By Christopher Briem, on November 11th, 2010
There is bit of debate inside the fence over whether the pension/parking imbroglio would hit the city’s credit rating. Seems that the city is issuing some new bonds in the midst of the tempest and overall there is not a hit on the ratings of new or old debt for the time being. See: Fitch Rates Pittsburgh, PA’s GOs ‘A’; Outlook Stable.
So Fitch is generally unconcerned with the situation here, although these are folks who have had curious Pittsburgh-logic in the past.
I learn something new everyday.. I had never heard this term before,but the parking lease we have been considering is apparently called a brownfield parking concession.
Speaking of bonds…. it is actually big news that bond insurer Ambac has filed for bankruptcy. Anyone want to poke at what public debt locally is insured by Ambac.. also a bit interesting if you poke at who Ambac itself owes money to.
and while were looking that up, what do we see? Looks like the city school district has a big bond issuance going out the door. Looks like a refi from 2002 debt. Which brings to mind a real basic point that interest rates are low and it really is an historically good time to be issuing bonds if you have the capacity and the credit ratings to justify it.
and finally… on the topic of who might not have the capacity to refi debt. Bloomberg has a great tutorial and update on how screwed up municipal finance world was for a time. Wall Street Collects $4 Billion From Taxpayers as Swaps Backfire. Swaps being among those things that almost did the PWSA in last year. I wonder what is up with the whole deal that brought that situation under control because there is a recent debt downgrade hanging out there that might have consequences for all that.. but who is noticing?
By Christopher Briem, on October 26th, 2010
I had a big long rambling post on general parking/pension issues, but it just isn’t in me to post. Reading about the latest round of rumblings on the fifth floor had be wondering how we wound up in this state. Council-mayor relations have occasionally been bad in the past. Intra-council relations have sometimes gone off the deep end with members swearing at each other in session. So maybe things today were sedate in comparison.
Two things really need commenting on though. Bram tweets that the administration presented some idea that if a bond was issued against future parking revenues, that there was a potential for the parking authority to default with a result of the bond holders taking possession of city parking assets. If Bram passed that on accurately, then folks should know that that is basically false. Default on a revenue bond really can’t result in foreclosure against public assets like that. Skipping legal wonkery, it just isn’t the way things work. Purchasers of a revenue bond have claims against future revenue streams, not the underlying assets. It would be extraordinary, and certainly not required for the bonds to have a mortgage pledge in their prospectus. The concept of wall street types winding up as owners of the garages is just not an option.
Beyond that.. like I said I don’t have it in me. We are again down the rabbit hole Downtown and who knows where we will emerge when all is said and done.
OK, I can’t resist one really fundamental comment. Seems to me that the whole presentation today by the mayor was that this bond issue plan wouldn’t work and it was based on some math saying a bond would be issued at 5.5% if tax-exempt and 7.5% if not tax-exempt. Are those rates for real? I don’t think any muni bond rates are that high these days are they? Would make for some very different math if those rates are incorrect. I really need my Bloomberg box back.
Speaking of bond rates… us 3 public finance wonks may have noticed that bond insurer Assured Guarantee had its bond rating dropped today… Methinks a few big public bonds locally have bond insurance issued by Assured Guarantee. Oh, nevermind.
Yeah… my original post was still longer than all of that.
By Eldon Mast, on April 13th, 2010
Last year’s stimulus package included a program for states and municipalities entitled “Build America Bonds.”
The U.S. Treasury announced that so far it is on target to save those local governments $12.3 billion in borrowing costs with federally subsidized taxable bonds already sold during the first year of the program.
Since the stimulus passed last April, the Treasury has helped state and local governments sell $90 billion of these bonds to assist their jurisdictions with new liquidity to fund their local projects.
While most government agencies traditionally issue tax-exempt bonds, the Build America Bonds are taxable bonds with a 35 percent federal subsidy on interest costs. This means that a jurisdiction ultimately pays much less in interest to provide the same capital improvements or service upgrades to their constituents.
Denver Water which was one of the first agencies to take advantage of the program in order to effect need upgrades to the Denver water system. Chips Barry, manager of Denver Water stated that they were “pleased to be able to sell bonds at a very reasonable rate in the current market environment. For ratepayers, this means we are able to keep costs as low as possible while providing us the funding to improve our system.”
California issued seven of the top 10 bond deals according to analysis of Treasury Department data. The state also issued roughly one-quarter of the $90 billion worth of bonds since last April. Most of the bonds issued by the sunshine state are now in the midst of funding transportation and educational improvements.
“People originally said it would eliminate the issuance of municipal bonds,” says John Cummings, who is head of muni-bond investments at money-management firm PIMCO. “Instead they have stabilized the market and helped to create jobs.“
By G.L.C., on September 5th, 2008
In the present financial crisis, the municipal bonds arena has been remarkably calm. Municipal bond holders so far have been spared the roller coaster ride that mortgage security owners had to endure. With tax revenues declining and operating conditions strained, there are strong indications that things may change soon. What happened in Jefferson County, Alabama, could just be the tip of the iceberg: on August 29, the sewer authority in Jefferson County received a one-month reprieve to renegotiate $3.2 billion in debt. It has repeatedly been on the verge of default. Without the reprieve, it would have been the biggest municipal default in U.S. history.
In 2007, municipal issuers had $2.6 trillion of debt outstanding – most held by individual investors. Investors have little way of recognizing when trouble is brewing. There is a severe lack of financial disclosure by municipal issuers – the municipal bond market is a place where disclosure is pretty much voluntary and investors receive only spotty financial reports.
A recent study by DPC Data concludes that disclosure among municipal issuers in both annual filings of financial statements and other reports of material changes that are of concern to investors are dismal. From 1995 through 2006, more than half of the municipal bonds failed on one or more occasions to file required financial statements. More than 25% missed three or more years of disclosures.
Laws from the 1970s restricts the Securities and Exchange Commission from going after issuers that do not make the required disclosures. The SEC can regulate only brokerage firms that underwrite these bonds, holding them to a requirement that no issuer can sell debt without being up to date on filings for the most recent five years and can pursue only issuer fraud.
Issuers tend to shrug off disclosure failings, pointing to historically low default rates among municipal issues of around 1.5%. In today’s world, past default performance means little in the here and now.
In the municipal bonds market, nondisclosure appears to be an established practice. It is a breach of the fundamental principles of investor protection, suggesting hidden problems or potential fraud.
The lawmakers in Washington, D.C., need to wake up to these indications before a major crisis hits the market. There is a lot at stake. The municipal bond market is enormous with roughly 54,000 municipal issuers with debt outstanding, and 25,000 of those issue debt about every two years. Disclosures must be made mandatory, and new legislation must be passed to give SEC the authority to enforce the disclosure requirements. The right of investors to know material facts on a timely basis is the foundation of a fair market, enabling them and their advisers to take rational actions to protect their financial interests.
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