Municipal Bonds: Thank You, Uncle Obama

, The American Lawyer

Build America Bonds, introduced two years ago as part of President Barack Obama's stimulus legislation, helped make 2010 a record year in public finance, says Roger Davis, public finance chair at Orrick, Herrington & Sutcliffe. Last year, the value of new bond issues soared to $433.3 billion, a 5.8 percent increase from 2009, and the highest value ever in the history of public debt issuance.

Davis says the record year reflected both the need for state and local infrastructure and the popularity of the BABs. (The federal government subsidized 35 percent of the interest of BABs that were issued for building projects.) The BABs had other perks, too. Pension funds and foreign banks were able to buy them. In fact, more than $117.4 billion worth of BABs were issued in 2010, about 27 percent of last year's overall value in municipal offerings.

Davis says that thanks in part to its BABs work, Orrick held on to its number one spot as bond counsel by overall value, handling nearly $45 billion worth of bonds in 2010. (The value is actually a drop from 2009's $55 billion.) Gilmore & Bell, which has offices in Missouri, Kansas, and Nebraska, took the top spot as bond counsel by number of issues, handling 632 issues, 134 more than in 2009, when the firm was ranked number two.

For underwriter's counsel, Nixon Peabody took the lead in value, with about $19.6 billion. Fulbright & Jaworski jumped to first place as underwriter's counsel by number of issues, handling 220 issues, moving up from its fourth-place rank and 144 issues in 2009.

But 2011 looks to be a rockier year for the municipal bond market. The BABs work ended in December. And investors are concerned about the possibility of bankruptcies and defaults at the state and local levels. But it's not all doom and gloom. "The volume of deals will be off," Davis says. "But I don't think the landscape of the market will be greatly altered."


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Illustration by Eva Vazquez