Bonds

Northeast municipal bond volume slows as taxables tank in first half

Municipal bond issuance in the Northeast slumped by 18.3% year-over-year for the first half of 2022 as taxable sales plunged more than 60%, according to data compiled by Refinitiv.

The region’s issuers sold $49.69 billion of municipal bonds in 870 issues, after selling $60.78 billion in 1,234 issues during the first half of 2021.

The municipal market’s dynamics were reshaped by higher interest rates during a period when the Fed moved sharply to contain inflation.

That moved many potential refundings out of the money, and refunding volume in the first half was down 67.8% year-over-year in the Northeast to $2.71 billion in 90 issues from $8.40 billion in 271 issues.

“New money held up better with a decline of only 6%. There is a chance that the new money volume will turn up in the latter part of the year,” said John Hallacy, founder of John Hallacy Consulting LLC. “With rising rates and taxable spreads not as favorable, refunding activity is likely to maintain its downward trend.”

Northeast issuers sold $46.07 billion of new money bonds in 772 issues, down from $49.02 billion in 930 issues in the first half of 2021.

First-quarter volume was down 14.3% year-over-year to $25.23 billion in 442 issues from $29.45 billion in 547 issues and fell 21.9% in the second quarter to $24.46 billion in 428 issues compared to $31.33 billion in 687 issues during the second quarter of last year.

Tax-exempt issuance fell 5.6% to $40.98 billion in 775 issues compared to $43.40 billion in 1,035 issues in the same period last year.

Issuance of taxable bonds sank 63.3% in the first half to $5.07 billion in 75 issues from $13.82 billion in 174 issues in the first half of 2021.

Nationally, issuance for the first half totaled $201.56 billion, down 14.5% from $235.84 billion in 2021. Taxables dropped 46.8% to $31.02 billion from $58.34 billion.

Issuers in New York State sold eight out of the Northeast’s 10 largest deals in the first half.

The biggest sale of the first half was the $3.09 billion offering of state personal income tax revenue bonds from the New York State Dormitory Authority on March 15, with $2.4 billion tax-exempt and the balance taxable.

That deal propelled the Dormitory Authority atop the overall issuer rankings for the region, credited with $5.38 billion in the first half.

The largest deal table continued with the New York Transportation Development Corp.’s $1.32 billion sale subject to the alternative minimum tax priced by J.P. Morgan Securities on April 5 for a public-private partnership at John F. Kennedy Airport; the New York City Transitional Finance Authority’s $1.25 billion deal priced on March 30; New York City’s tax-exempt and taxable $1.08 billion of general obligation bonds priced by BofA securities on May 19; and Connecticut’s $1.07 billion of GOs priced by Ramirez & Co. on May 25.

The New York TFA was the region’s second most prolific issuer at $4.4 billion, followed by the Triborough Bridge & Tunnel Authority at $2.5 billion. The state of Connecticut at $1.06 billion was the largest issuer outside New York, ranking seventh.

The year got off to a fine start, Hallacy told The Bond Buyer.

“Many of the large perennial issuers dominated the top ten list. The New York Transportation Development Corp. is not as familiar and had the added aspect of being subject to AMT,” Hallacy said. “What was especially noteworthy are the declines in issuance in New Jersey and Connecticut of 50.1% and 21.9% respectively. On a positive note, New Hampshire had the greatest increase in issuance for the first half in the region.”

Issuers from New York State dominated the regional state rankings, selling $25.2 billion of debt in the first half, 3.1% more than a year earlier.

They were followed by Pennsylvania with $5.48 billion, Massachusetts with $4.92 billion, Maryland with $3.72 billion, New Jersey with $3.10 billion, Connecticut with $2.8 billion and the District of Columbia with $1.70 billion.

The volume of deals Refinitiv classified as being for education dropped 14.0% to $9.24 billion in 299 issues from $10.75 billion in 447 issues in 2021.

Hallacy said the overall the decline in education issuance was a surprise.

“It is rare to see education decline so much. The drop of 14% is notable.”

He noted the one standout among the sectors was colleges and universities, which increased their issuance in the Northeast by 18.7% to $625 million.

“Some of this spending may be due to the lifecycle of the physical plant but some of the spending was probably accomplished with the changes that the pandemic has brought,” Hallacy said. “Also, enrollments have suffered somewhat and institutions believe they must improve to remain competitive.”

Education issuance in the Northeast dropped 14.0% year-over-year to $9.24 billion in the first half of 2022.

Bloomberg News

J.P. Morgan topped the list of the Northeast’s senior managers, credited by Refinitiv with underwriting $7.52 billion of debt in the first half, followed by BofA Securities with $6.60 billion, RBC Capital Markets with $3.68 billion, Jefferies with $3.32 billion and Wells Fargo with $3.24 billion.

Rounding out the top ten were Citi with $3.22 billion, Siebert Williams Shank with $2.71 billion, Morgan Stanley with $2.63 billion, Ramirez with $2.31 billion and Goldman Sachs with $2.07 billion.

Public Resources Advisory Group topped the table for financial advisors in the region, credited with $10.3 billion, followed by Frasca & Associates with $5.8 billion, PFM Financial Advisors with $3.9 billion, Acacia Financial Group with $3.2 billion, and Hilltop Securities with $2 billion.

Bryant Rabbino led the bond counsel table, credited with $5.6 billion, followed by Nixon Peabody with $3.96 billion, Norton Rose Fulbright with $3.7 billion, Locke Lord with $3.68 billion, and Orrick, Herrington & Sutcliffe with $3.58 billion.

The volume of Northeast debt wrapped with bond insurance defied the primary market’s overall decline, up 11.1% in the first half to $5.57 billion in 180 issues from $5.02 billion in 285 issues in the same period last year.

In total across the U.S., municipal bond insurers wrapped $18.306 billion in the first half of 2022, a decrease from the $20.842 billion of deals done in the first six months of 2021.

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