DALLAS -- Bolstered by record volume in Texas, education bond sales in the first three quarters of 1991 were 15.4% ahead of the same period a year ago and on pace for the second-best year ever for that sector of the market, according to Securities Data Co./Bond Buyer.

Local schools, higher education issuers, and student loan authorities sold $5.972 billion of new debt in the third quarter, bringing the total for the first nine months of the year to $19.72 billion.

Underwriters said that while issuance may break last year's volume mark, it is likely to fall just short of the record $24.116 billion sold in 1985. Even so, market participants point out that volume continues to show a steady rise despite such factors as private-activity bond volume cap allocations that have restricted student loan bond issues in some larger states.

"We're doing less student loan financings," said Dan Johnson, a partner with Chapman & Cutler in Chicago, the number two bond counsel so far this year in education issues. "The problem here in


Senior Managers


Manager ($ mils.)

1 Merrill Lynch $1,198

2 Lehman Brothers 992

3 First Boston 926

4 Prudential Securities 895

5 Morgan Stanley 822

6 J.P. Morgan 713

7 Goldman Sachs 680

8 Kemper Securities 673

9 Rauscher Pierce 652

10 Piper Jaffray 639

Bonds sold for schools, public colleges and universities,

and student loan programs are included. Taxable

debt issued by private universities

are excluded. Source: Securities Data Co. (10/9/91)

Illinois has been a scarcity of volume cap."

But more than volume cap limits may threaten the future of student loan bonds. Last week, a House subcommittee approved legislation that would revamp the current college financial aid system and end the need for tax-exempt student loan bonds.

Despite that, student loan volume showed an overall increase of 30.4%, to $1.275 billion from $978.4 million in 1990. At the same time, issuance by higher education authorities dipped 16.4%, to $5.478 billion from $6.553 billion last year.

Market sources attributed that to a drop in issuance from a year ago by the New York Dormitory Authority. Despite the slump, the authority is still the top issuer of education bonds in 1991, with 12 issues totaling $529.5 million.

The largest growing segment of the education bond market is issuance by local schools across the nation. With 1,836 issues totaling $12.9 billion this year, volume by elementary and secondary school districts surged 35.4% ahead of the $9.53 billion sold during the same period in 1990.

Market participants say the growth in local education issues is the major reason competitive sales are up 42% from the first nine months of 1990. However, competitive sales accounted for only $7.54 billion of the market, compared with $12.09 billion of negotiated transactions so far in 1991.

Texas is one state enjoying a record year for local debt sales. In the wake of a new school finance law, many of the state's 1,054 districts sold $1.8 billion of debt this year--which is double the usual volume.

"There has been a bit of panic selling because of the new law [in Texas] and of course the interest rates have played a role," said Chuck Kobdish, partner at McCall, Parkhurst & Horton in Dallas, the top bond counsel for education issues this year. "I think over the next couple of years in Texas, it is going to slow down."

Still, it has been a record year for Texas, which leads all states this year. Total education volume surged to $2.839 billion, with 194 issues that account for 14.4% of the that market in the first nine months of the year.

That volume also has given Texas firms prominence in national rankings for education issues. Besides having the top bond counsel firm, the Houston firms of Fulbright & Jaworski was fourth, with volume of $592.3 million, and Vinson & Elkins was fifth, with $584.6 million.

Meanwhile, Chapman & Cutler ranked second, with total volume of $929.9 million and the largest number of issues at 165. The California-and New York-based firm of Orrick, Herrington & Sutcliffe ranked third, with $796.7 million in bond sales.

Among financial advisers, Philadelphia-based Public Financial Management Inc. ranked number one, with 63 deals totaling $1.325 billion. Two Dallas firms followed: First Southwest Co. ranking second, with $725.4 million of issues; and Rauscher Pierce Refsnes Inc. third, with $687.7 million.

Rauscher Pierce also ranked ninth over all as senior manager. It is the firm's best showing nationally, with 51 deals totaling $652.2 million. However, that volume was about half the $1.198 billion underwritten by market leading Merrill Lynch & Co., while second-place Lehman Brothers senior managed $992.2 million in issues.

"I pretty much see growth in the future. I think we would all agree that the capital needs [of schools] are enormous," said Dan Stoddard, vice president at Lehman Brothers. "The need to renovate existing buildings is tremendous."

Statistics show that strong new-money demand continued in the first three quarters of 1991 with those issues totaling $15.567 billion, up 16% from the same period a year earlier. At the same time, refundings accounted for $4.156 billion, up 13% from a year earlier.

At the same time, the number of education bonds using bond insurance rose 50.5%, to $8.518 billion, compared with $5.8 billion in 1990. Meanwhile, issuers using letters of credit fell 68.9% from $1.015 billion to $416.7 million in 1991.

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