Markets In Your Community

Bond Award Winners Demonstrate Innovation, Creativity in Municipal Finance

If you think of municipal bonds as a staid investment without much room for innovation, think again. Based upon Bond Buyer Magazine’s “Deal of the Year” honorees for 2014, there’s plenty of creative thinking and implementation in the world of munis.

For its 13th annual “Deal of the Year” awards, the magazine considered deals that closed between Oct. 1, 2013 and Sept. 30, 2014, with the goal of spotlighting a diverse selection of the communities and public purposes served by the municipal finance market.

Deals were chosen in eight categories, reflecting regional winners along with honorees in the areas of health care, small issuer and non-traditional financing. This year’s honoree in the category of non-traditional financing—the MassDirect Notes bond program launched by the Commonwealth of Massachusetts—also took the top honor as the nationwide “Deal of the Year.”

“The nominees included deals ranging from turnaround stories for once-distressed issuers to public-private partnerships to seemingly plain-vanilla transactions that required significant behind-the-scenes innovation to come to fruition,” Michael Scarchilli, Editor in Chief of The Bond Buyer, explained in announcing the awardees. “We chose the finalists for innovation, the ability to pull complex transactions together under challenging conditions, the ability to serve as a model for other financings, and the public purpose for which a transaction’s proceeds were used.”

The “Deal of the Year Awards” (full listing below) underscore the solid year that municipal bonds had in 2014. Will that trend continue in 2015? In December 2014, the Securities Industry and Financial Markets Association (SIFMA) published the results of its annual survey of municipal bond underwriters and dealers to gauge expected muni activity for the coming year.

According to that report, total muni bond issuance is forecast to reach a total of $357.5 billion in 2015. That represents a modest boost over 2014’s $332.1 billion total, signaling continued confidence in the muni bond market as a source of financing.

There are a couple of factors that may contribute to another solid year for munis in 2015. First, a number of states and communities will be gearing up to launch new infrastructure projects following approval of bond issues by voters in the November elections. According to an analysis by the Initiative and Referendum Institute, 15 state-level bond issues were accepted by voters in November, totaling $11.9 billion in new investment. Among the largest were a $7.12 billion issue for water projects in California and a $2 billion proposal for capital spending on New York schools.

Second, policymakers continue to emphasize the need for investing in U.S. infrastructure, and long-term debt issuance will play a vital role in any effort to underwrite new projects. Speaking to the Business Roundtable in early December, for example, President Obama noted that the United States could learn from other countries that are investing in infrastructure development.

We’ve written before about the importance of bonds for building U.S. infrastructure like roads and highways, schools, water systems, hospitals and other local needs without requiring higher taxes. Innovative new programs like MassDirect Notes and the other “Deal of the Year” award winners illustrate ways that states can continue to invest in their future through affordable debt obligations.

Bond Buyer offered a full listing of the 2014 honorees in a news release (additional details at the link):

Non-Traditional Financing and Overall Deal of the Year

The Commonwealth of Massachusetts MassDirect Notes program.

Northeast Region

The $350 million century-bond offering from the District of Columbia Water & Sewer Authority.

Southwest Region

The Colorado Regional Transportation District’s $441 million offering of certificates of participation.

Midwest Region

The Karegnondi Water Authority’s $220.5 million financing plan to fund a 63-mile pipeline to Lake Huron.

Southeast Region

The Louisiana State Bond Commission’s $112 million financing of unclaimed property special revenue bonds to finance a portion of the state’s 200-mile-long Interstate 49 project.

Far West Region

The County of Los Angeles Redevelopment Refunding Authority’s $53 million refunding of tax allocation bonds.

Health Care Financing

The $1.04 billion Health and Educational Facilities Authority of the State of Missouri revenue bond transaction financing a complex debt restructuring and management structure reevaluation for St. Louis-based SSM Health Care.

Small Issuer Financing

The Village of Oakwood in Cuyahoga County, Ohio’s $2.69 million of various purpose notes, the first transaction financed through the Ohio Market Access Program.

The awards were announced at a gala event at the Waldorf Astoria Hotel in New York on December 4.