Another banner year for muni issuance

While supply fell short of some market participants’ expectations, many in the industry still see issuance for 2021 as a remarkable achievement for state and local governments as the COVID-19 pandemic disrupted economies, supply chains, healthcare systems, travel and entertainment industries around the world for a second year.

Total volume in 2021 was just shy of 2020’s all-time issuance record at $480.028 billion in 12,935 deals compared to $484.622 billion in 13,328 transactions in 2020, according to Refinitiv data.

Despite this, the total issuance for 2021 still bested the previous record of $448.6 billion achieved in 2017.

“It’s not as high as last year. I know everybody wants more, and it to be higher, but this is very impressive,” said Erin Ortiz, managing director of municipal research at Janney Montgomery Scott LLC. “It’s the second-highest year on record. We’ve firmly been issuing well above $450 billion of debt for the municipal market.”

New-money issuance grew in 2021 by 15.8% to $318.931 billion from $275.406 billion in 2020. Refundings were down 25.9% to $111.054 billion from $149.952 billion in 2020, according to Refinitiv data.

Tax-exempt issuance grew 5.1% to $345.873 billion from $328.935 billion in 2020. Taxable issuance dropped 17.9% to $120.194 billion from $146.347 billion in 2020, per Refinitiv data. This is a reversal from 2020 when taxables and refundings made up more than 30% of the market.

The general consensus in the industry — particularly among buy- and sell-side participants — was that supply is scarce. But it wasn’t so much a lack of supply as it was a strong demand for the asset class from a shifting investor base.

Municipal bond mutual funds grabbed a higher share of munis in recent years while retail, bank, and insurance company positions decreased.

Retail has moved to a more professionalized management system by registered investment advisors and separately managed accounts, whereas banks and property and casualty insurance companies have largely stopped investing in exempts as a result of the 2017 tax law changes or have moved to taxable munis for the same reason.

“Total issuance for 2021 shaped up to be very close to what we expected after the American Rescue Plan Act propped up municipal credit,” said Tom Kozlik, head of research and analytics at HilltopSecurities in reference to the $350 billion that was doled out to states and their localities, plus various industries, such as airports, directly affected by COVID.

It brought real federal dollars to aid issuers in a time when many investors thought government coffers were going to end up near empty in some cases. The credit picture for munis changed dramatically — positively — as a result.

“But later fiscal policy failed to reinstate advance refundings with tax-exempts and also failed to deliver renewed taxable infrastructure bonds,” Kozlik said.

Without new bond programs and additional tax hikes, issuers came out with more deals in November and December, knowing that those programs would not be reinstated in the near future, and that issuing debt at the incredibly low interest rates then made more sense.

The first quarter of 2021 saw $112.93 billion. The second quarter hit $122.728 billion. The third quarter reached $125.919 billion. The fourth quarter totaled $118.452 billion. The year ended with 11 months – sans January – that had greater than $30 billion of issuance, six of those months exceeding $40 billion and just June surpassing the $50 billion mark, according to Refinitiv data.

Another consideration is that private placements, corporate CUSIPs, and direct bank lines of credit are not factored into consensus figures of total outstanding “muni” debts.

Corporate CUSIP deals totaled $23.897 billion, down from $40.597 billion in 2020, per Bloomberg data. If that paper is incorporated, the market for municipal issues is $499.232 billion in 2021, down from the $525.197 billion in 2020.

Bond insurance grew 9% in 2021 to $37.52 billion covered in 37,522 issues from $34.43 billion in 2,153 deals in 2020, per Refinitiv data.

Revenue bonds made up $300.584 billion in 5,318 issues, a 5.5% increase from 2020, and general obligation bonds dropped to $179.412 billion in 7,617 issues, a 10.1% decrease from 2020, according to Refinitiv data.

California was the biggest state issuer in 2021 once again, per Refinitiv data.

All issuers in the Golden State accounted for $86.519 billion. Texas was second with $52.575 billion, New York was third with $48.232 billion, Florida followed in fourth with $18.088 billion and Pennsylvania rounded out the top five with $17.742 billion.

The rest of the top 10 were: Illinois with $14.512 billion, Colorado is next with $13.172 billion, followed by Washington at $13.067 billion, then Massachusetts with $12.367 billion and Ohio with $11.191 billion.


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