Muni Think

It is in the nature of things that our most valuable infrastructure projects are economically sound, but often financially unsound.

The municipal market has always had a buyer of last resort. This category of buyer had the capital and the leverage capability to buy municipal bonds when they were attractively priced relative to Treasuries or other appropriate benchmarks. In the absence of the buyer of last resort, the market was vulnerable to getting progressively cheaper relative to other fixed-income markets due to imbalances in supply and demand. From the inception of the market, this important role was filled by the nation's commercial banks.

With the Aug. 7 announcement by the Maryland Insurance Administration regarding the restructuring of ACA Financial Guaranty, there are questions in the market about how it was designed, how it will work, and whether or not it should serve as an example for future restructurings.

When markets function normally, the trustee role is generally treated as an afterthought.

It's tough out there for developers. Rocked by dramatic decreases in home sales and home prices as a result of the real estate market upheaval, developers are desperately seeking cash flow to maintain operations.

The municipal bond industry has experienced enormous growth and change over the last 25 years.

Though rarely seen by human eyes, the White Creek Wind Project in south-central Washington state has been getting some well-deserved attention for providing clean, renewable energy to the region. Hidden from the Columbia River Gorge by rocky bluffs and rolling hills, 89 wind turbines are quietly producing enough electricity to power more than 38,000 homes.

The National Federation of Municipal Analysts released the following "Comment on the Current Market Dialogue Regarding Municipal Bond Ratings" on May 1, which was referenced by The Bond Buyer in a May 2 story, "SEC Officials Say Rule 2a-7 Changes Possible." In the paper's May 12 issue, California Treasurer Bill Lockyer responded to the NFMA's comment. The NFMA stands by its comment as originally issued and hopes that the market will take our proposal for measured, civil discourse on this topic in the spirit in which it was made.

More than a decade ago, Credit Suisse shocked Wall Street by shuttering the municipal bond department it had acquired in its purchase of First Boston a few years earlier. Now, Switzerland's other major bank, UBS, says it will follow a similar course: Putting the vibrant muni group it acquired in its purchase of PaineWebber up for sale, and threatening to close the group if a buyer is not found quickly.

The article "SEC Officials Say Rule 2a-7 Changes Possible," published on May 2, quotes from a National Federation of Municipal Analysts commentary on the bond rating reform debate. The NFMA leveled criticism, however thinly veiled, at my office and others calling for a fair rating system that does not treat taxpayers like second-class market participants. The article did not include a response from reform proponents. Allow me.