Southwest debt issuance accelerates in first half, led by Texas

Municipal bond issuance in the Southwest jumped 29.8% to $50.6 billion in 2024's first half with Texas accounting for 65% of the volume amid a deluge of debt from the education sector. 

After a first quarter slump, issuance in the region zoomed 60.3% higher in the second quarter compared to the same period in 2023, according to LSEG Data & Analytics, formerly Refinitiv. Nearly 21% of nationwide volume, which climbed 32.3% to $242.16 billion during the first six months of this year, was sold by Southwest issuers.

Volume rose in most of the eight of the region's states with only Arkansas and New Mexico dropping below mid-year 2023 levels. The education sector, which made up the lion's share of the region's debt sales at $22.45 billion, was up 44%. Revenue bond issuance slightly outpaced the sale of general obligation debt.

In Texas, bond sales rose 19% year-over-year to $33.14 billion, which was under California's nearly $36.1 billion, but above New York's $28 billion, keeping the Lone Star State in contention for this year's top volume crown.

In 2023, Texas issuers sold $59 billion of debt, edging out the two perennial bond giants to become the biggest volume state for the first time since 1981.

"Texas continues to be a top issuance volume state owing to the expansive growth and critical need for infrastructure across the state," Noe Hinojosa, president of Estrada Hinojosa & Company, said in an email. "School districts in particular continue to issue debt to absorb the influx of new students on the heels of the growth of the state."

Texas had the biggest population growth among states between July 2022 and July 2023, gaining 473,453 people, according to the U.S. Census Bureau.

Hinojosa said Texas schools are on track to match or possibly surpass the number of issues and the amount of debt they sold in 2023. 

"We are approximately 60% through the year and yet we have seen schools issue about 80% of last year's volume," he noted.

Texas education-related issuance in the first six months of 2024 totaled $16.29 billion, a jump of 46% from mid-year 2023, as public school districts tapped billions of dollars in bond authorization approved by voters in recent years.  

In the May 4 statewide bond elections, voters okayed $7.61 billion or 74.7% of the $10.18 billion of general obligation bonds schools placed on ballots, according to Texas Bond Review Board data. Meanwhile, Houston Independent School District, the state's largest public school system, is seeking a record $4.4 billion of bonds in the Nov. 5 general election.

Eligible public and charter school bonds in Texas are guaranteed by the state's triple-A-rated Permanent School Fund.

Texas generated the region's largest deals led by a nearly $1.1 billion San Antonio electric and gas systems revenue bond in June issue led by Jefferies and Wells Fargo Securities, followed by a $950 million Harris County toll road first lien revenue and refunding bond issue in May headed by Raymond James, and a nearly $870.3 million Houston combined utility system first lien revenue refunding bond issue in April also led by Jefferies. In fourth place was Midland Independent School District, which sold $860.6 million of GO bonds through Raymond James in March. 

Colorado Health Facilities Authority was the region's largest issuer with $2.03 billion of conduit debt sold, including $1.1 billion of revenue bonds for Intermountain Health in June. The University of Texas System Board of Regents came in second with $1.627 billion of bonds and San Antonio was in third on the strength of its $1.1 billion June deal. 

Jefferies, which rose to the top underwriter spot for Southwest deals in 2023 from third place in 2022, ranked number one in the first half of 2024, credited by LSEG with $5.855 billion of debt. RBC Capital Markets ranked second with $4.648 billion of bonds, followed by Raymond James with $4.553 billion, Wells Fargo with $4.297 billion and Piper Sandler with $3.1 billion. 

The eligibility of RBC and Wells Fargo along with other top 10 Southwest underwriters BofA Securities, JP Morgan Securities, and Morgan Stanley to underwrite public debt in Texas is under review by the state Attorney General's Office over their involvement with the Net Zero Alliance, which seeks a transition to net-zero greenhouse gas emissions by 2050.

The state, which enacted laws in 2021 that prohibit state and local government contracts worth $100,000 or more with banks and financial firms that "boycott" or "discriminate" against the fossil fuel or firearm industries, has so far banned Barclays, as well as UBS and Citigroup, which have exited the municipal bond market. 

Mid-year underwriter rankings for Texas had Jefferies in first place, followed by Raymond James, Wells Fargo, Piper Sandler, and JP Morgan. 

In Oklahoma, which has a similar ban for companies that "boycott" energy businesses as well as divestment provision for pensions, D.A. Davidson, BOK Financial Securities, Robert W. Baird, Goldman Sachs, and Morgan Stanley were the top five underwriters. The state's boycotters list includes Barclays, BofA, JP Morgan, and Wells Fargo. 

Estrada Hinojosa & Company

Enforcement of the state's Energy Discrimination Elimination Act of 2022 was permanently halted last month by an Oklahoma County District Court judge, who found it violated the state constitution in a case brought by a state pension recipient. An appeal filed by state Attorney General Gentner Drummond is pending before the Oklahoma Supreme Court.

Several studies pointed to adverse financial and economic impacts from the Texas and Oklahoma bans as a result of reduced underwriter competition. The Texas-based American Energy Institute has pushed back against some of the studies.

Hilltop Securities, last year's busiest financial advisor for Southwest deals, retained that position for the first half of 2024, credited by LSEG with $10.291 billion of debt, followed by PFM Financial Advisers with $4.680 billion, Estrada Hinojosa with nearly $2.779 billion, and Specialized Public Finance with $2.726 billion. 

McCall Parkhurst & Horton topped the bond counsel rankings with nearly $11.795 billion of debt after coming in first in 2024. Bracewell ranked second with $5.491 billion, followed by Norton Rose Fulbright with $3.7 billion, and Orrick Herrington & Sutcliffe with $3.112 billion. 

The same financial advisor and bond counsel firms ranked in the same order for Texas deals in the year's first half.

The Southwest region consists of Arkansas, Arizona, Colorado, Kansas, New Mexico, Oklahoma, Texas, and Utah.