Only two of the top 11 municipal underwriters were able to increase business from last year during the first three quarters of 2018, as underwriting and advisory firms maintained their positions in rankings as the market shrank.
Bank of America Merrill Lynch is still at the top of the rankings among municipal underwriters, while fourth-ranked Morgan Stanley and eighth-place Jefferies were the only firms to exceed their deal volume at this point last year.
Public Financial Management Inc. regained its perch atop the financial advisor league table through Sept. 30. New York City Transitional Finance Authority claimed the top spot among issuers, knocking the State of California out of its usual place atop that list, according to Thomson Reuters data.
The top 11 underwriters have combined for $238.92 billion in 6,392 transactions so far in 2018, down from the $272 billion in 7,583 deals in the first nine months of 2017. For the third quarter alone, the underwriters accounted for $82.91 billion in 2,089 deals.
Muni volume has fallen 15% this year following the elimination of a popular refinancing tool and lowering of top tax brackets under the federal law that took effect in January.
“While the elimination of advance refundings certainly has been a major factor in the decline of issuance in 2018, we are increasingly seeing the adoption of alternatives in the market, including forward delivery bonds and cash settled rate locks," said Jim Tricolli, co-head, municipal finance at fifth-ranked RBC Capital Markets. "Issuers are seeking alternatives to lock in savings today for bonds currently callable in 12 to 24 months,”
BAML, after underwriting $10.99 billion for second place in the quarter, still finds itself on top for the year to date with $37.76 billion or 15.8% market share, close to the 15.9% share it had at this point last year. The largest deals it ran the books on in the third quarter included the City and County of Denver’s $2.53 billion airport deal and the Dormitory Authority of the State of New York’s $685 million transaction.
Citi underwrote $11.32 billion to top the third quarter rankings. It was runner-up for the year to date with a par amount of $31.66 billion or 13.3% market share. Citi was lead-manager on the Texas Water Development Board’s $1.71 billion deal and the Washington State Convention Center Public Facilities Districts’ $1 billion issue.
JPMorgan came in third for the quarter and year to date with $8.58 billion and $21.43 billion, or 9% market share for the nine months.
“It was another strong quarter for J.P. Morgan and we are very appreciative of the many issuers that put their confidence in us to lead their important financings,” said Jamison Feheley, head of public finance banking. “We’ve made several strategic hires in banking personnel this year that have been immediately additive to our business results and value for our clients.”
JPM’s biggest deals of the quarter were the State of Illinois’ $966 billion sale, the New York City Transitional Finance Authority’s $850 million transaction and Miami-Dade County’s $790 million deal.
“In the face of declining new issue volume, we continue to focus on the traditional business, but we have made great strides growing our non-traditional business, particularly our strategic advisory practice, across many different sectors,” he said.
Morgan Stanley finished fourth for the quarter with $7.68 billion and fourth for the year so far. With $21.24 billion so far this year. Its market share rose to 8.9%, from 7.9% a year earlier. The firm’s largest deals were the New Jersey Transportation Trust Fund Authority’s $1.19 billion transaction and the Public Energy Authority of Kentucky’s $928 million sale.
RBC Capital Markets rounds out the top five with $5.71 billion for the third quarter and $16.88 billion or 7.1% year to date. That compares to the $17.47 billion and 6.4% market share it had during the same period in 2017.
"We are pleased with our results through the third quarter of 2018, particularly in the negotiated market where we ranked fourth. With continued strength in our housing finance group and pre-paid gas transactions,” said Bob Spangler, co-head, municipal finance at RBC. “We have gained 130 basis point of market share in the negotiated market this year and continue to enjoy a top five ranking overall, which speaks to the depth of our client relationships, our dedicated and talented colleagues, and the strength of our distribution platform."
RBC was lead manager on New York City’s $811 million transaction, the Patriots Energy Group Financing Agency’s $728 million deal and the Las Vegas Convention and Visitors Authority’s $500 million issue.
Goldman Sachs is sixth for the year with $11.42 billion, followed by Wells Fargo with $10.76 billion.
Jefferies' $10.70 billion par almost doubled from the $5.85 billion it had last year at this time, boosted by a series of tobacco financings.
Raymond James with $8.82 billion, Piper Jaffray with $8.50 billion and Stifel with $7.18 billion round out the list.
Financial Advisors
Public Financial Management finished three quarters of the year with a par amount of $34.87 billion in 607 deals, good for a 16.9% market share. That compares with $41.46 billion in 710 deals or 18% market share during the same time period of 2017.
“We are very appreciative of our client relationships built on trust and impartiality that enable us to maintain this leading market share," said John Bonow, chief executive officer and managing director for the PFM Group. "Whether for new money transactions designed to fund badly needed infrastructure or restructurings to improve debt portfolio management and related costs, clients in the governmental and non-profit sectors turn to PFM for independent advice,“
He added that PFM clients often continued to find the cost of capital agreeable, even as the municipal yield curve continued to steepen in the quarter,
“The loss of the straightforward financial benefits previously provided by advance refundings in such an environment has spurred many clients to look for creative ways to manage their debt portfolios,” he said
Public Resources Advisory Group ranked second with $27.14 billion with 13.1% market share. Hilltop Securities is third for the year with $17.62 billion or 8.5% market share. Acacia Financial Group came in fourth with $8.02 billion.
Municipal Capital Market Group Inc., vaulted up from 72nd place to fifth with $7.58 billion, up from $481 million. Frasca and Associates was next with $7.44 billion, followed by Ponder and Co. with $4.97 billion, Piper with $3.88 billion, KNN with $3.60 billion and Estrada Hinojosa and Co. Inc. with $3.45 billion to round out the top 10.
Municipal Issuers
There is a new top municipal issuer and it is from the East coast. The NYC TFA leads all muni issuers through three quarters with $6.19 billion in 21 deals, up from second place and $5.51 billion of par amount in 15 transaction it came to market with during the same time last year.
“Relative to the same period in 2017, TFA issuance is higher by approximately $843 million and over the same period, ‘building aid revenue’ bond issuance was up $1.2 billion – which consisted of mostly refunding issuances and explains the bulk of the year-on-year increase in issuance,” the authority said. “TFA bond proceeds fund capital investments in infrastructure projects like Housing New York, 2.0, the Mayor’s plan to build or preserve 300,000 affordable homes by 2026, and are used to add seats in public schools across the city. In addition, TFA refundings contribute to the Citywide Savings Program which is a key component to achieving a balanced budget every fiscal year.”
The Dormitory Authority of the State of New York also moves up one spot from where it was a year ago, to second with $5.79 billion of issuance in 22 transactions. That compares with $4.99 billion in 18 deals during the same time in 2017.
The state of California dropped to third with $5.41 billion in 8 deals, from $7.18 billion in the same number of deals. The City and County of Denver clocks in at fourth with $3.32 billion and the New Jersey Tobacco Settlement Finance Corp. rounds out the top five with $3.15 billion.
“We expect Q3 and Q4 volume to gradually increase as issuers continue to focus on their financing needs for the remainder of the calendar year,” said said Ken Lind, leader of Nixon Peabody’s project finance and public finance group, who has advised numerous New York City issuers.
“Due to the extraordinary volume of advance refunding activity prior to the effective date of last year’s tax bill, the demand for refundings was virtually exhausted, so there will be some current refundings in a rising interest rate environment,” he said.
The Texas Water Development Board is in sixth with $3.13 billion, followed by New York City with $3.12 billion, the Metropolitan Transportation Authority with $2.28 billion, the State of Connecticut with $2.71 billion and the Golden State Tobacco Securitization Corp. rounds out the top ten with $2.49 billion.
Lind said investment bankers are developing products that will provide some economic relief in the future when the refunding demand increases and that the 10-year anniversary of the issuance of Build America Bonds may lead to opportunities to refund those taxable bonds with tax-exempt bonds.
“Nixon Peabody is proud to have served as co-bond counsel to the Triborough Bridge and Tunnel Authority on the first two municipal deals indexed to the Secured Overnight Financing Rate," he said. "We expect larger issuers in the near future to find opportunities, whether as new issuances or as variable rate and multi-modal mandatory tender dates approach to replace the prior mode with an indexed SOFR product to further develop that market.”
