Southeast sees biggest first half volume drop among regions

Issuers in the Southeast sold $30.3 billion of municipal bonds in the first half of 2023, 29.9% less than they did in the same period last year, according to data supplied by Refinitiv.

There were 490 deals, down from 788 a year earlier, when the region’s issuers sold $43.2 billion of bonds.

The Southeast recorded the biggest year-over-year drop, and the lowest volume, of any of The Bond Buyer’s five regions in the first half.

National  was $180.9 billion across the first half of the year, down 17.1% from the same period in 2022.

Activity increased as the year progressed, with Southeast issuers selling $13.97 billion in the first quarter, down 38.7% from 2022, and $16.34 billion of bonds in the second quarter, down 20% from the previous year. 

Tax-exempt issuance was down 21% year-over-year with 433 issuances for $25.5 billion compared to 676 issues for 32.4 million. Taxable issuances also fell 49% with 50 issuances for $3.8 billion compared to 98 issues for $7.57 billion. 

Taxable issuance was down throughout 2022 as well, as the bonds are “inversely correlated to interest rate movements,” and higher rates “took taxable advance refunding savings out of the money,” said JoAnne Carter, president of PFM Financial Advisors.

Taxable municipal bonds after the 2017 Tax Cuts and Jobs Act of 2017 banned tax-exempt advanced refundings. Then-low interest rates allowed issuers to save even by issuing taxable bonds to refund tax-exempts. Thanks to the Fed, .

Revenue bond sales were down 33.9% to $22.6 billion, according to Refinitiv, while general obligation issuances fell 14.6% to $7.7 billion.

New money sales dropped 30% to $23.7 billion, faring better than refunding which was down 40.9%to $4.5 billion. 

Issuers in Florida sold more bonds than those in any other Southeast state, issuing $6.4 billion of municipal debt, 34.4% less than in the first half of 2022.

The largest issuers in Florida were Miami-Dade County with $535.8 million of bonds, followed by the Florida Insurance Assistance Interlocal Agency for $465.3 million, Florida Housing Finance Corp. for $372.6 million, the Florida Development Finance Corp for $358.5 million and Pasco County for $325.9 million, according to Refinitiv.

Next on the list of states is Georgia, with 47 issuances for $5.1 billion, down 9.9%; Alabama, with $3.8 billion, down 8.7%; Louisiana, with 34 issues for $3.7 billion, down 33%; and Virginia, with 38 issues for $3.4 billion, down more than half.

West Virginia was the only state among the Southeast’s 11 to register a gain, more than tripling to $706 million from $153 million a year earlier, putting it ahead of last-place Mississippi where $677 million of bonds were sold.

The biggest deal from the Southeast in the first half came from the Louisiana Local Government Environmental Facilities and Community Development Authority, which sold 1.49 billion of taxable system restoration bonds in March.

Georgia’s Main Street Natural Gas, a prepaid natural gas issuer, had the second largest deal with a $984 million refunding sale priced by RBC Capital Markets on June 2, as well as the fourth largest with a $834.3 million issuance priced by RBC on Feb. 2 and the sixth largest, $695.5 million in January. 

“Gas prepayment bonds are a structured financing that enables municipal entities to lock in a long term supply of natural gas at a discount, but the economics of the transaction to the other transaction participants tends to drive issuance,” said Lisa Washburn, managing director at Municipal Market Analytics. “Issuance tends to increase when the spread between taxable and tax-exempts rises.”

Lisa Washburn, Municipal Market Analytics

Prepaid natural gas bond issuance tends to increase when the spread between taxable and tax-exempts rises, said Lisa Washburn of Municipal Market Analytics.

The third largest issuance was by the Virginia College Building Authority for $960.6 million of new money and refunding bonds in a deal priced by BofA Securities. 

Of the top seven issuances, five were from municipal energy providers, with several for prepaid energy transactions, including a $675 million issuance by the Southeast Energy Authority in a deal priced by Goldman Sachs on March 1 that ranked seventh.

Issuances Refinitiv classified as being for utilities hit $6 billion, down 37.5%, and electric power registered $1.34 billion, a 36.1% drop.

Both categories were big in the Southeast in 2022 as public power providers respond “to the need to be more resilient and reliable” in developing infrastructure as climate-driven weather events increase, Carter said.

The electric system “is very capital intensive and many projects are resource renewal and replacement efforts,” she said. “As renewable resources are placed in more remote areas given the required space for utility-scale development, the role of an investment in transmission assets has also increased.”

BofA Securities was the busiest senior manager across the Southeast in the first half of the year, credited by Refinitiv with $5.5 billion par amount, followed by RBC Capital Markets with $3.3 billion, JP Morgan Securities with $2.3 billion, and Morgan Stanley with $2.2 billion. 

The region’s lead financial advisors were PFM Financial Advisors, credited with $6.3 billion, followed by Public Resources Advisory Group with $2.6 billion, Municipal Capital Markets Group with $2.40 billion, and Raymond James with $1.3 billion.

Alston & Bird topped the regional table for bond counsel, credited with $2.51 billion of business, ahead of Butler Snow with $2.49 billion, Orrick Herrington & Sutcliffe with $2.18 billion and Kutak Rock with $2.17 billion.

Main Street Natural Gas led among issuers with $2.5 billion, followed by the Louisiana Local Government Environmental Facilities and Community Development Authority, credited with $1.54 billion, the Virginia College Building Authority with $1.09 billion and the state of Georgia with $881 million.

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