Deals Intelligence with Matthew Toole of the Deals Intelligence Team at Thomson Reuters for the week of 07-08-08
Transcript:
I'm Matt Toole with the Investment Banking Division of Thomson Reuters and this week's Deals Intelligence highlighting trends in the US Municipal Bond Market.
Volume Despite the complete deterioration of the some subsets of the market, municipal bonds were one of the few areas within the global credit markets to show positive growth over last year's activity.
As a small bit of background, municipal bonds provide financing for cities, states, local governments and agencies and are generally tax-free - providing attractive opportunities for a variety of investors. The global credit crisis has only affected a few areas of this particular market and most muni bond issuers continue to have access to financing opportunities.
For the first half of this year, the volume of US long-term municipal bond new issues was nearly unchanged from a year earlier. Volume through the second quarter totaled 226 billion dollars, a 1.3% decline from the 229 billion dollars issued during the same period last year. First six month volume represented the second highest first half volume since 2000.
One particularly hard hit component of the market was in the area of Auction Rate Securities. Auction Rate Securities are long-term securities in which the interest rates paid to investors are determined at auction in regular intervals. Clearly affected by the
dislocation in the markets and the refusal of investors and banks to bid at auction , not one new Auction Rate municipal bond came to market during the first half of 2008 compared to 154 bonds during the first half of 2007.
In another area of the market, many municipalities have historically utilized bond insurance to improve the underlying credit of their overall financing. Big bond insurers including MBIA, Ambac, FSA and Assured Guaranty have exposure to many sections of the bond market and are now facing credit downgrades themselves and are in the midst of raising capital to shore up their once strong balance sheets. As a result, just 27% of new municipal bonds so far this year have come to market with bond insurance compared to 54% last year at this time. MBIA and Ambac, the market leaders for bond insurance over the past few years have nearly stopped insuring new bonds, registering a 90% decline in their municipal insurance business.
Among underwriters of municipal bonds, Citigroup ranked number one for the first half of the year with 14.6% of the market, while Merrill Lynch ranked second with 9.9% of the market. JP Morgan, which now includes the municipal bond business of Bear Stearns rounded out the top three with 9% of the market. As a sign of the challenging economic times for investment banks, UBS which ranked fourth last year and has been a perennial leader in municipal bond underwriting, announced in June that it would exit the municipal bond business. UBS fell to seventh place during the first half of the year.
For additional quarter-end coverage on Municipal Bonds and more trends and analysis on M&A and Capital Markets, be sure to check out our quarterly investment banking reviews available at thomsonreuters.com/league.
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