State municipal bonds up 74% in ’12
Posted: January 11, 2013 at 12:01 a.m.
LITTLE ROCK More than $2.6 billion in tax-exempt municipal bonds were issued in Arkansas last year, the most since the turn of the century.
The total was 74 percent higher than in 2011 and higher than the $2.42 billion issued in 2010, the previous high since 2000, according to Thomson Reuters.
About $322 billion in municipal bonds were issued nationally last year, up 35 percent from $239 billion in 2010, according to Thomson Reuters.
Little Rock-based Stephens Inc. led bond-selling firms in Arkansas with sales of more than $776 million, the firm’s best-ever year for bonds, said Mark McBryde, manager of public finance at Stephens.
Crews & Associates of Little Rock was second, with $589 million in bonds sold in the state, followed by Raymond James Morgan Keegan of St. Petersburg, Fla., at about $415 million.
While new issues had a big impact, a primary reason for the unanticipated leap in bonds was a rush to refinance, said Edmond Hurst, senior managing director at Crews. Interest rates on 20-year municipal bonds fell to 3.27 percent last year, Hurst said, as low as they have been in years.
Refinancing bonds is a lot like refinancing a home mortgage, McBryde said.
“When an issuer sells bonds, they normally sell them at a fixed rate of interest,” McBryde said. “Issues that were sold [six or seven] years ago at 4 to 5 percent [interest rates], we thought at the time that they’d probably never be refunded.”
But last year, many of them were, McBryde said.
Municipal bonds are se- cured by the tax revenue of a city, county, state or other government entity, or revenue from a nonprofit organization or other qualified borrower. Arkansas municipal bonds are attractive to investors because they typically are exempt from federal-income tax and from state-income tax when bought by an Arkansan. In contrast, corporate bonds are taxable.
Arkansas tax-exempt bonds are attractive even to investors outside the state because of the financial condition of Arkansas cities and counties, McBryde said.
“The state of Arkansas has to balance its budget,” Mc-Bryde said. “Municipalities, counties, utilities and hospitals in the state are financially solvent. They pay their bills. Investors in Arkansas understand that and that [confidence] is part of the reason our securities trade at such low rates.”
Analysts had expected 2012 to be a slow year for bonds. McBryde and Hurst said a year ago that they anticipated 2012 to be more like 2011, when bond issues were low.
But Hurst said he expects 2013 to be a very good year. Most refinancing of bonds has been done, but there will be some significant new issues, Hurst said.
“You’ll see some of the issuance of the $1.3 billion in highway bonds. North Little Rock schools have gotten approval for about $270 million and Little Rock voters approved over $100 million” in bonds, Hurst said.
McBryde said he doesn’t expect the first quarter this year to be as active in bond business as it was the same time last year.
“But this still should be a good year,” he said.
Business, Pages 25 on 01/11/2013