SAN FRANCISCO - About 100 highly rated higher education, health care, and other not-for-profit issuers are using self-liquidity to support short-term debt, according to a Moody's Investors Service report published this week.
The "Moody's Public Finance Self-Liquidity Quarterly Report" is the first attempt to give investors a broad look at issuers that use their own balance sheets to provide liquidity for variable-rate demand obligations, commercial paper, and other short-term debt. Issuers increased their use of self-liquidity after the banking crisis dried up the supply of letters of credit and standby bond purchase agreements last year.
"The need for improved disclosure has been a long-standing challenge in the municipal market - a challenge that intensified since the credit crisis deepened in the fall of 2008," Moody's said in the report. "This is especially true for borrowers managing self-liquidity debt programs, for which public disclosure may be limited and inconsistent."
Moody's plans to publish the report quarterly. It published a rating methodology for the debt in 2006 and updated it last year as the practice became more common.
"We felt that there was a need to present this data on a more consolidated basis and more comparable data" at one point in time, said Kimberly Tuby, a senior analyst at Moody's and one of the authors of the report. "It's data that's not necessarily easy to get to or disclosed by universities or hospitals."
The new report provides a financial snapshot of the institutions using self-liquidity as of June 30. As expected, they are highly rated, mostly triple-A or double-A rated credits with big balance sheets.
For instance, the report shows that the triple-A rated University of Texas System uses its $4.4 billion of assets with daily liquidity to support $1.44 billion of VRDOs and $861 million of outstanding commercial paper. The CP program is authorized to issue up to $1.75 billion.
"This is a debt product that requires sophisticated treasury operations and significant liquid assets," said Moody's managing director John Nelson. "It is not a debt structure that is amenable to the vast majority of public finance debt issuers in the market. You're talking about a small subset, but a very high-profile subset, of borrowers."
The report also shows that these institutions are increasingly using hybrid lines of credit to support their short-term debt portfolios, Tuby said. These lines of credit differ from the traditional LOC and SBPA liquidity facilities because issuers remain responsible for paying puts and may or may not draw on the lines of credit to make good on them. That puts a buffer between investors and the banks.
Moody's plans to add other municipal credits to upcoming reports, but the current report captures the majority of issuers using self-liquidity. Government credits such as cities and counties don't usually maintain the large cash balances required to provide self-liquidity, Nelson said. He said there are probably only about 20 public sector issuers using self-liquidity.