New Jersey’s government bond market in the first half of 2019 has seen a rebound in activity compared with the first half of last year, but public finance lawyers’ expectations of the market’s baseline have changed now, nearly two years since adjustments to the tax code affected how bond-issuing authorities conduct business.

According to data compiled by Refinitiv, there were 110 bonds issued at a combined value of $3.63 billion through June. That’s a 30% increase in volume, but a 33.1% decrease in par amount, over the first half of 2018.

Despite the increase in bond issues, the 110 total still falls well short of prior years.

Public finance lawyers have attributed the drop-off in volume to the federal tax reform package that took effect at the beginning of 2018. Advance refundings—whereby government entities essentially refinance existing debt at better interest rates, but before the original bond matures—were eliminated in the revised tax code.

Tricia Gasparine and Dorit Kressel of the public finance practice at Chiesa Shahinian & Giantomasi in West Orange said, in that regard, 2018 was an adjustment for bond-issuing authorities and their advisers.

“The first part of it, people were in shock,” Gasparine said of the 2018 bond market without advance refundings.

But, “we have seen an increase” in refundings of mature bonds in the first half of 2019, she said—some of which she attributed to the simple fact that a year has passed, and numerous bonds matured during that time.

“The market had a general sense of fear and dread” when the tax code changed, with predictions of 30% or 40% of the bond market being wiped out, Gasparine noted.

“We’ve definitely seen a decrease in volume, but we’re still busy,” she said. “Maybe everyone’s not as busy as they’d like to be, but I think everyone’s been keeping the lights on and doing OK.”

Indeed 2018 stood out for its steep drop in the number of bond issues. There were 86 bond issues, which was 27.1% fewer than the first half of 2017. The 2018 bonds were worth a combined $5.44 billion, though more than half the par amount consisted of the New Jersey Tobacco Settlement Financing Corp.’s $3.15 billion refinancing of bonds backed by payments to government entities via tobacco industry products liability settlements.

There was no comparably huge bond issue in the first half of 2019, according to Refinitiv’s report: the highest-value transaction was the New Jersey Transportation Trust Fund Authority’s $750 million issuance of transportation program bonds.

The 118 bonds issued in the first half of 2017 were worth a combined $4.58 billion. There were 173 issues worth $4.28 billion in the first half of 2016; 180 issues worth $3.35 billion in the first half of 2015; in 2014, 147 issues worth $5.01 billion; in 2013, 165 issues worth $9.33 billion; in 2012, 217 issues worth $5.23 billion; in 2011, 117 issues worth $4.62 billion; in 2010, 165 issues worth $6.79 billion; and in 2009, 145 issues worth $6.76 billion.

Edward McManimon III of McManimon, Scotland & Baumann in Roseland said the increased number of bond issues in the first half of this year is attributable to interest rates, which have been “surprisingly low.”

“It’s very low interest rates that are driving the markets this year,” he said.

“It’s not that much difference at all” between interest rates for bonds and for notes, which are shorter-term borrowing instruments utilized by government authorities, McManimon said.

McManimon Scotland tops this year’s Law Journal bond counsel list, which is ordered by market share. The firm handled 28 bond issues worth a combined $818.5 million in the first half of the year, a market share of 22.5%. The largest issues handled by the firm were $147.2 million in school bonds by the Toms River Regional School District, and student loan revenue refinancing bonds in amounts of $143.9 million and $141.7 million by the New Jersey Higher Education Student Assistance Authority. Much of the firm’s work came from schools and education, according to the report.

Chiesa Shahinian’s 21.9% market share ranks second. The firm handled four bond issues worth $795.6 million in the first half of the year, including the Transportation Trust Fund Authority’s $750 million issuance.

Wilentz, Goldman & Spitzer handled 18 bonds worth a combined $765.6 million, giving it a market share of 21.1%. Its largest transaction was $49.1 million in Turnpike revenue bonds from the New Jersey Turnpike Authority. It handled the second-largest number of bond issues, behind McManimon Scotland, including a number of general improvement and school bonds.

Other firms with a significant share of the market are: Parker McCay (9.5%) and Obermayer Rebmann Maxwell & Hippel (7.1%).

The market can always change further. Attorneys noted, as they did last year, that there are ongoing efforts in Congress to bring back advance refundings by further amendment to the tax code.

Government authorities also have found ways to refinance non-mature bonds within the confines of the more restrictive tax code, Kressel and Gasparine noted. A “Cinderella refunding” is essentially an advance refunding carried off by issuing debt as taxable and then converting it to tax-exempt debt.

“It doesn’t always work,” but when it does, it’s a tool that’s good for public finance practice, Gasparine said.

Even before the tax code change, there had been an increase in privately placed bonds, where the investors are typically institutional, such as banks, rather than members of the public, they said, noting that such transactions aren’t documented in reports like Refinitiv’s.

But, they said, despite market shifts and sophisticated tools to help navigate those shifts, government borrowing still comes down to willingness. Bond-issuing authorities, “both statewide and local, aren’t ones to enter the market until they’re ready,” Gasparaine said. “I think New Jersey issuers do their capital borrowing when they need to.”