It is going to be very difficult for the 2 million Puerto Ricans who do not live in poverty to pay $68 billion of principal, plus tens of billions of interest, plus uncertain amounts of swap termination fees, plus billions of unfunded pension obligations. How was it possible for all this debt to have been accumulated?
During October, Puerto Rico bond prices recouped a portion of their late-summer plunge that pushed yields above 10% for certain bonds. The rebound followed efforts by Commonwealth officials to address the island's wide-ranging fiscal challenges, plus speculation that the federal government might step in to assist Puerto Rico.
Puerto Rico's short term problems are tied to a Greece-like debt trap whereby policies aimed at reducing its fiscal deficit deepen a recession that further widens the deficit, with no end in sight to the vicious cycle.
In the guise of "bringing greater transparency and consistency to the analysis of pension liabilities," Moody's proposed an essentially "one-size-fits-all" approach to pensions that would effectively overstate pension obligations by applying an unreasonably low discount rate, said GFOA's Jeffrey Esser.
The Securities and Exchange Commission's $20,000 penalty on the Greater Wenatchee Regional Events Center Public Facilities District highlights the regulator's heightened focus on the municipal market.
Here is some advice to issuer's counsel regarding their role in bond issues.
In response to a recent commentary on the Securities and Exchange Commission's approval of a final rule defining municipal advisors, SIFMA agrees with Ms. Rodgers Caruso on an important point.
NAIPFA supports the practical, common-sense approach taken by the SEC and its office of municipal securities in writing its final municipal advisor rules, and believes that they will directly benefit the interests of issuers by creating a more robust, fair, competitive and transparent municipal market.
Congress is not honoring its Build America Bond promises to state and local governments, even as state and local governments are pledged to make payments to their investors and to rebuild the nations infrastructure critical to the future economy, jobs, and competitiveness of the country.
The city of Allen Park in Michigan is demonstrating a potential path for working through municipal financial stress by addressing issues relatively early on and by gaining important support from residents and the banking community.
After the Fed decided not to taper its stimulus program, muni investors may want to grab an airbag, as the market faces likely volatility in interest rates, fund flows, potential issuance and municipal bond relative attractiveness.
Bonds issued by the Commonwealth of Puerto Rico and related entities have experienced dramatic price swings since mid-August, amid shifting expectations about future supply and a growing media spotlight on the island's budget fundamentals.
Many cities and counties are paying substantially more in interest than is warranted by the real risk of their bond issues. How can local governments remedy this situation and thereby achieve better results for their taxpayers? Marc Joffe and Shannon Sohl believe the solution involves greater transparency.
There is undoubtedly considerable waste from inefficient advance refundings, but let's not throw out opportunities to save taxpayers' money, when warranted, by giving credence to half-baked theories based on shoddy scholarship, says Andrew Kalotay.
In the first half of 2013, we continued to observe a trend of increasing annual enforcement activity by the Securities and Exchange Commission, with a pronounced focus on the sufficiency and accuracy of the municipal market disclosures provided by state and local governments.
Over the years, Detroit's financial deterioration and the city's downturn have been well documented, so its bankruptcy filing came as little surprise to most market participants. This point can be reinforced by Interactive Data's analysis below of six different bonds issued by Detroit and related entities, which are representative of the types of debt and structures Detroit has issued.
A recent study of the economics of advance refundings asserts the provocative conclusion that "[t]he widespread practice of advance refundings of municipal bonds is, at best, zero net present value, though wasteful of fees." This study may well compel a counter-study from the many proponents of advance refundings.
Herbert J. Sims' Richard Larkin does not believe that Detroit had to file for Chapter 9 municipal bankruptcy.
The Detroit bankruptcy doesn't necessarily undermine the market for general obligation debt for all governmental borrowers.
Chicken Little is alive and well after Detroit's filing for Chapter 9 bankruptcy protection.
Build America Mutual details the actuarial analyses of pension and other postemployment liabilities that it incorporates in its review of every municipal bond it insures.
It has been just over a month since Detroit's emergency financial manager Kevyn Orr announced to our market that Detroit would treat its GO bondholders as "unsecured" creditors and pay them only pennies on the dollar. It is past time for the bond market to forcefully react.
It looked and felt like the sequel to Man of Steel had arrived prematurely, but this time, General Zod seemed to set his sights on the bond market, recruiting an army of bond fund managers to annihilate everything from one-year Treasuries to 30-year corporate and municipal bonds.
Savvy indenture trustees and bondholders familiar with the Chapter 11 process understand that being ahead of the curve often provides key advantages. What is less understood is that proactivity is even more important in Chapter 9 (municipal) bankruptcy situations, and often must predate any bankruptcy filing by several months.
Michael Decker's recent letter offers nine criticisms of our report on municipal bond markups. I briefly address his comments in the order they appear so your readers can evaluate his arguments fairly.
If municipal issuers have not come out of the woodwork yet in favor of the tax exemption, this should just about do it. Federal trustworthiness now is in shambles regarding subsidy programs designed to replace the tax exemption.
A recent research paper suggests widespread violations of MSRB fair pricing rules are rampant in the municipal market. But scratching just below the surface reveals serious flaws in the methodology and assumptions underlying the authors' conclusions.
Lessons from litigation over interest rate derivatives may come into sharp focus as the time for Lehman to bring claims against counterparties who terminated derivative instruments shortly after its bankruptcy filing will expire.
The onset of hurricane season on June 1 and the season's first named storm making landfall in Florida remind us that natural disasters can affect bond investors and issuers, including municipal entities in geographic areas in the path of a weather-related event.
With the nation's state and local governments already financing some 75% of America's public infrastructure and the federal surface transportation program on the brink of insolvency, the Finance Committee paper is a recipe for undermining the single most critical source of financing the nation's public infrastructure.
Before the financial crisis of 2008-09, it would have been significant news if yields on municipal bonds had exceeded those on Treasury securities at any maturity, and that occurrence likely would have attracted a variety of investors seeking to take advantage of the relative-value opportunity.
The MSRB needs to clarify that regulated persons serving as financial advisors, regardless of the title they use, cannot disclaim fiduciary duty.
Why invest in the $3.7 trillion municipal bond market? SIFMA's Michael Decker offers some of the compelling reasons.
Does the Federal Reserve really think that another round of continued buying of long term Treasuries and mortgage-backed securities will provide a significant healing effect to the ailing economy? Isn't it time to consider a different course of treatment where the "bang for the monetary buck" will be more significant?
Rep. Gwen Moore thinks HR 1628, the Public Pension Transparency Act introduced last week by Reps. Devin Nunes, Paul Ryan and Darrell Issa, proceeds from a false premise, which causes the bill to introduce opacity rather than transparency of disclosure into the market, and intrudes on state sovereignty and policy preferences in order to attack public workers and pensions.
The timing of twin proposals by Rep. Devin Nunes and Messieurs Erskine Bowles and Alan Simpson, which threatren state and local tax-exempt municipal bonds, could not have been worse.
New issue bond activity for charter schools in the first quarter reflects diversity in both charter schools and issuance characteristics.
Absent any further action by Congress, on May 19 the debt ceiling will automatically reset to the nation's debt level. This has important implications for municipal issuers selling refunding debt near this date.
The proposed cap of 28% may be a zero-sum game at best because it could increase costs for nearly all taxpayers. While there are additional arguments against adjusting the municipal tax exemption, the culmination of these factors indicates that such a significant change could alter what has served as one of the most efficient forms of government and infrastructure financing for more than a century.
In the next few years, the Treasury plans to completely "wind down" Fannie Mae and Freddie Mac, and the impact on the pre-refunded and escrowed-to-maturity municipal securities will be devastating.
Instead of repealing the tax-exempt status, we need to rebuild the economy by reinvesting in our infrastructure that will ultimately create jobs. One of the best ways to do this is through low-cost borrowing at the local level.
While NAIPFA disagrees with these participants' statements that Municipal Advisors are wholly unregulated, NAIPFA does agree that the SEC's Municipal Advisor rulemaking should be completed as soon as possible to allow for further development of MSRB rules.
Water seems to be as steady a business as they come. After all, it's an essential service we all need. But the operating environment of water providers is changing, and bondholders should be sure that the issuers whose debt they hold are changing their business models accordingly.
Municipal bonds brought us clean water at the tap. This crucial development is in danger from proposals to eliminate the tax-exemption on municipal securities for essential governmental purposes.
Professional investors who mark to market need to know how their portfolios would perform under various interest-rate scenarios. Such "stress testing" is available in standard analytics systems, but when it comes to munis, the results could be seriously misleading, Andrew Kalotay says.
As the Securities and Exchange Commission's enforcement and litigation activity in 2012 demonstrates, the agency's focus on municipal market enforcement has increased dramatically, and this trend seems likely to continue under the SEC's new leadership.
The New York Times article, "A Stealth Tax Subsidy for Business Faces New Scrutiny," is riddled with inaccuracies of a critical development tool: private activity bonds. The story, sensational and misleading, highlights perceived misuses and abuses, while ignoring the essential public purpose that bonds serve.
The long-term care credit market has stabilized, writes Jon Barasch of Interactive Data Corp. in this commentary.
Herbert J. Sims senior vice president Richard Larkin makes a plea to keep municipal bonds tax free.
When the Obama administration argues that more financial regulation is needed to set us on the path to economic recovery, I would like to respectfully submit that the Great Recession could have been avoided, but its cause can be placed primarily on the shoulders of government, not on greed on the part of investment bankers and business people.