Build America Bonds Sales and Market Share

Since their inception in 2009 as part of the American Recovery and Reinvestment Act, Build America Bonds (BABs) have been very popular, totaling $64.3 billion sold, approximately 16% of total municipal issuance last year. Given their taxable yields, they have attracted new buyers for government debt, while, with their federal subsidy, they have provided a low cost source of financing to state and local governments. They have also reduced the supply of tax-exempt issuance: prior to BABs, taxable municipal issuance ranged between 5-8% over the last decade; however, in 2009 all taxable debt, including BABs, accounted for 21% of issuance.

Of the $64.3 billion BABs sold in 2009, California was the largest issuer by far, at 24% of total BAB sales. The rest of the top five states were Texas, at 10.9%, New York, at 9%, Illinois, at 5.8%, and New Jersey, at 3.5%. Together, the top five states totaled 53% of issuance, though their share declined as the year went on. They comprised 63.5% as of October 9th, indicating wider use of BABs over the last three months of the year.

Larger states have dominated BAB sales and the ultimate collection of the federal subsidy, and should continue to do so. However, based on overall debt issuance trends, I expect the market share for the top five states to decrease as other states catch up. California is also unlikely to capture quite as large a share as in 2009. Data from The Bond Buyer shows the top five states sold 42.5% of total municipal debt last year. With a more established market for BABs, including smaller issuers and a full year of use, 2010 will most likely resemble 2009 in overall market share percentages. Please contact me with any questions or if Mesirow Financial can be of further assistance.

Peter Bianchini
Managing Director, Senior Municipal Strategist
+1 925.386.0262

2009 Build America Bonds Issued by State
Cumulative
State Par ($000's) Rank % of Total Total %
CA    15,406,410 1 23.97% 23.97%
TX     6,998,150 2 10.89% 34.86%
NY     5,789,275 3 9.01% 43.87%
IL     3,701,008 4 5.76% 49.63%
NJ     2,250,091 5 3.50% 53.13%
FL     2,192,140 6 3.41% 56.54%
MA     1,963,015 7 3.05% 59.60%
OH     1,871,245 8 2.91% 62.51%
WA     1,834,875 9 2.86% 65.37%
CO     1,541,260 10 2.40% 67.76%
MO     1,376,414 11 2.14% 69.91%
KY     1,365,140 12 2.12% 72.03%
MD     1,340,445 13 2.09% 74.12%
VA     1,345,785 14 2.09% 76.21%
PA     1,329,680 15 2.07% 78.28%
UT     1,285,150 16 2.00% 80.28%
NV     1,249,090 17 1.94% 82.22%
MI     1,211,400 18 1.89% 84.11%
DC        956,290 19 1.49% 85.60%
CT        848,190 20 1.32% 86.92%
KS        806,845 21 1.26% 88.17%
WI        795,005 22 1.24% 89.41%
NC        698,385 23 1.09% 90.50%
GA        644,520 24 1.00% 91.50%
AZ        618,760 25 0.96% 92.46%
IN        593,324 26 0.92% 93.39%
LA        535,550 27 0.83% 94.22%
IA        490,580 28 0.76% 94.98%
SC        467,355 29 0.73% 95.71%
MN        447,776 30 0.70% 96.41%
NE        333,670 31 0.52% 96.93%
TN        308,795 32 0.48% 97.41%
OK        298,545 33 0.46% 97.87%
AL        226,890 34 0.35% 98.22%
NH        225,000 35 0.35% 98.57%
DE        179,315 36 0.28% 98.85%
MS        164,860 37 0.26% 99.11%
AK        160,080 38 0.25% 99.36%
SD        155,362 39 0.24% 99.60%
HI        120,620 40 0.19% 99.79%
NM          57,890 41 0.09% 99.88%
WY          35,240 42 0.05% 99.93%
ND          21,605 43 0.03% 99.97%
OR          21,530 44 0.03% 100.00%
TOTAL PAR 64,262,555      
# of Deals (from Bond Buyer)  1,017
  Average Size  $ 63,188
Source: Bloomberg, Bond Buyer