What a difference a stimulus law makes. Public finance lawyers forecast a grim picture for 2009 municipal debt issuance in last year’s Corporate Scorecard [April 2009]. At the time, bond markets were frozen, and the expectation was more of the same: the number and value of issues continuing a downward spiral. Surprisingly, the dismal predictions were wrong. The overall value of new bond issues topped $407 billion last year, a 5 percent increase from 2008, according to Thomson Reuters. Last year “was actually the second-largest year of debt issuance in history, in terms of value,” says Arthur McMahon, Jr., public finance chair of Nixon Peabody. His firm fell from first to second place as underwriter’s counsel by amount, but the overall value of the bonds they handled in 2009, $21.3 billion, was greater than 2008′s $21.1 billion.
McMahon says a new product—Build America Bonds (BABs), which were introduced as part of the Obama administration’s stimulus legislation—helped resuscitate the market. The federal government subsidizes 35 percent of the interest on BABs issued for building projects, so many state and local governments found them attractive. Investors like them because, even though traditional munis are tax-exempt, and the BABs are taxable, they pay higher rates.
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