Muni Think

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.