Taxable municipal issuance subsidized by the Build America Program has undoubtedly altered our marketplace. In fact, roughly 25 percent of the issuance coming to market in 2009 and 2010 has been Build America Bonds. In recent news, a Senate/House conference appears to have put the finishing touches on a bill to extend the BABs program past its scheduled 12/31/10 sunset. Strongly expected to be enacted, the bill would extend issuers’ ability to sell BABs for two years, rather than the 2-1/4 years in the initial House bill, and would reduce the subsidy from 35% this year to 32% in 2011 and 30% in 2012. The subsidy-rate drop to 32% is likely to push a number of issuers to get their programs done in 2010, while the rate is still 35%. From an investor’s perspective, that may mean more numerous opportunities to capture value during the fourth quarter.
What will happen to BABS after 2012 is yet to be determined. While BABS remain cheap versus corporates, the early adopter phase will eventually run its course. Undoubtedly, a permanent extension would have given institutional investors a greater incentive to learn about muni credits and become more knowledgeable and potentially more aggressive buyers of BABs. Early predictions support the belief that the cost of a permanent extension is simply too great and that the issue will be reexamined for a potential further extension in 2012. In the meantime, BABs will continue to present significant value versus their corporate counterparts from both a credit quality and yield perspective. Truly, the honeymoon is not yet over for early adopters of the Build America Program.
MainLine understands the Build America Bond Program and the value opportunities it continues to present. Please refer to our website at http://www.mainlinewest.net/ for updates on our current BAB inventory along with other attractive tax-free offerings.