Tax Law Takes Toll On Mu­nis

The Bond Buyer - - Front Page - By Aaron Weitz­man

Mu­nic­i­pal bond vol­ume fell by al­most half in Novem­ber, un­der­scor­ing the im­pact of the tax law.

Monthly vol­ume dropped 47.5% to $23.83 bil­lion of mu­nic­i­pal bond sales, mark­ing the third low­est monthly to­tal this year, Thom­son Reuters data showed.

Last year at this time, is­suers were rac­ing against the clock to get ad­vance re­fund­ings and pri­vate ac­tiv­ity bond deals be­fore law changed.

That re­sulted in $45.43 bil­lion of is­suance dur­ing the same month the pre­vi­ous year.

“Hol­i­days may par­tially ex­plain year over year Novem­ber vol­ume drop, since there was no Veterans Day hol­i­day last year, but I think vol­ume de­cline is based more on last year’s in­crease in Novem­ber ad­vance re­fund­ings as de­tails of the tax bill were emerg­ing,” said Alan Schankel, man­ag­ing di­rec­tor at


To­tal gross sup­ply year-to-date is about $312 bil­lion in 8,629 trans­ac­tions, down from $378 bil­lion in 10,689 deals at this point last year.

“We will start De­cem­ber with a Bond Buyer vis­i­ble sup­ply of $12.1 bil­lion, the high­est in more than a month, so I am op­ti­mistic that De­cem­ber new is­sue vol­ume will be higher than Novem­ber’s, but there is lit­tle chance it will come close to last year’s record De­cem­ber pace,” said Schankel.

Vikram Rai, head of Citi’s Mu­nic­i­pal Strat­egy group said that he ex­pected a lit­tle more is­suance in Novem­ber. But there were two hol­i­day short­ened weeks (Veterans Day and Thanks­giv­ing).

“And, since the is­suers wanted to avoid any elec­tion re­lated volatil­ity, most chose to sit out the elec­tion week as well. Thus, is­suers had lim­ited win­dows to bring deals to mar­ket,” he said.

Re­fund­ing vol­ume dropped 81% to $3 .81 bil­lion in 101 deals, from $20.05 bil­lion in 423 deals a year ear­lier. New-money vol­ume rose 2.1% to $18.41 bil­lion.

“I would be sur­prised to see the use of tax free debt for ad­vance re­fund­ings re­stored by Congress next year, but I be­lieve the re­fund­ing pace will pick up as some is­sues be­come el­i­gi­ble for cur­rent re­fund­ings,” said Schankel.

Rai, agreed say­ing that “there are more press­ing leg­isla­tive is­sues to pur­sue.”

Com­bined new-money and re­fund­ing is­suance dropped 78% from Novem­ber 2017 to $1.62 bil­lion, while is­suance of rev­enue bonds de­clined 47.7% to $14.64 bil­lion and gen­eral obli­ga­tion bond sales fell 47.2% to $9.19 bil­lion.

Ne­go­ti­ated deal vol­ume fell to 49.6% to $15.74 bil­lion, while com­pet­i­tive sales dropped 49.1% to $5.12 bil­lion.

Tax­able bond vol­ume in­creased to $3.99 bil­lion from $2.69 bil­lion, while tax-ex­empt is­suance fell by 53.3% to $18.68 bil­lion. Min­i­mum tax bond is­suance dropped to $1.15 bil­lion from $2.75 bil­lion.

Deals wrapped by bond in­sur­ance rose 5.1% to $1.92 bil­lion in 123 deals from $1.82 bil­lion span­ning 156 trans­ac­tions the same time the prior year.

Health­care was the only sec­tor that showed year-over-year in­creases, ris­ing to $3.48 bil­lion from $3.41 bil­lion. The other nine sec­tors saw de­creases of at least 16.5% and as high as a drop of 90.8%.

Lo­cal author­i­ties were the only is­suer by type that was in green com­pared to where it was last year, as it rose 7.8% to $6.41 bil­lion from $5.94 bil­lion.

Cal­i­for­nia con­tin­ues to have the most is­suance among states so far in 2018. The Golden State has is­sued $43.98 bil­lion; New York is sec­ond with $37.47 bil­lion; Texas is third with $30.90 bil­lion; Penn­syl­va­nia is next with $12.95 bil­lion; and Florida rounds out the top five with $11.47 bil­lion.

Round­ing out the top ten are: New Jersey with $10.28 bil­lion, Colorado with $9.61 bil­lion, Illi­nois with $9.28 bil­lion, Wash­ing­ton with $8.81 bil­lion, and Mas­sachusetts with $7.81 bil­lion.

Rai said Citi ex­pects vol­ume to be higher in De­cem­ber than in Novem­ber but not by much.

“We ex­pect about $24 bil­lion in gross is­suance for De­cem­ber.

How­ever, coupon pay­ments should rise to $15.8 bil­lion, which would bring the net cash flow­ing to in­vestors in Novem­ber to $20.6 bil­lion,” he said. “This is bullish for mu­nic­i­pals and out of char­ac­ter for De­cem­ber, which usu­ally has mod­er­ate cash flow due to ma­te­ri­ally pos­i­tive net is­suance.”

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