- How's the market for Texas securities faring in 2025?
- Ya'll Street: Panelists' take on Texas' growth as a financial hub, including the expected 2025 launch of Texas Stock Exchange (TXSE), a national stock exchange.
- The World Cup comes to Dallas
Transcription:
Greg Pacifico (00:10):
All right, thank you very much. First thank you to the Bond Buyer. It looks to be another really great agenda and extremely timely. There's obviously a lot going on as we speak, which I'm sure everybody in the audience is eager to hear about over the next few days. I think our goal in this panel is to cover a whole bunch of different topics, including what's going on in the market currently, but I think we want to kind of set the stage for all of the other panels over the next couple days. So with that, we had some introductions here, so I'm going to dive right into it. We've seen over the past couple days, Munis getting absolutely pummeled. And then we've just recently saw a reversal on the equity side. And when I think back to a few of us were up here about a year ago, we were talking about market volatility and that ended up in a more stable economic environment and record issuance last year. And it's kind of a quick turn now. So Brendan, can you kind of walk us through what's transpired year to date and more importantly over the last few days? And you might need to check your phone to see what's going on currently, but
Brendan Troy (01:33):
I will try my very best, Greg, appreciate it. And on behalf of Bank of America, thrilled to be able to kick off the Texas Public Finance Conference with what should be a very brief overview of where we've been. I'm not going to focus on today. The short answer is MMD is completely wrong today. They're probably wrong by 25. They cut anywhere from 30 to 40 basis points. Again, yes, it's a hundred basis points away from last week. But look, we've seen this before and we typically see it at this time of year. We are incredibly weak on the technical side. We are going into tax season. We are at the very low end of the redemption cycle, not just in Texas but across the country. And when you look back at the numbers the last couple of years, whether it's CPI that hit 9.4% back in June of 2022, two years after COVID started, whether it's the GDP numbers most recently 2.4%, still very, very good growth.
(02:40):
And that's nationwide. Texas is obviously higher than that, but I think more importantly, you look back at where we started 2023, we thought the Fed was going to cut rates eight times 2024. We started thinking the Fed was going to cut rates 10 times, they only cut four and now they stand very firmly on the sidelines essentially saying, we just don't know what's going to happen in particular with tariffs, but also immigration policy. And then some of the cuts as far as Doge is concerned, that's probably more localized to the Washington DC region. But I do think that there is a larger impact there in terms of some potential cuts. So what did we focus on in 2024? Well, obviously we focused on a great supply year, just short of 500 billion with every expectation that this year is going to eclipse, that although given where rates are right now, have to be surprised if some of the refundings that were being IED for later this year are still going to be moving towards the market.
(03:47):
We focused on pulling transactions forward in advance of the election. At least that's what we told ourselves. And then after the election, we saw a nice pop in terms of total volume as well. There were so many issuers who had been sitting on the sidelines, whether it was post covid because of healthcare, not wanting to go to the rating agencies or even the higher ed side knowing that they had projects to go to market for. And then ultimately nice upsize on that end. We saw extraordinarily tight credit spreads and very, very tight ratios kind of hearkening back to the beginning of 2023 when again, we saw a selloff very similar to what we're experiencing today, but we begin 2025 with a different set of concerns. First and foremost has to be tax exemption. We'll say the same thing today as we say on almost every open conference call.
(04:48):
Call your representative, call your senator, call the folks on the ways and means committee, make sure they all understand how critical tax exemption and what municipals do. What we do on a daily basis in terms of financing state, local governments, ISDs is to our American economy. But on top of that, you look at a higher education side that not only is facing a headwind from exemption, but higher ed is looking at research and grant cuts, the healthcare side, looking at cuts to Medicare and then obviously focus on DEI in terms of the Trump administration as well. So it is a very difficult start to 2025 and yet we still had essentially a record quarter in the first half at almost $120 billion of total issuance. And again, every expectation that will continue on a very, very brisk pace for the rest of the year.
Greg Pacifico (05:52):
Great, thanks Brendan. Ron, any thoughts to add on the market perspective?
Ronald Banaszek (05:57):
Yeah, just to pick up on some of the points Brendan said, especially the point on supply last year and what we're seeing so far this year and where expectations are for the year. If you look back at last year, it was amazing with the amount of supply they kept coming to the market, how orderly without some weeks where there was some exception and some volatility, how orderly it was in terms of bonds getting placed. I think that speaks to the amount of cash coming into our market. Obviously there was a turnaround in 2024 in regards to the amount of money going into the mutual fund complex after two years of outflows, especially two years before that when there was a tremendous amount of outflows and the continued amount of money that had been coming into the SMA space. So while we've had a lot of supply, we continue to see a lot of supply, let's kind of discount the last week or so. Whereas certainly the last couple of days I would think you would agree. And you guys one of the top lead underwriters in the street. I mean deals have been getting done in a very orderly fashion. The buyers are there and I think they'll continue to be there. We have exceptions like weeks like this, but I think the municipal market remains strong.
Greg Pacifico (07:23):
Thanks Ron. So we touched on market volume a little bit, obviously a record setting year last year, and I think many of us went into this year maybe anticipating the same. And as Brendan mentioned, a great first quarter despite challenging conditions. But Rob, curious to get your thoughts on potential volume and kind of where you were at the start of the year and if you think the recent market activity has shifted, any of that tone.
Robert Dailey (07:53):
Thanks. And I might just throw one other comment onto the kind of market commentary, which is, it's important I think to note that we all keep in mind that what happened yesterday today was muni market shut down. So nothing constructive really getting done today in the primary or secondary market. I think there's a competitive bid that got done and they pulled it, didn't like the results. So we've seen it before. We saw it in the financial crisis, we saw it in COD, but that stuff does happen to our market and it's going to happen in our market before it happens to corporates or treasuries. So it is something to keep in mind about the muni land isn't a guaranteed market access at efficient levels and the way you're describing Ron, we can't take that for granted. I think in terms of volume, we were at five 50 this year, which is a slight uptick in total volume, 550 billion in total volume, slight uptick from last year really looking at a continuation of the same themes that we saw in 2024, which was a release of pent up issuance projects getting started that had been held off due to project cost increases, inflation companion projects that went alongside federal projects.
(09:19):
So we're seeing the same themes continue to support it this year, this past several days, and then whatever the next 60 90 days of choppiness might be, may have an effect on issuance, but it's too early I think to know what the effect would be. So we're kind of holding firm at that mid five hundreds level. One point I would make is that the bank market is open, remains open, and so things that can't get done in the muni bond market can and are getting done in the bank market. And so that's going to be a little bit of invisible supply that's out there that may not show up in the municipal bond issuance numbers. This year to date, we're running 14% ahead of last year, but remember last year was somewhat dampened in terms of issuance in the first quarter and the pickup really was second quarter and onward in 2024. So while we're ahead of last year at this point, I'm not expecting us to be mass 14% ahead by year end. Texas volume is about flat to last year. And I think that to me is a good proxy for where we think it's going to end up.
Greg Pacifico (10:39):
Is the general tone, and this is really for everybody, but in terms of Texas volume specifically, does the group feel strong of Texas volume that it'll either mirror or beat what's going on at the national level despite current volatility?
Brendan Troy (10:57):
I think if you look back at pre covid 2019, we were what, 43 billion in Texas last year at 68 billion, an increase of 63%. I think that's just reflective of the dynamics that you've seen, the shift from the northeast, from California or at least out of those regions into Texas. I don't think that's going away anytime soon. And if anything, the demand on infrastructure, we would expect to continue to be very, very strong, although I absolutely agree about the ability to do all of that issuance in the public municipal markets or does it make sense to start seeing a shift maybe not just to the bank market in terms of direct placements, but also to the very front end of the market in terms of VDS and commercial paper. We've seen a massive uptick in those two programs, whether it be taxable or tax exempt in particular at the infrastructure level, airports especially. So I do think that you're going to continue to see issuance in Texas and it's probably going to present some of the same issues this year as it did last year in terms of a lack of liquidity. And that was as Citi was exiting the business and we've already heard another dealer is under significant pressure as well. So I wouldn't be surprised to see those liquidity demands come up again in terms of some of the Texas public transactions.
Greg Pacifico (12:36):
Got it. Thanks Brendan. So I want to shift gears a little bit and give Jenny an opportunity to talk about all the great things happening in Dallas with the World Cup. Could you walk us through what you feel the economic impact will be of having the World Cup? Any challenges that you're facing in terms of providing the needed infrastructure? Yeah, anything you're willing to share on the project?
Jenny Kerzman (13:00):
Well thanks Greg. I'm really happy to be in this panel. It sounds like I'm the one that is going to light on the mood a little bit. It's been a difficult day, so let's start football. So yeah, obviously Dallas is thrilled to hosting again the biggest sporting event. If you are not a soccer fan, you got to be. So we are very pleased that we'll have 48 teams come into our city. We are going to be hosting nine matches, including a semi-final match. We are the largest for all these cities, host cities that will be hosting more games than anybody else. And this is super exciting for us. We are still little upset that we didn't get the championship game, but we kind of moved on, especially the just last month FIFA announced that our very own Kaylee Bailey Hutchinson Convention Center was selected as the International Broadcasting Center.
(14:03):
So what does that mean? Well, everything will be broadcast out of Dallas. So as you could imagine, we are super excited that we are going to have over 5,000 media people coming into our city. They're going to start coming in January of next year, and that includes over 2000 international journalists as you could imagine, just how exciting that is going to be. All of the games will be played at and t stadium, it will be known as Dallas Stadium. So sorry for Arlington, but you are definitely going to get a piece of the pie. So don't be too upset. I'm sure all of you know at t stadium is a home of the Dallas Cowboys, so we are obviously very excited that that's where all of the games will be play. So what is the economic impact? Lots of money. So we're going to be having a much different conversation than we are having today, next summer.
(15:07):
So we are expecting between 1.5 to $2 billion coming into our city. And it's not just going to be in Dallas, it's the entire north Texas metroplex, even though Dallas is going to be hosting, it's going to be the training facility, our cotton ball and SMU is going to be used as a training facility for all the teams, but the base camps are going to be TCU and Fort Worth, UNT and Denton, of course the Toyota Stadium that's home of the FC Dallas soccer team. They are in Fresco and the University of Dallas and Irvin. So everybody is going to come together to really enjoy the games. So how do we prepare? Well, it takes more than a village. I can tell you that there is a lot of people working on this city staff. Obviously we have been meeting for over a year. There's monthly meetings.
(16:07):
It's between 60 to 80 people of different departments that are part of the preparation. We have a great partnership with FIFA and the Dallas Sports Commission. Monica Paul is the executive director there and she is really keeping all this project moving ahead. We also have regional working teams. That's the team that is going to work on many different aspects that you as the person that comes in to enjoy the game, does not have to think about marketing and communication of safety and security volunteers. So if you want to get to a game and don't have the money because it's going to be expensive volunteer for any of the events, that's going to be a fantastic opportunity. So between all of those different groups, we are really expecting and it's our goal of course, to make this the best experience for the players, for the people in Texas and around the country and of course all the international people that are coming in. So we are very, very excited about that.
Greg Pacifico (17:24):
Great, thanks Jenny. That's a really good segue. I think something like the World Cup is a really great example of all of the great growth and opportunities that happen in Dallas, but all around Texas. So Patricia, are you aware of any other major projects in the state? Where do you expect infrastructure needs to be and do you anticipate revenue growth within those cities to support those specific projects?
Patricia Rodriguez (17:54):
Yeah, I mean like we were talking about at the beginning, at the opening, I mean Texas is growing by leaps and bounds. All the major cities are doing big convention center projects, not just Dallas, Austin is completely demolishing theirs and doing a brand new one. San Antonio is redoing theirs, Houston is redoing theirs. So all the major cities in Texas are redoing their convention centers because they're not big enough for all the conventions that are coming into town. And all of those are done by hot taxes, which are, as we all know, hotel revenue. And that's just more tourists and that's all done by more tourists coming to Texas. And that's not even counting the folks that are coming to live in Texas.
(18:55):
That's all music to all of our ears as bond people. That means more schools, it means more roads, it means we're sidewalks. It means more bridges, it means more everything. And that's just job security for all of us. And we love that. And it's not going to stop anytime soon because everybody is, it seems like everyone is moving here and specifically to the Austin, San Antonio metroplex and to Dallas too, the Dallas metroplex. But anyway, so it doesn't seem to be stopping anytime soon. And so the infrastructure needs are continuing and so the volume nationally is continuing and it kind of seems like Texas is a bubble. It's always been a bubble. So while yes, the market does what the market does, the needs continue here and we just continue. And that's why Texas is on the leading edge because we still have needs, we still are going to continue to grow. And so we do what we have to with what we have. And so we have to be creative. And so that's what we do. And then again, as Noah mentioned with legislation, unfortunately the legislature insists on meeting every two years and so now they're really talking about doing debt reform.
(20:41):
And so HB 19 is the major bill that they're looking at. I mean they have a lot of other ones, but I'm sure, and we're going to talk about that in the legislative panel. And I know Jenny was talking about an investment bill that she didn't like, but that's the one we look at on the debt side. So there's a lot of things coming down the pipe here just within Texas that are still constraining us even more on the debt side that we're going to have to look at.
Greg Pacifico (21:10):
Thanks Patricia. And we'll circle back. I want to talk about the legislative issues a little bit more, but you raised an interesting point just in that Texas for a long time has felt like that bubble where it's kind of been protected against any credit and even market volatility to an extent with everything going on at the federal level, just degrees of uncertainty, maybe some economic pressure. Do we feel that the credit trends in Texas remain strong or do we think there's potentially a risk of property tax declines, sales tax declines, or will we continue to see that growth outpace and protect the Texas market from those credit constraints?
Patricia Rodriguez (21:58):
Yeah, that's the question. Is the property tax constriction or the compression of the property tax? I think sales tax wise, I mean we're still going to be growing. It's the question of the compression on the property taxes is where I tend to worry.
Greg Pacifico (22:14):
Yeah, it seems like over the past, I mean decade cities and counties and all types of local issues have been in a really strong position to build up their balance sheets. And even if there is potentially some short-term pressure, I think everybody would agree that the credit picture in Texas remains very strong and able to kind of navigate even through periods of neutral or even potentially declining revenues here and there.
Ronald Banaszek (22:45):
Can I just touch on?
Greg Pacifico (22:46):
Yeah, absolutely.
Ronald Banaszek (22:47):
Issuance in general within the state, I mean really just looking at data, the state itself was second, and if you look at left hand, if you look at negotiated issuance was second last year in overall par amount. But first in number of deal count 23, 1 in both categories, 22 again second in overall paramount first in overall deal count, not really surprising why there's so many bankers sitting in this room, right? And how many non Texas-based firms have offices in this state? It's just really remarkable the growth. I mean in preparing for this panel and just looking over some statistics on population growth over the last 10 to 15 years, it's really a remarkable amount of population growth. And even if I didn't read an article about that, just the opportunity, I have to speak with issuers, with my banking team across the state, whether the smallest issuer to the largest issuer, there isn't any of 'em that we don't get into a conversation about the amount of growth going on and how do you manage that growth? How do you manage the infrastructure needs, whether it's schools, roads and so forth and so on. And it really is remarkable and kind of echoes a lot of things we heard the opening speakers talk about. So I think that that trend will continue as long as we can see as people. As was said, people keep moving here from other places.
Greg Pacifico (24:26):
Thanks, Ron. And it kind of leads to another interesting question. Obviously the infrastructure needs are critical, both long-term and short term. So in light of the market volatility, Rob, when you think about a issuer that needs to come to market soon for an infrastructure project that can't afford to wait, I mean, what would be your guidance in the current market
Robert Dailey (24:51):
Crush your fingers?
(24:55):
Look, I think I don't want to be too doom and gloom, right? The market will be open. I think we can expect the volatility to continue for any number of reasons. And I think that as you approach the market, the issue is to get your story out very cleanly, get it out relatively early. So I'd tell people, get your documents out early, get your offering document out early, focus on clarity and simplicity of the disclosure. Kind of anticipate what the questions are going to be and answer them directly. My rule of thumb has always been you can always get a deal done with kind of one wrinkle, two wrinkles in a tough market becomes tough, but one wrinkle you can present and address pretty cleanly. But I think at this point when you may have a lineup of portfolio managers and credit analysts who have a stack of deals to get through, you want to make it simple for them, you want to make it easy for them, make the information flow easy.
(26:10):
I guess a couple other things as because of volatility as you come to market, you may find that you need the flexibility to adjust. And that might be timing, you might accelerate, you might delay. It might be just in the information flow that you've got to provide around what's happening, whether it's ratings or some other part of your financing plan. And then I think also be flexible, ready to meet market demand. That might be in couponing, it might be in amortization, it might be in turning up some bonds. We have seen a strong trend toward greater block size and liquidity. And I think that that's something that's resulted in a lot of issuers in the market wanting to make changes to make sure that they're addressing market demand. Where it comes. And I would just offer one other point because I'm not sure if it fits easily to the market topics, but the technology risk and cyber risk has come to our market. We all saw that there was a failed bond issue that was corrupted by business email compromise. And that is something that we are all under severe threat every day about, and it's a part of our processes and our work flow that we all need to keep an eye out, so be sensitive to. So on that point, I think to that and a number of other issues, you kind of just keep a watchful eye because things can change quickly.
Greg Pacifico (27:50):
Thanks Rob. I want to circle back for a second. And Jenny, I'm going to ask you, so you don't get asked a hundred times during cocktails, but is there anything that you can share on the city's convention center project at this point or is it very early?
Jenny Kerzman (28:05):
Well, it's definitely going to be great. We have been, it's well underway. Dallas clearly is a destination city and just deserves to have a state-of-the-art facility that could bring in the business. Right now our facility, it's been called many things, dinosaur or different things like that, but we're really working on trying to bring the best for Dallas. It's definitely going to change the landscape of downtown. There are very specific goals that we have in place and that includes connecting downtown with the southern districts. That includes having great exhibit hall, beautiful ballrooms, plenty of space to have meetings and in addition to that, be able to have more than two events going at the same time. So right now that is not something that we can do. How are we going to pay for this? Well, I think no is still around, so if you want to ask him, because we're still working on it, we do not know for sure the magnitude and how we are going to utilize all the revenue and definitely want to make sure that we have everything covered before we talk about it.
(29:34):
So don't know yet when we're going to the market, but it will hopefully be by the end of this year, early next year. But like Patricia mentioned, there's still going to be people coming and hotels are still going to be generating the revenue that we need. So we know that it's a large project, it's a big dream that we all have, but that's how we do things in Texas. We will try our best to make sure that we don't run into the bid issues with the market, but we are not genies, right? We don't have the crystal ball that it's going to decide exactly when it's the best time. So in the meantime, we just continue with our process, working with our financial advisors and of course the convention center team. Everybody's really trying to get the final product as soon as possible. And obviously we wanted to not pay as much as others, but we will know, we'll see what happens.
Greg Pacifico (30:48):
Thanks Jenny. Brendan, I wanted to circle back to a couple of things that you mentioned at the start. You had mentioned healthcare higher ed. Are there other sectors that you think, or more specifically within those sectors that are facing challenges and in the spirit of not always being so negative, are there some that are opportunities as well, both nationally and Texas specifically?
Brendan Troy (31:13):
Yeah, I mean absolutely. So everyone has spoken already about the massive increase in terms of the population in Texas. As you look at that sector wise, you look to water as a first obvious response. You look at surface transportation, whether that's just roads or it's airports. You look at what United just made an investment in through the city of Houston. But to me there's a couple other sectors that really stand out. The first is utility. As those folks move out of the northeast, move out of California, new home hookups are at unprecedented levels, but that's the first derivative. The second derivative is the demand from data centers. As more companies move down the demand from crypto, as that becomes incrementally more positive. So you look at issuer names like LCRA in particular, probably a billion dollars worth of annual needs between both transmission and generation as far as the generation side.
(32:21):
Everyone seems to be focused on hooking up gas fired units as a quick way before they're able to make the long-term investment. But even on the transmission side, the demand is pretty extraordinary. We've had the opportunity to see even someone like BAM come in recently with not only aggressive but certainly additive quotes. And that's one thing that helps broaden their distribution to the extent that you have certain investors who get a little full on certain credits, being able to change the landscape by adding insurance is one unique way. Keep in mind that we lost banks and we lost insurance companies, not all, but to a very, very large degree. The reliance on retail, especially after a week like this, they're going to be charging back in the Merrill Lynch side of our house is fielding lots and lots of phone calls right now. That's what's going to stabilize our market as opposed to the investment grade taxable side, which is going to have a little bit of a harder time coming back.
(33:27):
Just look at Harvard, Stanford was in the market less than a month ago, plus 52 on their 10 year Harvard's today was plus 87 and a half basis points. There's no credit differential in those two. So you've just seen a very, very disrupted market in addition to an LCRA, look at CPS energy, probably a billion and a half overall of total needs and they're focusing on renewables, they're focusing also on the gas fired. So there certainly are positives, but again, we need to do as much as we possibly can broaden the reach, expand the investor side because that pressure is coming there. And then Rod already mentioned one thing, total number of deals, so much of that was on the ISD side across the country. There's a lot of talk about a population cliff as far as the kids go, whether that's high school or whether that's college, that's not what's happening in Texas.
(34:26):
Texas is a very, very different situation. As much as that's going to be great for my daughter who starts applying for college in two years, I don't think you're going to see the same thing down here. So the demand at the ISD level, not going away K through 12, certainly not going away anytime soon, but that also goes directly into the higher education at the university level. And again, as I said before, those demands even now more amplified given some of the restrictions on research at the federal level, that probably won't continue forever. I do think at the end of it, investment in research is absolutely critical. It's critical to the large university side. It's critical to the growth, not just in terms of those universities, but to every associated sector, whether that's pharma, whether that's technology, infrastructure, certainly. And I do think that all of that is going to result in added liquidity pressure, all those individual deals trying to come into the market at the same time.
(35:30):
And again, with dealers stepping back, as Rob said, there was one Texas transaction that was canceled competitive today. There was one deal that went forward in California, we bought it. There were only five bidders on it. They normally would've seen maybe 15 different dealers bidding on that. The top to bottom was 95 basis points. So between the winning bid and the last bid, that just shows the lack of liquidity that can be present in our market. And again, why it's so critical to start the conversation early, whether that's Emma notices, whether that's road shows, tap into the retail network again, talk to the insurance partners as well, especially if you think that that might be additive in terms of a transaction as we try and move forward. And then again, be prepared that some portion of the transaction may not be able to come in the public side or may actually be more additive in terms of a bank market or a direct placement market or even on the short term basis.
Greg Pacifico (36:39):
Thanks Brendan. I'm going to pause for a second, see if there's any questions from the audience while we still have plenty of time. If not, I'll keep asking away. Oh, we do have a question over there.
Audience Member Bob Murphy (36:54):
Your thoughts on it seems like buyers, Bob Murphy, nice to see you again. I'm assuming you mean bond buyers, not the Bond Buyer publisher. That composition seems relatively stable. No, listen, I touched on it before and I think it's a great question. We have seen a dramatic shift. Ron talked before about the growth in the SMAs and I think that so much of that growth unfortunately has been at the expense of the retail financial advisor side. Firms like Parametric used to be known as Eaton Vance tabs used to be known as MD SaaS, whether that's Goldman Sachs asset management, SMAs, their growth has been exponential. I think parametric has literally gone from 15 billion less than five years ago to upwards of 85 billion in terms of total assets under management. Granted, some of that's on the taxable side as well. That is also directly at the expense of the Forti Act funds, the open-ended mutual funds.
(38:11):
So they've really been flatlined. While the reporting numbers don't look that impressive four weeks in a row, we've seen slight outflows out of the open-ended mutual funds. They just don't tell the right tail because it doesn't report the SMA side. The other thing, and it was mentioned before in terms of the composition of deal structures, so much of it becomes critical about being index index eligible. Now that's different than the corporate speak, which is 300 million per CUSIP within the exempt space. That's largely considered to be 25 million at the top end. Some will come down as low as 10 million, but that doesn't necessarily fit into all of the issuers that are out there. But the prevalence of ETFs becomes that much more positive as well. I think the other thing that you've seen recently is a dramatic reversal away from the duration end. Again, we went from expectation of very heavy fed cuts where duration is going to outperform into an environment if the Fed sits on the sidelines for a bit more, you want to be lower in duration.
(39:27):
That fits with something like the gas prepay market, which is largely in the five to eight year put range is not approved by everyone, but has seen massive increases in terms of not only supply but approvals in terms of total demand. And that market's not going anywhere 40 billion last year. And again, very much at the front end of the curve. Great trading vehicle, not just for hedge funds, but also for the open-ended mutual fund community. And I do think that again, it represents a pretty powerful shift, a little bit lower in duration. We've seen the long end past couple of weeks be very, very challenging 30 year tax exempt munis at a 5% or behind a 5% for AAA rated names today in the midst of this larger selloff. Those are the kind of numbers that are going to bring folks back in, especially at the crossover side. So we may see a little bit more focus in terms of the long end right now.
Ronald Banaszek (40:35):
Yeah, just to add on to that, it'll be interesting to see what happens given what's going on this week, because ratios have trade changed tremendously from the close on Friday afternoon until the close today. So while we haven't seen the crossovers come in yet, it's certainly given that we're probably, last time I looked at my Bloomberg on my phone before we step up here, probably over a hundred percent on the 30 year sector. So does that change the demand on the longer end? We haven't seen bank portfolios come in again, ratios being what they are now versus just three days ago. Does that change things there? But as Brendan said, the SMA complexes growth has been nothing but amazing and really drive a lot of the deals. I think what's important to think about though is as an issuer is do you have the flexibility to issue where the demand is?
(41:32):
And if you do, you need to listen to the fas. You need to listen to their underwriters and work with them. As Rob touched on when the last thing he said, and also Brendan as well, is flexibility. If you have that flexibility, it gives you the opportunity to get the most amount of buyers in on the deal. I've been on plenty of calls with Brendan where he talks about the options of throwing different coupons out there to kind of build some tension between the buyers for fours, for fives, or five and a quarter, maybe five and a halfs depending upon the issue. If you can give that flexibility to your underwriter, hopefully and should only benefit you in the long run. And same thing with throwing an insurance wrap on, if that can bring in more buyers, again, it's all different ways in which you can lower your borrowing cost.
Greg Pacifico (42:23):
Any other questions from the audience? I am curious, I want to feel like I'm going to open up a can of worms here, but Rob, I'm curious to get your thoughts where we stand on the potential risk to tax exemption and really more importantly, do we feel like we're seeing something similar to what we saw last year where issuers were pulling deals forward in front of the presidential election? Do we feel like there's some pressure to issue sooner rather than later due to a lot of the uncertainty?
Ronald Banaszek (43:01):
I mean, uncertainty is a key word. I mean it's clearly been probably the lead topic of conversation when meeting with issuers. It was kind of like last year. They're asking me if I could look into my crystal ball and tell 'em when the fed was going to cut for the first time. Now they're asking me, what do you think about tax exemption? I dunno, I've been in this business since late 1987. It's not the first time we've heard about the political talk around can we get this tax exemption away? My personal gut is that it's not going to go away. Obviously the first talk is, well, what about around the edges of private activity bonds? Yes, possibly politicians in Washington see this big piggy bank of money sitting there that they can possibly tap into. So I understand, and that's a real thing. As Brenda said, we have to be vocal about it.
(44:02):
And there's plenty of lobbying groups on our side of the business, bond deals of America and so forth and so on that are lobbying hard in DC and I think we need to continue to do so. I mean, just this week alone, the bond buyer has published a number of articles, one on is it legal? Will this just end up in court? Can this happen? And to the academic side of it in an article I think either yesterday or today about what does this do to the smaller issuers? I mean, if you just went crazy and said, well, it's all going to be taxable, that you can really go down a rabbit hole with what happens if, where everything is taxable. We obviously know that changes dramatically the cost to the issuers, but it also changes the market dynamic between the large issuers and the smaller issuers. And I think the smaller and clearly everything you read, but just in common sense, the smaller issuers probably get hurt more than the bigger issuers because of yes, it opens up a possibility of so many more buyers potentially making the market global to foreign buyers. But on the other hand, do they want a three or 5 million issue from some small town somewhere in the United States? Probably not. So that's kind of really out there. But back to what I said earlier in my gut, I just honestly don't see it happening.
Greg Pacifico (45:35):
Rob, Patricia, do you agree with that? Do you have any differing thoughts or?
Robert Dailey (45:41):
I have a couple thoughts on this. One is I think it's kind of close. I'm still in the kind of 40, 60 camp, less likely to happen than to happen. But the other point I'd make is that when the salt cap came into effect with first round of T-C-G-A-A, it came in at the end and it was a surprise to everybody. It was a little bit of whipsaw and all of a sudden it was done, it was over. And I have a feeling this is going to be the same thing that right now we've got a lot of people talking about whether or not they can get the tax bill done by Memorial Day, but nobody seems to really know. There's a very, very small group of people that seem to be able to have any real insight. And so my gut is the bill comes out, it's kind of done, and they vote on it.
Patricia Rodriguez (46:34):
Yeah, I don't think we lose the exemption. I think it there's an exemption on a couple of sectors or that we lose the exemption on a couple of sectors private activity, but I don't think we lose all of it. Yeah. And that it's something that's agreed to behind closed doors and then comes up.
Robert Dailey (46:59):
You could see a cap in the overall amount of exemption you can take by the individual, but that I don't think would have a huge effect on us.
Greg Pacifico (47:07):
So we can't possibly have a Texas panel without obviously talking about the looming legislation. And we only got a couple of minutes here, but I'm very curious to hear, Jenny, your thoughts on anything that you're worried about. Patricia, I know you had mentioned HB 19 earlier as well, so I'd like to hear your thoughts.
Patricia Rodriguez (47:27):
Well, obviously I'm worried about all of the things that they have been talking about, but as an investment officer for the city of Dallas, I wear both hats from the debt side and then the investment side. And I think this bill, it's probably just as you described, politicians looking for ways to get their hands on additional revenue. And the bill, I believe is 404 HB 404 that is talking about the local government investment pools. They're trying to remove all of the other options, and for the state to have the only local government investment pool. So if you are having, for us for Dallas, we have 300, 400, $500 million in the different LG ips, it will be very hard for us to put all of the money in the same basket. It's just not a good option for us. And so if that bill goes through, I will have to unwind all of that and move the money into the state sponsor. LGIP when every day I'm looking at if I need cash, okay, how much are you paying me? How much are you paying me? So I'm moving money based on where I can maximize my interest earn. So if you are going to put it all into one, that is not a good thing. So I'm hoping that it doesn't seem like it's getting a lot of traction, but it could be a big surprise like SB 13 and 19 that all of a sudden it became a reality and that would not be a good thing for Texas.
Greg Pacifico (49:20):
Got it. Thanks Jenny. Patricia, did you have anything you wanted to add on HB 19? Or it speaks for itself?
Patricia Rodriguez (49:27):
Yeah, I think it speaks for itself. My understanding is I know the attorneys are working on it and some amendments and things like that. So I guess we'll just wait and see what happens at the end of the session.
Greg Pacifico (49:41):
Okay. Well, I think that concludes our time. I want to, again, thank the Bond Buyer for putting together what looks to be a really great agenda. And thank the panelists for a great session. Thank you very much. Thank you.