SAN FRANCISCO — Municipal bond volume in the Far West in the first half of 2011 fell by more than half from the same period a year earlier, driven by zero deals from the state of California, normally the largest issuer in the country.
Issuers in the Far West sold $20.5 billion of municipal bonds in the first half, compared to $43.5 billion a year earlier, according to Thomson Reuters data.
California has issued no general obligation debt so far this year after offering $6 billion during last year’s first half. The state government led the region in 2010 when it issued $10.5 billion of debt, and even that number was down substantially from 2009 when it set a municipal market record of $23 billion.
This spring, California skipped its annual new-money GO sale for the first time since at least 1988.
“Mainly, it is a matter of fiscal retrenchment,” said Tom Dresslar, a spokesman for the state treasurer’s office. “We agreed with the governor that because of our budget situation it would be best to cut back on bond sales and save some money on debt service. It is not a reflection of our view of the market.”
Gov. Jerry Brown, who took office in January, targeted the state’s “wall of debt” during the release of his proposed spring budget.
California aims to enter the capital markets the week of Sept. 12 with $5.4 billion of revenue anticipation notes. The state had been planning to sell the notes in August, but placed a bridge loan with banks instead to avoid potential market chaos in the midst of the federal debt-limit debate.
The September Ran sale will pay off that loan. The state has selected managers for two potential GO bond sales later in the year, but Dresslar said nothing is certain.
The fiscally conservative approach the state has taken has also been reflected across the Far West.
“A lot of it just has to do with people struggling with their budgets and a reluctance to take on debt when it may not be essential,” said Paul Rosenstiel, a principal at the investment bank De La Rosa & Co. in San Francisco.
Municipalities, he said, “are recognizing pension obligations that they are going to have to address and there just may be political sensitivity these days to taking on debt as well.”
Looking ahead, Rosenstiel said low interest rates should continue to bring refunding deals to market until volume pushes the rates back up. Refunding deals across the region only declined 5% to $6.2 billion compared to the first half of 2010.
Rosenstiel noted that in California, redevelopment agency issuance will be off the table until the state Supreme Court decides the fate of RDAs.
Lawmakers passed legislation spearheaded by Brown to make the agencies choose between making a large payment to help balance the state budget or being dissolved. Redevelopment interests have challenged it in court.
“That is a big uncertainty,” Rosenstiel said.
California’s RDAs won an early battle to stay alive after the state Supreme Court granted a stay last week against the legislation. However, the court did not issue a stay on the portion of the new law that prevents redevelopment agencies from taking on new debt.
The 399 active RDAs have $20.6 billion of tax-allocation bonds outstanding, while total indebtedness is $87.5 billion.
Volume for all California issuers fell more than 55% in the first half to $13.4 billion from $30.3 billion a year earlier.
Los Angeles was the largest issuer in the state and the Far West, on the strength of a $1.2 billion GO deal that was the also the region’s largest single offering in the first half.
Issuance was down in every state in the region except Alaska, where it rose 13.8% to $326 million.
Taxable bond issuance across the region fell 89% in the first half to just $1.8 billion from $17.9 billion a year earlier. That dramatic drop-off followed the expiration of the Build America Bond program and its 35% federal subsidy on taxable interest rates.
In the first half of 2010, BABs accounted for $14.8 billion of Far West issuance. But Far West issuers also sold 29% fewer tax-exempt bonds in 2011 than a year ago: $17.8 billion compared to $25.1 billion.
General purpose bonds, the largest issuance sector in the first half last year, dropped to $3 billion from $9.4 billion, a 67% year-over-year decline. Transportation bonding also took a huge hit, sliding 82% to $1.4 billion from $8.4 billion.
However bucking the trend on a smaller scale, development bonds rose 113% in the first half of the year to $1.2 billion from $581 million a year ago.
Citi kept its spot as the top senior manager in the Far West, credited with $3.6 billion of volume over the period in 49 issues. JPMorgan was second and Morgan Stanley was third.
Public Financial Management topped the financial advisor chart with $3.5 billion of volume in 60 issues for 22% of the market, well ahead of the second place KNN Public Finance with a 9% share.
Orrick, Herrington & Sutcliffe LLP retained its usual place atop the Far West bond counsel rankings, holding a 24% market share.
Washington issuers sold 30% less in the first half compared to the same period a year earlier with $4 billion of volume from 80 deals. The state’s Energy Northwest took second place on the issuers’ chart with $1.1 billion of volume from four sales. The Washington Health Care Facilities Authority was fifth with $667 million in volume from six deals.
Citi also held on to the top senior manager position in Washington with 42% of market share after senior managing $1.7 billion of volume out of nine bond issues. JPMorgan took the two spot.
PFM took the top financial advisor slot with 44% of the market with $1.6 billion of volume coming from 12 issues.
Foster Pepper PLLC remained the state’s top bond counsel.
Issuance in Nevada dropped 85% to $361 million in 10 deals from $2.2 billion in 36 offerings. The transportation sector issued 94% less debt, dropping to $100 million from $1.9 billion over the same period last year.
Hawaii’s volume plummeted 94% over the period to just $95 million and three deals, down dramatically from $1.5 billion on seven offerings in the first half of 2010. In the smaller-volume states, Montana saw a drop of 73% from a year earlier to $78.6 million, while Idaho fell 51% to $132.9 million and issuance volume in Wyoming slid 32% to $100.9 million.