Assured, Orrick have momentum entering a challenging 2018

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With volume expected to dip this year under the new federal tax law, Assured Guaranty and Orrick, Herrington & Sutcliffe LLP may have the wind at their backs as they look to maintain positions atop the ranks of bond insurers and counsel in 2018.

Both firms ended 2017 with increased market share after a surge in issuance in November and December, as municipalities sought to close bond transactions before they were banned under the tax law, which took effect this month. The market for insurance and legal advice is expected to shrink this year, after the law banned advance refundings, which accounted for 22% of the market over the past five years.

Assured insured $13.46 billion of par value in 833 transactions as its share of the insured market rose to 58.3% from 56.1% in 2016, according to data from Thomson Reuters. Assured's insured par in 2017 was less than the $14.23 billion in 904 deals during the same time the year before. The figures include Assured's subsidiary Municipal Assurance Corp.

Orrick accounted for $48.03 billion in 442 deals or 11.8% market share among legal counsel in 2017, up from $40.44 billion in 454 deals or 9.6% market share.

“Assured widened its lead in the industry in 2017 in terms of both par and the number of transactions insured, exceeding 58% of all insured new-issue par while guaranteeing 51% of the insured transactions,” said Robert Tucker, senior managing director of communications and investor relations for Assured. “Our primary market insured par for the year was $13.5 billion, 1.5 times that of our nearest competitor, and we guaranteed 833 small, medium and large transactions. In aggregate, our primary and secondary market activity totaled an industry-leading $15.2 billion for the year. “

The par amount of insured transactions shrank industry wide as bond volume was low and slow all year, until November when the Trump administration came out with its comprehensive tax overhaul plan. The municipal bond insurance penetration rate dropped to 5.29% for 2017, from 5.70% in 2016. Assured, Build America Mutual, and National Public Finance Guarantee wrapped a total of $23.06 billion in 1,833 issues, down from $25.33 billion in 1,889 transactions during the prior year.

“With an increasing number of institutional investors placing greater value on our guaranty, we were able to provide more than $100 million of bond insurance for each of 23 large new issues, including seven in the month of December alone, the most we insured in any single month since 2009,” Tucker said.

Among Assured’s noteworthy transactions were the entire $378 million of insured bonds issued by Louisville Arena Authority and the Bond Buyer’s Southeast Region Deal of the Year, in which Assured Guaranty insured $100 million of bonds for Owensboro Health in Kentucky, as well as providing a debt service reserve surety.

“Assured Guaranty’s participation in the Owensboro transaction contributed to significant yield reduction and resulted in more than $20 million of savings for the issuer,” said Tucker. “In addition to our success wrapping large transactions, we also insured more than 800 primary market transactions of lesser size, including nearly 400 bank-qualified transactions for issuers who sold less than $10 million of bonds during the year.”

BAM's insured principal amount dipped to $8.99 billion across 732 deals or 39% market share, from $10.13 billion or 40% market share the same time the year before.

“It was a busy quarter that capped a strong year in which we exceeded $45 billion insured since BAM’s launch and continued our mission of serving issuers with affordable, efficient market access, while providing investors with durable protection from default,” said Bob Cochran, chairman of BAM. ”Investor demand for insured bonds usually strengthens in volatile market conditions, and that was reflected in our results: We closed 172 policies in December – the most ever for a single month – and the average size of our primary market transactions grew, which demonstrates strong demand from institutional buyers who prefer to purchase larger block sizes. Overall volume for the quarter was up more than 8% compared with 2016.”

National finished the year with $626.6 million of par insurance, down from $969.8 million in 2016. Its market share dropped to 2.7% from 3.8%. In June the muni-only arm of MBIA Inc., received a two-notch downgrade from S&P. The action brought its rating down to A from AA-minus, curtailing new business and prompting the company to lay off 29 employees, including its entire new business team.

Legal Counsel
Justin Cooper, partner at Orrick, co-chair of its public finance practice and affordable housing finance group said that the public finance bond market was down by only 4% in 2017, less than half the decrease predicted at the beginning of the year, largely as a result of a record breaking December driven by the Tax Act.

“Orrick was fortunate in this context to enjoy a banner year, handling over 780 bond and note issues as bond and underwriter’s counsel, aggregating over $90 billion,” he said. “We were very pleased once again to be ranked number one as bond counsel in 2017. Our newest office, Houston, performed extremely well in its first full year and we are very pleased with the development and growth of our Texas public finance practice.”

He also said that looking ahead, the consensus seems to be that 2018 will be a down year in the public finance market.

“At Orrick we will continue to focus on providing top quality service and advice to our clients, as well as staying on top of developments in the market and the law and helping our client’s position themselves for future success,” said Cooper.

Hawkins Delafield & Wood LLP finished in second place with $24.28 billion or 6% market share with 369 deals, up from the $21.22 billion or 5% market share over 348 deals during the year before.

"For 2017, Hawkins had the most bond volume of any law firm as underwriters' counsel, the second most volume as bond counsel and the second most volume as disclosure counsel; for a total volume of $70 billion of full credit tables,” said Howard Zucker, managing partner at Hawkins. “Lawyers in all nine of our offices were very busy in all major sectors. Our relationships with our clients and the quality and experience of our attorneys are the keys to our achievements. “

Zucker said that as far as law firms are concerned, the clear and compelling trend for enhanced expertise and depth has continued because of need to advise clients in the navigation of the matrix of issues in the ever-increasing complexity of transactions, and the more intense regulatory compliance regimes in both securities law and tax law.

“Recent examples include the new issue price regulations that became effective for sales on or after June 7, 2017, and the proposed additions of two somewhat controversial material events under 15c2-12 secondary market compliance,” he said.

Hawkins finished first among bond underwriters' counsel, with a par amount of $22.81 billion in 130 deals or 7.39 of market share.

“Hawkins has more attorneys devoted to the full-time practice of public finance than any other law firm. The trend for many years has been for increasing specialization and depth due to the ever-increasing complexity of municipal bond regulations, especially in the tax and securities areas, and the sophistication of transactions,” Zucker said. “Today, more than any time before, law firms that want to be leaders in public finance have to be willing to commit significant resources to have the full range and depth of expertise in order to advise clients in the navigation of the matrix of issues in bond financings and regulatory compliance after issuance.”

Though Hawkins is 164 years old, and has been doing public finance for over 135 years, Zucker said the firm knows it cannot rest on its laurels.

“The culture of our firm is that we come to work every day to earn and deserve the trust and confidence of our clients,” he said.

Norton Rose Fulbright ranked third among bond counsel with $20.79 billion, followed by Kutak Rock LLP with $17.67 billion and McCall Parkhurst & Horton LLP with $13.12 billion. Rounding out the top 10 are Chapman and Cutler LLP, Nixon Peabody LLP, Stradling Yocca Carlson & Rauth, Squire Patton Boggs and Gilmore & Bell PC.

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Rankings Primary bond market Sell side Bond insurance Assured Guaranty Build America Mutual Orrick Herrington & Sutcliffe Hawkins Delafield & Wood LLP National Public Finance Guarantee Corp