Muni Think

At the conclusion of his Aug. 16 commentary in The Bond Buyer, Christopher Mier asks us to believe that with the aid of “creative lawyering,” rewriting pension contracts will solve the fiscal problems of Illinois and other states.

Whether or not you are in the camp of those who expect to see increased numbers of municipalities filing for Chapter 9 bankruptcy protection, it is important for every muni bond investor, and those who advise them, to have a basic understanding of the benefits available to a municipality seeking relief under Chapter 9 and the role of creditors in such a case.

States continue to grapple with ongoing budget imbalances.

In passing the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress has taken the first step in reforming the financial system.

In recent years, the make-whole call has become commonplace for taxable bonds, including municipal Build America Bonds.

News in The Bond Buyer that a few small issuers used reserve funds or bond insurance to pay debt service adds to concerns that a big-name issuer struggling with budget problems may be next. Then it would be news in the general press, which might lead safety-conscious investors to question whether they should own municipal bonds.

The lasting legacy of the taxable bond option program known as Build America Bonds, or BABs, is likely to be measured by the success of the securities in opening up new global credit markets to investment in American infrastructure, a feat that is long overdue.

Over the past few months, even the most confident municipal bond investors have seen fit to revisit the basics of municipal insolvency law. Municipal governments are in a period of once-in-a-lifetime fiscal stress, and negative headlines have stoked fears that even the sturdiest municipal issuers might go the way of Lehman Brothers.

TO THE EDITOR

Last year, Congress created the Build America Bonds program to spur infrastructure investment in our communities and to help thaw the frozen credit markets. We believe this program has been a great success and it should be made permanent, as currently considered by Congress, for the following reasons.