.
Transportation issuance, particularly toll roads and airports, is up due to continued low gas prices, said Howard Cure, director of municipal bond research. Surface transportation projects may have increased because of increased certainty for long-term federal highway funding, he added.
The fact that airports issuance was up 64% helps to explain the transportation rise, said Bank of America Merrill Lynch head of municipal bond research Phil Fischer. LaGuardia Airport's $2.4 billion May bond from the conduit issuer New York Transportation Development Corp. played a significant role in this increase.
There was also $844 million refinancing of a terminal at New York's John F. Kennedy Airport in June, noted Jamison Feheley, head of banking and public finance at JPMorgan.
"Airports continue to try to modernize and maximize revenue opportunities which leads to financing terminal improvements, including expanding concession improvements, (i.e. duty free shops, food courts, etc.) as well as consolidated car rental facilities," Cure said.
The funding for Maryland's Purple Line contributed to the sector's increase, Cure added.
Even though volume was up in transportation by par value, the number of deals in the sector declined to 40 from 59. There were several large deals in the half and "other potential issues may not [have] want[ed] to come on the heels on such large issuances," said Jack Muller, associate in the municipals strategy team at Citi Research.
"I think that issuance may be up in [the transportation] sector in response to the growing sense of urgency among state and local governments that our infrastructure is aging and in need of repair," Muller said.
Muller said the same explanation contributed to the rise in utilities issuance in the half.
Whereas transportation volume was up 19%, within transportation the state agency subsector was up 44%. Similarly while utilities volume was up 18%, its state agency subsector saw a 79% increase. When there are increases it normally comes from the transportation and utilities agencies, Fischer said.
Education issuance was down 10% by par value in the half. Economic growth has been slow and education borrowing is sensitive to economic growth, Muller said.
Fischer said the bonding volume was lower than necessary to maintain current facilities standards over the long term. Issuers may have chosen to sell bonds in the general purpose sector rather than the education sector.
Feheley said he expected that education issuance would be much brisker in the year's second half.
While the general purposes sector saw a mild 2% decrease, the state agencies subsector saw a 54% plunge in par value and 30% decline in number of issues. Muller attributed the state agencies decline to one of two problems. "Firstly, some of our biggest municipal bond issuing states are facing political gridlock and have failed to pass budgets or approve new taxes. This has the ability to severely hamper issuance, especially considering there are some states among this group that use agency appropriations as their primary source of debt, rather than traditional [general obligation bonds]. Secondly, low oil prices have hit hard the top lines [revenues] of states that traditionally generate large portions of their revenue from oil & gas extraction taxes."
Health Care issuance was up 5% overall but down 18% in the first quarter and up 24% in the second quarter. The shift was largely driven by timing factors rather than a market trend, Feheley said. "Historically, it's not unusual to see healthcare volume increase as the year progresses — this is when issuers finalize their audited financial statements and prepare for new offerings."
