Market Outlook, Issuance Expectations, and the Road Ahead for the Industry (CPE)

Transcription:

Jennifer Fredericks (00:08):

All right, good morning. So I am Jennifer Fredericks. I'm a Sales Director at Solve. If you want to talk technology, let's do that in the hall later. But I'm also the National President of Women in Public Finance and a board member at Northeast Women in Public Finance. So I was asked to moderate this panel, a very shy, reserved, quiet panelists that have no opinions. So we'll do our best to see if we can pull some information from them today. But if you guys want to start with some introductions. Ron, you want to start?

Ron Banaszek (00:39):

Yeah, absolutely. Thank you. I'm Ron Banaszek. I'm Senior Vice President and Head of Underwriting at Blaylock Van. I've been there for about a little over two and a half years. Prior to that I was at Ramirez and Company for quite a bit and then UBS the first time they exited the business, but I've been in this business since late 1987, so I've been around quite a long time. So Sean, you definitely have some more time in this business as do I think Muni people are around forever. But I'm excited to be here, excited to be part of this panel and look forward to getting meeting a lot of you over the next couple of days. Thank you.

Cameron Parks (01:15):

Good morning. Cameron Parks, Managing Director with Truist Securities and part of the city diaspora following the exit from the business, I guess it was earlier this year, working at Truist to try to build out the business. I think folks know that SunTrust and BAB&T have a long history in the region here and the effort at this point is to try to help round out the services we're providing on the underwriting side.

Rob Dailey (01:36):

Hi, I'm Rob Dailey. I run Public Finance at PNC. Public finance at PNC includes the investment banking capital markets area as well as lending and commercial banking products and services.

Jerry Ford (01:49):

I'm Jerry Ford, President Ford & Associates in Tampa, Florida. We are a boutique municipal advisory firm serving folks throughout the state, some in California, some elsewhere.

Gary Hall (02:00):

I'm Gary Hall, a Partner and President of finance at William Shank. First of all, I'm so happy that we're back in the Southeast, so congrats for the Bond Buyer for bringing us back here, but my score yesterday on the golf course, I need to be back here more. So looking forward to spending time with you over the next couple of days.

Jennifer Fredericks (02:19):

So the muni market, seeing some quite dramatic changes over the past year, so starting in March, 2020 and everything that ensued from C subsequent ultra low rate environment and then the rapid rate rise by the fed policymaking, macroeconomic uncertainty, geopolitical turmoil, a whole host of factors. But 2024 is definitely seeing some green shoots pop up. Bond volumes growing mutual funds have seen more inflows and outflows. The latest FOMC meeting has appeared to calm market somewhat. So let's talk a little bit about volume. So 2022 and 20 20 23 were rough years issuers were pulling back significantly after two record years in 20 and 21 and it appears to be rebounding this year so far with issuance totals hitting about 143 million or billion as of May 1st, which is a 26.2% increase over 2023, which was just over 113 billion just since we're in the southeast. Florida's in fourth place so far and they've issued about 9 billion. So do you see issuance growth continuing throughout 2024? Who wants to take it first?

Gary Hall (03:37):

So I'll start. So first of all, when we look at volume, I think sometimes in our market we underestimate the true amount of proceeds that have been raised from our clients in low interest rate environments. We have premium bonds which erodes the amount of par that we have on our official statements, right? If you look at the amount proceeds, in fact we've been raising under this amount of debt over the last three or four going forward with the need for infrastructure rehabilitation and reparation. And as evidenced by the $2.6 trillion of infrastructure need that the US civil engineers that we needed will continue to be a need for reparation and rehabilitation infrastructure. But in addition to that, as evidenced by the wave of storms that we have here in the southeast, the need to raise our sea walls, the need to weatherize power generation systems all throughout the southwest as well as following more safe drinking water sources, infrastructure need will continue to grow in our country. So from that standpoint in seeing the near term, a tremendous amount of volume uptick, new money issuance, if we can get any cooperation from the Fed that we can start to actually track savings from Refundings, that would only add to it. I think for the near term horizon, we're going to see voluminous sort of mission bond issuance going forward.

Cameron Parks (05:10):

I'll jump in. I think Gary makes some great points. I think what's interesting, if you look at the industry volume outstanding increased about 50% over the last 20 years, but really what's basically flat over the last 10 years. And so what we've had a lot, and you see this in the weekly supply calendars, you see fund flow redemptions being principal and interest payments offsetting the amount of new issuance. So I think that we certainly do expect to see a lot of increase in supply over time, but we're still on that. And I think one of the questions may get to this later, the weaning off of the covid money and all the stimulus money that's out there. And so ultimately when we look at inflation and the need to raise rates and fees, we anticipate that there's going to be ultimately capital funded through debt rather than cash.

(05:51):

I think sectors we're particularly focused on are interestingly in industry and you see airports and sports, those are two sectors where you can't do them scalably. So one sector that I've covered a lot in my career is water and sewer, but ultimately folks make decisions to do that incrementally when they can't fund the whole amount. Or similarly, transportation is another sector by volume, one of the largest in the country, but folks decide to do that scalably. But when you think about a sports facility or an airport, it's very hard to close down a terminal, build a new one, or build a new one while you have another one operating without doing it wholesale. And similarly with the sports facility, you simply can't build half a ballpark. So those are two sectors we're certainly focused on while continuing to expect the other more traditional schools, utilities and transportation to continue.

Rob Dailey (06:37):

Just to pick up maybe on a couple of points from Cameron, I agree that we still haven't seen the effect, the full effects of covid and we're seeing that sector by sector, so all in, and we're a little bit surprised that the first half of this year was as strong as it has been. We were sort of expecting it to do that second half of this year. So I kind of look at this as a positive outlook for what issuance is going to look like. But I do think the effect of covid plus some runoff of Covid funds, we'll do some things to put pressure on balance sheets and on operations. So you're going to see different sectors kind of emerging out of this, some feeling stronger, some feeling like they haven't quite recovered yet.

Jennifer Fredericks (07:23):

And with your role, you also cover the bank market, so you want to kind of share a little bit of what you're saying on that side.

Rob Dailey (07:29):

Yeah, I think if you think about the lending market, we've seen it muted. There has been less activity than there was last year or the year before from bank to bank. You see some difference in the appetite for loans or to offer credit. We're seeing as we did starting a year ago, banks differ in the way that they're performing under rise in rates, balance sheet pressures, regulatory pressures, some of the other things going on in the banking industry. So we're now finding that from bank to bank it can be very different, but the volume's been somewhat muted and while I do expect it to come back, I've sort of been expecting this year to be somewhat, continue to be somewhat lower in the bank market.

Jennifer Fredericks (08:25):

So this kind of brings us towards underwriters taking on risk in this market. What are some of the challenges that you all are seeing?

Ron Banaszek (08:34):

There's been a tremendous amount of volatility that's come into the market post 20 and 21, 20 and 21, our product has been in the new issue market has been pretty commoditized. Low rates, incredibly low rates and deals kind of came and went and you have the term underwriter, but nobody was really having to underwrite bonds, taking on any risks that changed when the Fed started raising rates in 22 and to the extent that they started raising rates, I think it took the street by surprise. They were arguably late to the process of fighting inflation. But it really kind of started a volatility cycle in the market that hadn't been seen since the financial crisis of oh eight. And that's a really long time, a lot of people's careers in this business. So a lot of people had not seen the amount of volatility in the market ever in their career, kind of just trended in favor of trading debts and underwriting debts, that volatility, I remember speaking issuers in 22 and saying, wow, this is a tremendous amount of volatility compared to what we've seen in a very long time.

(09:41):

And in 23 topped that and the buy sides, the way they went about getting involved in issues, giving reads on issues that changed the way underwriters had to underwrite issues change. But now what you're seeing in 22 and 23 is all of a sudden underwriters having to underwrite bonds. It's not every deal. There's plenty that get done, but all of a sudden there's a risk aspect to the underwriting business that didn't exist for a really long time that we're now seeing in 22 and 23 and probably will continue for a while as there's volatility and people trying to figure out what the Fed is going to do next or when they're going to do it next continues. And underwriters and firms have on our side of the business have to figure out how to deal with that risk.

Jerry Ford (10:30):

Go ahead CGary.

Gary Hall (10:32):

So we're in a record for our firm this week, 17 deals leading three of them, and I just want to reiterate that there's true risk in underwriting. We have an uptick in unsold balances I would say to our issuers and FA friends don't believe we're getting paid for that risk and take down, and that's one thing that keeps me up at night. We get a tremendous amount of pressure from our clients as they should use our balance sheet to preserve pricing integrity and books. But the takedowns in our business still have not expanded to be commis with that risk. I would also say too, I have a lot of clients who have never issued bonds in a rising interest rate environment. And so this whole notion of the process of getting to market clearing levels is a little bit more a than it used to be. We are seeing deals go out being oversubscribed three or four times, not because they're mispriced, but they're trying to attract the widest array of investors and using that momentum to push yields downward. It's critical that you go out in levels to attract the wide audience. And so the art to getting to market levels, clearing levels is a little different and I will put it a little bit pressure on my A friends to help us figure out how we mitigate that not getting paid.

Jerry Ford (11:46):

Gary, I'm going to push back on you a little bit. I'm sure that my friends at PFM would agree with me that probably your underwriting spreads are too low and if the broker dealer community were not living for year end numbers, that would not be the case. But the fact of the matter is when you're willing to go in and bid 75 cents to do a transaction in San Francisco because you want those league tables, that's not the fault of the issuers or the MA community, but it is clear that this volatility is seeing people stepping up, having to take risks that they've never taken before. The question for us becomes who out there is really taking the risk as opposed to talking about taking the risk and are they doing it away that benefits your deal? So when we get a proposal in or have a discussion that somebody says, well gee, I took down a third of the transaction.

(12:42):

Well where did you take that down? How much risk did you really take in there? And it's hard to evaluate that unless you ask a lot of specific questions. So one of the things that we're doing is we're spending a lot of time talking to muni portfolio managers, various size funds around the countries, some SMAs, some mutual funds, asking them, who do you see that's taking risk in the market? Who do you see that's effectively doing that on your behalf? And the answers are interesting, we get answers to that question, but they clearly segregate it between the primary market where they see a number of people stepping up and changes that they've seen in the secondary market, particularly since C has gone away where they are seeing broker dealers act more on an agency basis than as a principal. So taking less risk in that secondary market than they have before. So it's an interesting dichotomy out there. We're not really sure where it falls out, but we know that it has an impact overall because a healthy secondary market translates into what people are willing to do in the primary market.

Jennifer Fredericks (13:48):

Cameron with the rebuttal,

Cameron Parks (13:51):

It wasn't me.

(13:53):

No, that was Bart, but Bart, the issuer, not BART person. I think it's interesting. I think Ron mentioned if you look at it in the first quarter of 2022, the value of municipal bonds outstanding declined by 7% in one quarter. So you think about whether that's a broker dealer community, whether you think about that's the investor community, no one was thinking that their muni bond portfolio is going to decline in one quarter by 7%. And I think what Gary's getting at is if you think about that value of the takedown, even if we're under underwriting 10% or 25% of the deal, if we have that kind of volatility to experience, the compensation just simply doesn't make up for the risk. So setting aside all the time you've put in to get the deal to the market, but fundamentally the overall takedown is going to be lost even if you're trying to hedge in treasuries.

(14:35):

I think that's the other part of the market that's very interesting is that the efficiency and exposure that broker dealers are willing to take has simply decreased. So ultimately banks are holding less bonds, but also primary and secondary market as Jerry alluded to, just not willing to put their balance sheet at work as much. I think what's notable, we've been watching the competitive sales this year and you see a wide range of names, a number of names that you simply probably weren't seeing years ago, not to call it Gary the other way, but Seabird is a player in the secondary market. I don't know if that was the case five, 10 years ago. And so I think you're going to see a wider distribution of market share both in the competitive sale market and in the negotiated sale market, which is probably in some ways to ultimately invest issuers benefit right over time if you have more players. But it seems we're in a transition period which may have some learning curves and some bumps and bruises along the way. I think.

Jerry Ford (15:27):

Go

Gary Hall (15:27):

Ahead Gary. I don't know if that was a trigger for a commercial, but I'll take it. So Kim was actually right. We made a concerted effort to beef up our secondary trading because we saw this burgeoning investor segment, SMAs. Today there are about 4,500 financial advisors that own that have a UM about 1.6 trillion in municipal. So during covid, we made a concerted effort to ensure that we had traded in block sizes that worked for them, that helped us immensely in the primary market. We are now able to bring those proprietary relationships to insurers to swing leverage that way on certain maturities that needs to. And so having a robust secondary trading platform has actually been extremely accretive to our primary market issuers clients.

Jerry Ford (16:15):

So it's an important point, and if you look at those numbers, depending upon who you talk to, it's somewhere between 1000000000001.6 trillion, but it's hard because there's so many players in this SMA market to really get a firm number on it. What we do know for sure is the latest Fed data says there's about 1.8 trillion in households, which includes the SMAs. And so there are major, major percentage of the markets because there are so many of them. A great many of the larger firms cover the big guys. That's natural. They get covered. Everybody's going to cover GSA, everybody's going to cover Vanguard, everybody's going to cover fidelity, but it's those other few hundred firms out there that sort of get lost in that shuffle and it's the opportunity there is to find a way to bring them into fold and bring them into the fold directly. That being said, it doesn't solve all the problem because where do SMAs buy? They buy shorter on the curve and that leaves the long bonds still at the mercy of the mutual funds because insurers have lessened their portfolios. Banks have lessened their portfolios because of the changes in tax laws. I had one portfolio manager tell me last week that they were basically over the last couple of years using their muni fund as an ATM to fund purchases of other fixed income securities.

Ron Banaszek (17:33):

And it's not surprising if you look at banks at the bank portfolios because of where ratios are, right? I mean municipals have become historically very rich to treasuries on a long-term basis and yet deals can't get done. The SMA part of the business is very fascinating because there is no hard data as to what amount of cash is coming into that market. You see the Lipper numbers or whatever numbers you follow, and that addresses purely the mutual fund part of the business. And I've been saying this for a while, that money's been not this year, but the last couple of years as money has left the mutual fund complex, I think a lot of that money's cycling into what we call the professional retail, the proxies for high net worth individuals. The other point that you brought up is how do you service the rest, right?

(18:21):

Everybody has to cover the top 50 or a hundred at Blaylock. We made it an effort to go downstream because we have had conversations with institutional investors and some of the large firms don't even cover these smaller sma, they're out of the top 50 or a hundred or whatever their bogey is, and it's just like we don't have time for you. Your assets on their management aren't such that and there's opportunity for other firms there. And then one point back is the secondary market liquidity hasn't really been challenged, right? Citibank left the business. There was no doubt that when you were there that they had the biggest balance sheet on the street. I was in institutional sales for a really long time and there wasn't an large account on the street that didn't say if we need a bid, we know we could go to Citibank and they'll provide a bid.

(19:09):

But the market hasn't challenged the remaining muni participants yet. Even with the volatility, it's been relatively for the most part, orderly. It'll be very interesting to see when an event happens or the market does get very sloppy and ugly what the secondary market liquidity does, but it is important for firms as our SARS firm Seabert, some of the smaller firms, they're stepping up as much as they can to provide balance sheet to trade and provide markets in the secondary. And when you look at that, and to Gary's point, that does circle back to the issuers because that's what it's all about, right? An issuer sits there and say, well, that's nice you trade all these bonds as a secondary, but what does it mean for me in the amount of buy-side market intelligence that we pick up from being involved in the secondary market is immeasurable so that when we are underwriting deals, we know what the buy side's doing, where they're looking on the curve, what their credit tolerance is, what their cash position is. So if you're putting together a syndicate, you've got to look to firms that have a presence in the secondary market that have that market intelligence, that Salesforce, that's out there touching these people on a day-to-day basis and not just when they're pricing deals.

Rob Dailey (20:27):

Just maybe one point to add on this is I do think we're at a point a period of transition, especially with Rich and where it is, but I think long-term, we're looking at a convergence toward some of the other capital markets like the corporate bond market, and I think that you're going to continue to see an emphasis on liquidity scarcity of dealers stepping up, forcing a reconciliation of what happens between the corporate bond market and their behavior and our bond market. And I think that's something that we're not going to reverse out of that. I think we're going to see increasing focus on the largest institutions dominating or playing a big role in the market. It doesn't mean that you don't focus on tier two, tier three. That's where we feel like we've got a special niche, but they're not the investors that are going to make the difference between how a deal gets done. Ultimately, it'll be the marginal ones that play out.

Jerry Ford (21:25):

Well, if you're following the regulators and you take a look at the SEC, you would be led to believe that their goal at the end of the day is to homogenize those markets and they're really not.

(21:37):

I've started to say not interested. I'm not sure that that's an accurate statement, but they're not as concerned about the unique attributes of the muni market as they are about having everybody look the same. And so when that happens, at the end of the day, that may benefit the largest 50 issuers in this country. That's fine. The New York's and the Californias, the state of Florida's and what have you, but who it leaves out in the cold and who it hurts are all those thousands of smaller issuers around the country, smaller and medium sized issuers who really don't fit into that homogenous mold.

Jennifer Fredericks (22:13):

Just kind of closing out, so headwinds, we talked about unsold bonds, price integrity a little. You touched on a little bit about have issuers really accepted the risk that's out there now?

Gary Hall (22:28):

Well, as I said before, the process of underwriting has changed spend on a lot of time with the insured clients, making sure they understand and appreciate the need for investors to have access to them. Even that in the market, making sure that they have investor friendly websites so people can get interim financials, making sure they're responsive. The investors' requests folio managers want, have confidence that they have accurate pictures of the credit story for our issuer clients. So that's an important part of our process, being able to answer those subjective questions. Do you have those political bills made surface us when budgetary reasons suggested that you need to and what you done, what your covid money up? Do you have remediated funds? Things are very important question. Investors are demanding answer that can not just be answered by looking at operations.

Cameron Parks (23:30):

I'll jump in interestingly at dating myself that if you look at DBC numbers, there's four components of the under underwriter discount, take down management fee, risk and expenses. And I think most deals currently have no management fee and no risk component. So I think the question of have issuers accepted risk, I think it is risk part of the conversation because if the market is stable, we see a lot of transactions get one times, two times three times subscribed. More than that probably means we might've mispriced a little bit, but the other way around, we generally, it's a very awkward conversation to come in at pricing and say, now we want to add to the fee component. I mean, I don't know what your thought about that Jerry is, but certainly it's interesting. I think that that's come off the table, whereas we had a fed fund policy of 0% for much of the lab. Ron, you described many traders haven't experienced a rising rate environment. If you're 35, you never saw rates go up and stay up. And so I think Jennifer's a good question and not to say at this conference we're going to start having a risk be part of the, but there's an idea of if the transaction goes well, there's a take down and then how do you deal with it? You change yields or do you add a compensation component?

Jerry Ford (24:32):

It's a good question, and I will tell you that we have a lot of internal discussions in our shop about this, and I'm not going to get into details about how we actually feel about it, but it's important to note that this is not a light switch. We spent years in this market where rates were at all time lows, where they were going down where nobody saw losses on underwriting desks. And that striving for those year end league tables led in part to lower and lower spreads. That's changed. It's changed quickly for the street, but that's what's embedded in the mindset of the issuer community. So it takes time to unwind that in the same way that it took time to get here. Not as long, but still. But it is going to be impossible to get there if the broker dealer community is still, half of them are fighting for league tables and half of them are trying to put together something that allows them to live in another day to fight. Let's be honest here. It's in nobody's best interest. It's not in any issuer's best interest. No municipal advisor's best interest, no broker dealer's best interest for people to lose money in a transaction. That is not a viable long-term business strategy. It's simply not. But at the same time, you have to quit pointing the gun at yourself and firing it.

Cameron Parks (25:57):

Agreed, and I was thinking about this on the way here. I think the worst transaction in my career are the ones where we raise yields by 10, 15 basis points and then just underwrite. Nobody knows whether the pricing was right at that point, and we may still lose money. The client's not happy. We're not happy. So how do we try to avoid those situations?

Ron Banaszek (26:14):

Jerry, you bring up a great point, and Gary, you touched on it earlier, but we're kind of fighting each other, right? It's not just the issuers say squeezing the underwriters. The underwriters also fighting for league table, right? So there has to be some common ground in the middle, the issuer side, understanding potential risk in volatile markets and the dealer side realizing unless we want to keep losing dealers every year or two because they can't make enough return in this market, we have to start figuring a different way.

Rob Dailey (26:49):

Well, I think there's got to be some recognition that there's more than just the price or take down at play, right? There are many variables determining whether or not a deal gets done well, right? So did you get into a market where investors knew what to expect? Did you convey your story well? Do you have clear communications both among the syndicate as well as with investors? The issuer has a chance to say, I feel like I can control this to the extent that I need to, or I've got my hand on the helm in a way that I need to, or the financial advisors, everybody recognize everybody's role in it. So there are many ways in which you get to good execution, and I think that stuff is all much more important in a volatile market. I think we would all agree there. It becomes a matter of just do you recognize that? Do you really plan for that? Do you execute toward those kinds of goals as opposed to simply saying, am I at a buck or a buck and a quarter?

Jerry Ford (27:47):

To look at an either buck or the buck quarter is really a short-term view, and it doesn't take all the factors into consideration. I mean, we've all seen transactions out there, fortunately, none of them ours right now that have been cut 10 to 15 basis points, right? You take a look at the PVL one on those transactions and you say, wait a second, I could have much more easily put $2 in risk or two and a quarter in risk and it would've cost me half what that did. I could have brought that in considerably. Those are the conversations that aren't being taking place as effectively and need to be.

Ron Banaszek (28:21):

That's a great point.

Gary Hall (28:23):

Rest in the room. Just want to make sure for all the antitrust regulators out there, we're not talking about price fixing, but what does scare me in this market we, and with all the bankers that are moving to different firms, given the exodus of UBS and Citi, you're a banker and you're trying to get into a deal, the best ways to get there is to buy your way into by bid take downs. And so we have all these movements and new firms coming in and BOL municipal platforms. I'm concerned that we're going to start to see a race to the bottom, cannibalize ourselves a little bit further in this take down in a very risky, volatile community market.

Jennifer Fredericks (29:08):

So let's go back to buy side and talk about demand a little bit. Everyone's always talking about large amounts of cash sitting on the sidelines. It does appear that muni yields are enticing some more money into the asset class. Can we talk about some of the shifts that you're seeing in the buy side?

Cameron Parks (29:24):

I'm happy to start, and you guys, I think it's interesting. We say interesting municipal bonds is inversely correlated to price. The more expensive something gets, the more demand there is. And so now yields are higher and you'd think we'd have people coming out of the woodwork for it, whereas we had that more in 2020 when rates were much lower. I think the other thing of note, and I think Jerry touched on this is if you think about the tax cut in jobs Act 20 17, 1 of the big components of that was a reduction in the corporate tax rate that hurt bank holdings and it hurt insurance as well. So when you do a typical 30 year level debt service structure, about 60% of the principles in years 20 and beyond the term bonds, whereas effectively households and SMAs hold about 60% of the market, 40% to households, about 22% to mutual funds.

(30:12):

And so you've got this imbalance where if you look at fund flows, we talk about top line fund flows, but effectively fund flows for the last number of years have really been focused on short and intermediate bond funds. So we've got bonds that we're selling with about two thirds of the principle out long and demand that's about two thirds up front. You look at spreads to MMD and deals get done at or through MMD or at the lowest spreads upfront and wider than MMD. Ultimately it AAA should be flat to MMD all the way. But I would do a state of Utah deal and we would talk about state of Utah should be right on top of the curve or Virginia, Maryland and so forth. So I think Jennifer, to the point about the buy side, I think we've seen this shift, which makes it particularly harder. The bulk of our bonds being sold into market where we're seeing a diminishing demand base.

Rob Dailey (30:53):

Great point.

Gary Hall (30:54):

The only thing I would add to is that we restrict a lot of time, not just over our managers, but advice analysts. Investors aren't kicking the tires themselves. They have their own credit metrics, hourly evaluating credits, and you can have two similarly related issuance to have very price based on the ability to sell credit story and contextualize their credit risks. So we make sure our issuers are attuned to that and being focus on what the key metrics are for certain and investors critically important.

Jennifer Fredericks (31:31):

Let's continue down that on credit. So upgrades, outnumbered downgrades, many issuers are still socking away, rainy day funds, federal aid that they relied on for the past few years is about to dry up. Are there some pockets of credit sectors that this market should be concerned about?

Gary Hall (31:53):

Keep me up at night. I'm really concerned about post retirement medical benefits. I still think that that's a huge risk. I know that rating agencies have basically said if you have a plan that suffice for mitigating what their credit risk is, but giving the age of our civil workforce and the cost of healthcare in our country, obviously that there's a day ing coming, this is going to be a huge credit dynamic in our workplace.

Rob Dailey (32:26):

I think that's right. I would throw a couple other sectors into the mix. We obviously are seeing, I think what ultimately results in a permanent change in transit coming out of covid higher ed and healthcare are both going through their own wrenching long-term change. And so I think those will continue to be under pressure, but you can't, the federal money that came from COD in some places is still to be spent in many places. Those expenses were factored into what's a real time operating budget increase that's going to be difficult to afford in the out years, which really start now we're very close at this point to getting through those federal dollars and we're going to see in the next year or two what shakes out from whether those dollars made government credits generally more or less stronger or less strong.

Jerry Ford (33:26):

And I think it varies from issuer to issuer because a key to that is how did they spend those federal dollars? Do they spend them in a way that they got embedded into their budgets, into their operating budgets and going forward, they're going to have an almost impossible time to get out of that or where they spent on one time items that are less impactful overall. So that's where transparency into those various issuers come into play. And that's important. And while some issuers are very focused on transparency, they have great websites. They put up interim financials, they make that available. The vast majority do not because I think in part they don't view the Vanguards and theves and the GS a s of the world as their customers and they very much are.

Ron Banaszek (34:15):

That's a great point, and we touched on it earlier,

(34:21):

The issuer community out there and the issuers I've dealt with that have, let's say whether it's good website or good investor relations, when I talk to the buy side about them, it's a very interesting conversation. They are appreciative and they want to see more of that. If there's one thing that I would say to the issuer community as provide as much disclosure, provide as much transparency as possible with the workforce that you have because if you can provide that information and make it easy for the buy-side analysts especially to find it ultimately makes it a much more friendly experience when you do come to market and try to come to market because they'll know you. They'll know that they can get the information they're looking for or they already have gotten the information that they're looking for.

Cameron Parks (35:16):

I'll just jump in, and I didn't make this up, an insurer told me this, but I think we think about, they talk about the insurer told me, well, the rating agents to get to date your bonds, but we marry the bonds. And I think if you think about it, that's really where investors are as well. Investors are taking price risk if they want to get out of the bonds, they're going to either gain or lose money, but we all focus our financing process toward the rating agency meeting and then the underwriters may turn that around into an investor presentation. But really it's the investors that are the ones putting their capital up. So I think that we need to make sure we're focused on that because ultimately the investors are doing their own credit work. It's not just simply looking at what the rating.

Ron Banaszek (35:51):

No, they're not just, yeah, you talk to the buy side, they sit there, okay, Moody's or S&P or fit or rated it AA, but we look at it as an A one credit and that's how we're going to expect the pricing to look if you want us to get involved.

Rob Dailey (36:10):

These issues are all related. So what's the real issue in my mind on this topic? It's about quality. How well do you tell the story? How directly do you convey information? How simple it is it for an investor to either understand what you're trying to get across or get access to the information? Transparency isn't, here's all the data, figure it out. It's telling your story. And I think that's something that bankers want to get paid for, and that's even outside that take down conversation, but it really is. I think this is where the rubber hits the road. It's about quality of execution.

Gary Hall (36:46):

In my next slide, I would not sacrifice diplomacy for candle like I am now, but one of the big hurdles inequality are disclosure counsels who from time to time feel like more information puts more risk for our issuance, which is not the case. Fact, when I was chair of the Mr. he had a CC actually put out a statement to say, that's not the case. Whether you make statements don't, don't make statements, you're at the same service. Well, right. So I still say just like we can ourselves when comes to pick downs, investors don't to themselves of a great favor as well. I remember being beat up the head in financials and having more information out there that was really critically important for the SEC. In that same week we had an issuer who did a competitive transaction who's disclosed the market that their financials won't be ready for another 24 months and their bonds trade tighter. They did year because of MAR technical. So if issuers are not going, none us, we're not going to have our disclosure. It's hard to in send them to. So there's a actually have to navigate as well.

Jerry Ford (37:59):

Gary, your point about disclosure counsel is very accurate and we're not beating up on lawyers here, but I cannot tell you how many rooms we've been in discussing disclosure at the beginning of a transaction and had disclosure counsel say, well no, you need to be careful about this. You don't want to create an obligation here. Maybe you should think about this. And we see clients just back away. And at the end of the day, that is less transparency for the buyers, for the investors and they tend to stay away a little bit more as well or charge a little bit more.

Cameron Parks (38:34):

I'll just take just a slightly different direction as well, which is those of us who were in the Texas Bonfire Conference heard the controller, Chris Hollins describe a structural deficit and I think Rob mentioned the impacts of covid and that weaning off. And so a lot of these large cities have budgetary challenges. I think their deficit is about 150 to 200 million, which is about 7% of the budget. I think what we've seen post covid really is an interesting shift because the geo credit universally, at least since I got in the business, was deemed to be the strongest credits out there. I think through covid what we saw was some of the essential services are probably stronger in reality, no offense to any issuers here who might be on the general fund side, but water, sewer, electric, those bills are getting paid. And ultimately I think we all recognize in a lot of ways that anybody who flew in here, the airport space is probably underrated and ultimately the credit quality there is stronger.

(39:23):

I know there's an effort by some of the airports to try to help the rating agencies look at that a little differently, but you think about corporate defaults versus municipal faults and then you think about within our space with the prohibition on revenue diversion out of the airports, all that revenue on the airport property stays with the airport. And so I think one of the things just a little bit different direction than the process with ratings is if you think of the credit spectrum, I think the last number of years have really shown us to maybe rethink how we prioritize what the strongest credits in the market are.

Jennifer Fredericks (39:50):

And that's a good segue to kind of talk about resiliency a little bit. And there'll be plenty of panels to talk about infrastructure a little more, but we're in Florida where resilient infrastructure is integral. What do you think about the needs for infrastructure upgrades and repairs and our issuers prepared enough across the country to deal with and also pay for the infrastructure that's needed?

Jerry Ford (40:17):

Well, I think when you look at the new environmental regulations that are coming down that impact the water and wastewater industry, nobody's really prepared for that. It's coming. It's a large wave rolling towards them and they're going to have to deal with it and it's going to be challenging, it's going to be expensive, and are they really prepared for it? There are only a few that are very, very small handful that have something in place already that allow them to tackle that. So that's, that's going to be a big issue.

Cameron Parks (40:47):

I think this ties back to the initial volume question, which is it just seems like this is going to have to be funded with debt.

Gary Hall (40:53):

In fact, a few of us have now coined a new phrase trying to stay away from the political hot buttons of resiliency and ESG protected debt. Those of us who live in Florida know that the cost of home insurance is why, because we have more catastrophic storms and insurers are finding less profitable to ensure in this market, right? I live out west and wildfires is the same. And so whether it is driven by man or other forces, we're seeing the need to make sizable upgrade on infrastructure, whether it's raising seawalls, as I mentioned before, weatherizing power base like we saw in Texas a couple years ago. Irrespective of your conservative policy unit, you are being forced to make any infrastructure to respond to climate change.

Ron Banaszek (41:46):

I mean, they've been talking, I feel like they've been talking about the need for upgrading infrastructure since I started in this business a very long time ago. And these challenges have continued to today different challenges, right? No one talked about the impact of climate change when I first got into the business on whether what you should be doing in terms of looking forward, but now that's a new conversation. These are all challenges that we're all going to have to deal with going forward. Whether the states, the cities, the local governments and agencies and so forth and so on can manage that effectively. I think to some degree time will tell, but it's a reality that's not going away and they're going to have to deal with that.

Jennifer Fredericks (42:29):

So given all the challenges that the industry is facing, let's change over to how do you lure young talent to the industry and then we'll solve world hunger and then we'll move on to peace. And then also more importantly, how do you keep them? And I'll put in my self impression and from my perspective, the way to lure more people is to have your young people coming in have the right tools to do the job. So we've got technology. That doesn't mean you're spending five hours on Emma pulling down documents anymore. So I think my answer to that is technology and utilizing what we have, but I guess I would ask you guys how do you lure them in, but also then how do you keep them?

Gary Hall (43:16):

Well, one observe look out and saw, and I see a ils, we do have to have more young folks attracted to our industry. One of the things that we are focusing on a lot at our firm to ensure that we maintain the ear of young folks is being really intentional about making sure that we push folks to take risks. Why not just take risks for risk, say, but we really value the fact that you learn more about making mistakes than you do by having these sort of victory labs and successes. And so by taking risks, you learn a lot. Now, what is the challenge is that a lot of our folks come to our firm during covid. So the apprenticeship and mentorship that you have show working from home, you don't get. So we see the action development of those juniors who come to a firm versus those in our conservative work for us, making sure you're acting office because we think it's very important for your growth and serve clients.

(44:29):

The other thing is, for us listening and really, really important continue to learn, leveraging one another is probably the evil support letting go, letting folks really, really go out and make mistakes and giving the book over to the junior folks, I can't tell you how many times our firm beat our chest, but our take risk. Not just hire alternative firms, but then the banker only people to the junior broker on. And so we have to do a better job of getting our opportunities, grow junior people to keep them. Other thing is, I don't think we in this industry, there's a reason that we ou the building in the, and we need to do a better job of telling the story about how we're impacting the country. We have the most efficient way of funding public construction world and we know a great job in telling that story. It's important to know that during Covid, our market withstood the crisis warning when they had the chief federal efforts to go out and protect debt issues, we didn't even leave the money for Federal Reserve. We didn't have two, three or four issues. Tap that because our market is so silly. So there's a lot not just giving old apple pie and Chevrolet Baseball and American Patriots pitch. There's a lot of our market as we stood to has time and very attract young folks as we do.

Jerry Ford (46:03):

Gary, I want to applaud for that thought process because it's outstanding. I have a question for the audience. I would like for any of those of you who did not have a parent in this business who had ever heard of this industry when you graduated from high school to raise your hand. Okay, a few. How many of you had heard of it in college? A few. Very, very few people know what we are until they somehow accidentally come into contact with this industry. And it is a great industry. It does great things for the country, it does great things for the community, and it's a fulfilling career to be in various parts of this industry. We need to do a better job of making sure people know what we do and how we do it when they're much younger than they are today. It's really that simple.

Rob Dailey (47:03):

I agree with everything that's been said. I think in the scheme of things in the over under, I'll take the over. We have found that we get a lot of college graduates now who are looking for something that's got more meaning to them than a lot of the other opportunities they look at. They want to be able to have some degree of social impact. They want to be involved in something larger themselves. And there's been, I think, kind of a want for that. And I think that our industry to what you guys have just said, addresses that need. So I've found that we get a good hearing and I think it resonates with our young folks. I think we do have to tell the story better, and we have to deliver the technology and the tools that allow people to do a job as if they're actually in the 21st century. Because a lot of what we live by as an industry is a little dated, right? So we do need to be able to drop some of that stuff and pick up the new techniques as we go.

Gary Hall (48:05):

I'll show this story. I see my head, Juan, in the room. So all of you, I walked to school with no shoes on in the snow and all sort things, whether it was Lotus one, two and three or now Excel and learn modeling that have, there's a way you can do this where you can get to the same answer by pushing a button. No, that's horrible. We don't know that. But then he said, and then we have less entrance on our, and I said, hold, I did the math because going back and beat this drum again, these young folks come at a hefty cost. They demand six figure dollars. So back to our issuers, please know that. And we ask for more pay. It's really important that we be conscious about this, right? And so with an extent our that you can get to this answer in more efficient way, use in automation. He should shy away, and I know I'm one of those old dogs is hard teach new tricks to, but if I find an Orion way to get to an answer that has the quality assurance guarantees that I need, I'm moving to it. Not because office, because I believe that economic volatility in this industry.

Ron Banaszek (49:23):

But that goes back to your point earlier of letting go, right? And giving the young kids a chance when they have an idea. We have a young analyst on the desk, he's brilliant, and I find myself relying on him more and more and he makes my job easier. And you have to make it interesting for them. But you also have to let go. At a smaller firm. You have that opportunity, especially at a smaller firm where you have younger kids that can get in front of an issuer. That wouldn't happen say at a Citibank or Bank America at a smaller firm. That ability exists. He sits on every call with us. He may not speak on every call, but he sits on every call and little over time he will speak in more. He's spoken an issue to an issue the other day. You have to give him that opportunity.

(50:07):

You have to step back as the lead banker and say, here, I'm going to let our junior analysts speak to this, the numbers on this issue. So you have to make an issue also to the other point is if you look at surveys of kids coming out of school these days, the number that say they want to do something that makes an impact in this world. If you think about Munis, and I'm proud of our business. I'm proud of being a part of this industry for a really long time. We make an impact on the world. When I walk through an airport, I know I was in this deal. When I drive on a road, when I go past the toll road, when I walk down the streets of New York City or other parts of the country, whether it's a stadium, an airport, just drinking a glass of water in New York City, I've been involved in all these things. That's a story that Rob mentioned earlier that has to be told and it has to be told to these kids at an earlier age, this is an impactful business. They don't always have to go to a nonprofit. And it's not, oh, we don't want to work for a Wall Street firm. This is an industry that impacts everyone's life in this country on a day-to-day basis.

Gary Hall (51:14):

I do want to, but this rising star thing that you do, it's actually a very, very important thing in our marketplace. We have what I call true competitive tension about GI nominated for this. There are folks who think about this. Very early on I had an analyst who started, as I say, what I need to do to become a rising star. The first thing I say five years, but the fact that that's on her radar screen is an important metric milestone. So who goes not? And it's important. They had a rising star award before they had all fame award. So say differently. They awarded the young girls before the old teachers. So I think that was really, really important me that you guys put out there in our market.

Jennifer Fredericks (52:12):

And I would use this as a tiny commercial. If we look at the mentorship program at National Women in Public Finance, we've tripled. So the next time y'all are looking for somebody to hire, call me if you can't find somebody, because we have people that are excited about that next step and how they grow. We've got six in a few seconds or six minutes to go. If you have questions, reminder pop up to the mic. But because I'm a glass half full gal, what makes you most positive and excited about, well, the rest of 20, 24 and beyond about the industry, not just your vacation coming up?

Gary Hall (52:54):

Well, we placed a greater focus on thinking about our clients in our own nine on our own time. We serve in that counterintuitive. We have a five member, one team. They're, their whole job is coming up with creative ideas to help our clients meet their financial objectives. It's fascinating everything from contact your capital planning to optimizing the portfolios. And this is not just for deal with impacts, this is just overall acts, planting our permissible advisor. Let's be clear what we're getting, maintain from what we can to ensure that our issuers are being invested in our thinking. And that's been fascinating. It's been great to see the innovation taking place in our marketplace. We found 60 billion of our in 2023 through tenders, structure past as a potential, another 2330 incumbent of these innovative ways to attract savings to our clients is extremely rewarding. Me as a banker.

Jennifer Fredericks (54:10):

Jerry.

Jerry Ford (54:14):

What gets me excited for the rest of 2024, we see that volume is high. We see that volatility brings challenges that we have to figure out how to meet. It makes you be creative. The fact of the matter is, if we did things today, the way that we did them in 1984 when I started, it would be really boring. There wouldn't be much of a challenge to it. But the pace of change causes all of us to be on our toes and as Gary said, causes all of us to look out and try to find optimal solutions for our clients. And that ability to get in there and sit down on a very close relationship, not just for a transaction, but throughout the lifecycle of their capital program, is highly rewarding. And that continues,

Jennifer Fredericks (55:03):

Rob.

Rob Dailey (55:04):

Yeah, I would agree. I would look at this year as saying, I think the waterfront, the kind of visibility for infrastructure improvement improvements is going's getting larger, it's getting broader, it's moving toward greater impact. I do think the outlook for bringing people into our business is high for the reasons we talked about. The fact that we are in this market that it's some moments feels like it's upside down, kind of makes it interesting. We've got an inverted yield curve that we know is going to revert to a positive slope sometime in the future. So you can kind of say, okay, I know what the future is going to look like. I can prepare for that. So it isn't just sort of volatility without end. I think it's kind of we're in this period of some degree of disruption and we're going to get to something more normal. It makes it an interesting puzzle to solve.

Jennifer Fredericks (56:02):

Cameron.

Cameron Parks (56:03):

I think change brings opportunity, and I think there was some engineer, but again, I'm a city alumni. I was there for 22 years. So I think clearly the market volatility coupled with my personal firm and my own job being a change, but I think I'm excited about this region as well. This is our home region at Truist. This is the largest, fastest growing area in the country and I think there's a lot of opportunity for all of us, not just for our firm, but it's that volatility coupled with the disruption with the number of firms coming out of the business that I think really gives a lot of opportunity. I think that we talk about a graying industry, although we have seen some of that aging out as well. So I'm excited about our young people and I think that rates being up provides an opportunity for rates to go back down where we were a couple of years ago, there wasn't much opportunity for much better. I mean, if you look at, we were talking about volume, refunding volume. It's the first time in a long time in my career we saw bonds reach their call data and not be refunded. So there's, there's a ripe universe of opportunity aside from those that Gary's figuring out over on his end to increase volume here.

Ron Banaszek (57:07):

It's a lot more fun to be in a market for me that have been in the last two years, 20 and 21, were pretty, I thought pretty boring. Deals came, they went, rates were really low. There wasn't a lot of creativity. There wasn't a lot of thought process for the most part. But you get into these volatile markets and that's when creativity, that's when relationships, that's when trying to figure things out and being creative as possible really makes a difference and that makes it a lot more fun on a day-to-day basis. The point that Gary brought up about the quantitative aspect of our business now is very exciting. It's not about going in and meeting an issuer and saying, here his is who we are. It's about, these are some of the things we're thinking about and hopefully they're things that you haven't heard from anyone else before. That's a very exciting part of our business. It'll be interesting to see how the rest of this year goes. I mean, we were probably looking at a fair amount of volume going into the summer months, and then you have the election and seeing the outcome of that also potentially very exciting.

Jennifer Fredericks (58:09):

And I'm going to take the opportunity to say just seeing women taking a more prominent role. If we have more women running as heads of public finance than we've ever had, we are seeing growth. We hit our thousandth member groups like the Bon Buyer are making sure that they're infusing all their panels with more women. And I think, look out, we're here, but do we have questions? If not, thank you gentlemen for everything and have a good conference. Thank you.