(Bloomberg) -- It’s been a banner year for mega-municipal bond deals and Wall Street bankers only see it continuing through 2025.
There have been a record of more than 60 outsized muni-bond sales $1 billion or more in 2024, according to data compiled by Bloomberg. The issuance has amounted to above $90 billion, the data shows. State and local governments rushed to raise huge sums of money as pandemic relief dwindled and inflation remained sticky, forcing them to sell debt for big infrastructure projects.
“It is a business opportunity for us and if our clients are going to be looking to bring larger deals and more deals at scale, that tends to benefit the more diversified, larger players,” said Matthew McQueen, who leads global municipal banking and markets for Bank of America Corp., the top-ranked underwriter of US state and local debt.
Bankers from JPMorgan Chase & Co. and RBC Capital Markets, along with McQueen, are confident that 2025 will continue to see mega-bond deals. In general, the market is expected to see another strong year of debt sales, with some analysts forecasting over $500 billion of issuance in 2025. Even January is expected to have a strong pipeline of business, despite being a historically slow month for new transactions, McQueen said.
“The deal size across the municipal market continues to grow as issuers deal with rising construction costs and look to benefit from reduced administrative burdens that come with accessing the market fewer times,” Bob Spangler, who leads municipal finance at RBC Capital Markets, said in an email.
Governments may trust larger firms, like Bank of America, to handle such big bond offerings because they can step in to support the deal if it falters. Underwriters can buy unsold balances of debt sales if there isn’t enough demand from investors.
Infrastructure Costs Rise
One particular sector for mega-sales are those sold for redevelopments of US airports and a bevy of major renovations are already underway. The capital plan for the Dallas Fort Worth International Airport, totaling some $9 billion, will overhaul terminals and increase the number of gates, among other steps.
The airport is seeking the authorization from the cities of Dallas and Fort Worth to sell $3 billion of bonds, according to a regulatory filing. It is planning to issue $1.5 billion of bonds in May or June, said Chris Poinsatte, chief financial officer. The planned investment in the airport, which kicked off earlier this year, is the most since its opening in 1974.
“The fundamental issue is that building costs have risen significantly due to construction cost inflation for both raw materials and labor,” said Jamison Feheley, head of public finance investment banking at JPMorgan. “Projects are becoming larger and more complex, which drives up overall costs. This is a key factor influencing deal size, especially for new projects.”
Investors, for their part, have welcomed the bigger offerings. James Iselin, portfolio manager at Neuberger Berman, said the market has been able to absorb the large transactions.
“One of the things that underwriters and dealers have done really well this year is they priced deals appropriately for the amount of supply that’s coming to the market,” he said.
Charles Giffin, head of public finance at JPMorgan, said that large transactions can also benefit when they are unique names. He said a $1.3 billion sale underwritten by the bank this year for a new bridge in Lake Charles, Louisiana, appealed to buyers because it was a new credit. The sale was part of a $2.3 billion public-private partnership.
“It was a unique asset — a P3 in Louisiana that investors won’t have another opportunity to buy,” Giffin said.
--With assistance from Aashna Shah.
