Muni Think

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.

In the April 21 issue of The Bond Buyer, guest commentator Richard Ciccarone of McDonnell Investment Management reminded us of what can happen when municipal bond ratings fail to reflect the very real risks of economic downturn. In 1935, as many as 3,252 issues were in default, and 78% of them had been rated double-A or better in 1929.

Recently, in the aftermath of the bond insurance crisis, there have been cries from members of Congress and state and local finance officers that the recent low default rate on governmental issuers of municipal bonds relative to all global borrowers begs for a wholesale upgrading of muni bond ratings. More than likely, bond ratings on state and local government obligations would substantially be lifted to triple-A and double-A levels.

Re "Muni vs. Corporate Ratings: It's Not All Black and White," Mr. Lechner raises the specter of "abusive" bankruptcies by municipalities, but fails to cite a single case of such a bankruptcy. Maybe that's because there is no such case.