Actuarial Outpost
 
Go Back   Actuarial Outpost > Actuarial Discussion Forum > Finance - Investments
FlashChat Actuarial Discussion Preliminary Exams CAS/SOA Exams Cyberchat Around the World Suggestions


Finance - Investments Sub-forum: Non-Actuarial Personal Finance/Investing

Reply
 
Thread Tools Search this Thread Display Modes
  #711  
Old 04-13-2018, 06:48 AM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 82,061
Blog Entries: 6
Default

RATING

https://chicago.suntimes.com/news/st...nment/#new_tab

Quote:
S&P Global Ratings: Illinois’s bond rating ‘uncommonly low’ due to ‘crisis-like budget environment’

Spoiler:
Illinois may have a budget for the first time in three years, but S&P Global Ratings remains leery — putting the state still just one notch above junk status, in part because of its “persistent crisis-like budget environment.”
S&P on Friday assigned the state’s $500 million in general obligation bonds a BBB- rating while also affirming a BBB- rating on the state’s outstanding debt.
The rating agency wrote that the general debt rating “reflects our view of the state’s recent liquidity stress because of nearly depleted budget reserves and a generally weakened financial condition, lingering structural budget imbalance even after a permanent increase to the state’s individual and corporate income tax rates, and backlog of unpaid bills that remains elevated even following the recent bond refinancing of a portion of them,” credit analyst Gabriel Petek said.
The state’s credit rating is “uncommonly low among the states,” the agency wrote. But in affirming the low level investment rating, S&P also gave the rating a “stable” outlook, writing that with passage of an upcoming budget the likelihood of the state experiencing a liquidity crisis has “fallen markedly.”
The agency noted that enacting a budget last year that included a tax hike “helped shrink — though not eliminate — the state’s structural deficit.”
The agency said Illinois’ deficit, without a solution, would “represent the leading identifiable source of downward pressure on its credit rating.” And it warned that it will be hard to better the state’s credit rating due to its “poorly funded pension systems and other outsized liabilities.”

__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #712  
Old 04-13-2018, 05:21 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 82,061
Blog Entries: 6
Default

https://fixedincome.fidelity.com/ftg..._110.1#new_tab

Quote:
How debt undercuts O'Hare's lease and terminal makeover

Spoiler:
The benefits of airline support, favorable lease terms, and a $8.5 billion modernized terminal layout won’t necessarily protect Chicago O’Hare International Airport against rating pressures as debt levels swell, Fitch Ratings said in its initial review of the city’s new O’Hare plans.

“Leverage related risks have been a key consideration” in O’Hare’s single-A level rating and it’s already elevated at nearly 10 times net debt to cash flow available for debt service on more than $7 billion of existing debt, Fitch said.

“Additional debt to fund this capital plan will likely keep overall airport leverage above the current 10 times level for many years. The 'A' rating could be pressured to the extent there is a sustained upward shift in leverage,” Fitch wrote. “Further, a capital program of this size will carry considerable cost and execution risks as the budget could evolve upward.”

Mayor Rahm Emanuel won City Council approval last month for the new lease and use agreement to replace a 35-year pact that expires in May, the $8.5 billion terminal redevelopment plan, and $4 billion in initial borrowing.

Chief financial officer Carole Brown has said the city expects to fund the program with general airport revenue and passenger facility backed debt and is exploring other financing options such as private investment and special facilities revenue debt.

Fitch Ratings offered a positive review of the lease, calling it “an essential step to allow the airport to address both the modernization and the expansion of the airport to serve long-term growth for domestic and international service, as well as hub activities for United Airlines and American Airlines.” The new agreement runs through 2033.

Airline support offsets some concerns over leverage as it highlights the carriers' recognition of “both the value and the cost implications to maintain service in a strong Chicago market.”

Fiscal provisions of the agreements get good marks, as they gradually increase the minimum annual debt service coverage levels from 1.10 times to 1.25 times by 2021 and add a supplemental operating and maintenance reserve fund that is targeted to reach a funding level of 25% of annual operating costs by 2025.

“The overall financial integrity of the airport should remain sound given the provisions to boost coverage levels and operating reserves,” Fitch said.

City officials highlighted the positives. “Fitch correctly articulates the credit positives of investing in capacity, technology, and terminal modernization at one of the world’s busiest airports and an economic engine for the Midwest,” said Finance Department spokeswoman Molly Poppe. The review came after discussion between city and Fitch analysts. Moody’s released an initial analysis last week calling it a credit negative.

Fitch analysts have not yet reviewed any new financial or cost forecasts on the new lease and capital plan. The cost per passenger was already forecast to rise from the current $15 level to more than $25 in five years under Fitch's rating case scenario.

“The new capital plan will only exacerbate the degree of cost increases and likely place O'Hare as one of highest cost airports in the U.S. and a much higher cost level versus the city's Midway Airport,” Fitch said. "Effective implementation and successful delivery of a capital program of this size will be among the greatest challenges while airport leverage will be sustained at relatively high levels."

Other major international airports have undertaken major construction programs, including facilities in New York, Los Angeles, and San Francisco regions. They also face steep increases to airport costs and have not experienced adverse demand shifts as a result, thanks to the market's strength, Fitch added.

Chicago plans to redevelop O'Hare's existing terminals, expand the existing international terminal, and demolish one domestic terminal to replace it with another global terminal to smooth international and domestic connections.

With its runway reconfiguration nearly completed, the shift to terminal redevelopment is a “logical step” given the airport’s current capacity constraints, Fitch said. The makeover is expected to result in 25% more gate capacity.

Fitch has warned in previous reports that a recent court ruling that’s under appeal in Puerto Rico's Title III bankruptcy could pose a threat to special revenue credits rated above a municipality's issuer default rating. Fitch rates Chicago’s general obligation debt BBB-minus.

Moody’s Investors Service and S&P Global Ratings rate O’Hare at the same level as Fitch at A2 and A, respectively, and Kroll Bond Rating Agency assigns an A-plus.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #713  
Old 04-15-2018, 07:53 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 82,061
Blog Entries: 6
Default

http://www.chicagobusiness.com/artic...ve-budget-mess

Quote:
Don't count on a progressive income tax to save Illinois
Spoiler:
Why won't many supporters of a progressive income tax for Illinois, including Democratic gubernatorial candidate J.B. Pritzker, say who they would raise taxes on and by how much? Because if supporters get specific, or put the idea to the scrutiny it would face if a constitutional amendment actually were proposed, their fiscal panacea will be exposed as a myth.

It's just division. Divide the dollar size of our problems by the number of high earners. They wouldn't put up with bearing anything close to the lion's share of bills we face because the numbers are stupefying. Make the case that it would be fairer for them to pay more if you want, but when it comes to revenue there just aren't enough of them to make much difference.

Pritzker says he wants to increase taxes on "millionaires and billionaires" and cut taxes for the middle class. Let's assume that means only taxpayers with over $150,000 in annual income get a tax increase. That's mighty generous because many of those obviously aren't millionaires. Illinois has 552,000 taxpayers reporting that much income, which is about the top 9 percent of all taxpayers, based on data we obtained from the Illinois Department of Revenue.

Let's do the division.

ADVERTISING



Start with unfunded pension liabilities for the state, which Moody's says are about $250 billion for work already performed, and divide that by those 552,000 big earners. On average, they'd be on the hook for $453,000 to pay down these obligations. Of course, they wouldn't be expected to make the funds solvent in just one year, but remember that since 2002 this debt has been deepening at a pace of $5.8 billion a year.

That should be the end of the story, but it's just the start. Unfunded health care obligations for state workers are constitutionally guaranteed along with pensions. That's another $56 billion, or $101,000 per taxpayer. The current bill backlog with the Illinois comptroller is $8.4 billion. That's another $15,000 per taxpayer.

Beyond those items already accrued, ongoing losses and further unfunded problems must be addressed. Illinois has been running $11.7 billion in the red on average for 10 years. That's from the most recent audited financial statements (not phony budget numbers). Assume, optimistically, that loss rate doesn't worsen, and reduce it by the $5 billion per year expected from last year's tax increase. We're still left with $6.7 billion of likely losses going forward. That's another $12,000 per year on average for those earning over $150,000.

How about the additional $350 million every year for 10 years that's needed to reach "adequate" funding under the new formula for schools? That $3.5 billion would be another $6,300 per taxpayer.

Most important, local property taxes are the fire burning out of control. With effective rates in many communities over 3, 4 or 5 percent, many of these levies must be rolled back, and that will mean further pressure on the state to fill the gap. That cost is unknown but unquestionably monstrous.

And what's the price tag per wealthy taxpayer for Pritzker's ideas for universal health care, early childhood education, better funding for schools and a tax cut for the middle class? Who knows, but why bother? The numbers already are beyond preposterous.

Pritzker has quietly, occasionally mentioned that a progressive tax increase might not be enough to raise all the revenue he thinks we need, but he has loudly and routinely exploited the popular notion that undertaxed, prosperous Illinoisans can cover most of it. Duck the specifics and leave voters to their fantasy, in other words. Maybe that will work. Or maybe voters will start doing the division themselves.

Mark Glennon is founder and executive editor of Wirepoints, an independent research, commentary and news aggregation site.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #714  
Old 04-24-2018, 12:11 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 82,061
Blog Entries: 6
Default

http://www.wirepoints.com/rating-age...ints-original/

Quote:
Rating agencies warn, Illinois flirts with junk – Wirepoints Original
Spoiler:

By: Ted Dabrowki and John Klingner

Illinois’ brutal political campaigns may have distracted attention from the reality of state’s crumbling finances, but an upcoming $500 million bond borrowing by the state will remind investors and Illinoisans alike how little has improved.



Both Moody’s and S&P recently affirmed Illinois’ one-notch-above-junk rating in preparation for the state’s upcoming bond.

And Moody’s continues to maintain a negative outlook on Illinois’ rating. That means a downgrade by the agency is more likely than an upgrade in the next year.

The reasons for the rating agencies’ pessimism are obvious. It’s not just what lawmakers have failed to do, it’s what lawmakers continue to do that’s dragging the state down.

The state continues to operate at a deficit despite nearly $5 billion in new taxes in 2018. And the shortfalls aren’t being compensated with spending reforms. Instead, the state continues to primarily use interfund sweeps to make the general budget balance. And the agencies don’t expect any big reforms this year – not with a stalemate that might ensue during this campaign season.

Bond investors are demanding a heavy price from Illinois for the increased risk they are being asked to take.

According to Municipal Market Data, Illinois will pay yearly interest rates that are 2.1 percentage points higher than the states with the best credit ratings – states that include Indiana, Iowa and Missouri. By comparison, states like Connecticut and New Jersey, states with severe pension crises, only pay about 0.85 percentage points more than the best-rated states. Illinois and its taxpayers are being heavily penalized for the state’s fiscal and governance mess.

The impasse script

Fitch, which still has Illinois two notches above junk, has warned what it would take to issue another downgrade. It reads like a script right out of Illinois’ impasse playbook:

“The rating will be lowered if the state (1) returns to a pattern of deferring payments for near-term budget balancing and materially increases the accounts payable balance. Specific risks include spending (2) above the level assumed in the budget, a significantly (3) slower revenue growth environment, as well as the (4) re-emergence of a political stalemate that negatively affects fiscal operations.” (numbers in parentheses ours)

Illinoisans should have very little confidence that lawmakers will avoid the pitfalls mentioned above. Let’s take each of Fitch’s points one-by-one:

Deferred payments
Illinois politicians have been deferring payments for more than 15 years. The state hasn’t had a truly balanced budget since 2001 and every year since then, lawmakers have engaged in a series of accounting gimmicks to keep the state “balanced” under the constitution – usually by borrowing or pushing off payments into the next year.

That’s led to a steady growth in the state’s unpaid bills, which reached as high as $9 billion in 2013, three years before the recent budget impasse even began. At the impasse’s peak, unpaid bills hit a high of $16.7 billion.



Today, the backlog is back below $10 billion, but don’t let that number fool you. It’s only lower because the state borrowed $6 billion from the bond market to pay down some of the bills. In the end, the state increased its mortgage to pay down the credit card.

Spending above the budget
It’s hard for lawmakers to avoid “spending above the level assumed in the budget” when they’ve been doing it for years and they continue to do so.

Wirepoints previously wrote on Illinois lawmakers’ inability to keep spending under control. The FY 2018 budget was on track to spend $1.7 billion more than expected – even though lawmakers had $5 billion in new tax hike dollars to work with.

The state has found ways to whittle that shortfall down via some fundsweeps and higher tax revenue growth, but a shortfall continues to exist. “Total Fiscal Year 2018 General funds expenditures are estimated to exceed Fiscal Year 2018 General funds base revenues by approximately 590 million,” according to the state’s official bond offering.

And that $5 billion won’t mean 2019’s budget is balanced either – it could be up to $3 billion out of balance. In fact, the latest predictions of the governor’s budget office have Illinois in deficit spending for the next 5 years.



Slower revenue growth environment
The only positive thing to say – and it’s not related to anything state lawmakers have done – is that thanks to national growth, the stock market and the reductions in regulations, Illinois tax revenues may do better than expected.

Re-emergence of a political stalemate
You’d think that none of the politicians in Springfield would want a repeat of the budget impasse. But the opposite is true. It’s an election year, so lawmakers are unlikely to reach deals that benefit the state or its residents. They’re more focused on scoring political points than on fixing anything. Neither Madigan nor Rauner will want to give the other a “success” for the campaign trail. And each side will blame the other as Illinois teeters on the brink.

So dysfunction will reign and a stopgap budget is likely, unless some Republicans break from Rauner like they did with the last budget. But everything’s up in the air. As state officials warn investors in the bond offering document, “There can be no assurance that a general funds budget will be enacted for fiscal 2019 or in future fiscal years.”

2019 is 2016 all over again

In 2017, Illinois politicians sold a record, permanent tax hike on its residents as the only way for the state to avoid ruin. Illinois was just one notch away from a junk rating and no state had ever received that designation.

One year later, with Illinoisans $5 billion poorer as a result of the tax hike, Illinois is still at the precipice.



The crisis is the fault of Illinois politicians. They’ve been given plenty of warning signals – 21 downgrades by the big three rating firms over the past decade – yet refuse to change the way they and the state operate.

“The state’s credit outlook is negative, based on our expectation of continued growth in the state’s unfunded pension liabilities, the state’s difficulties in implementing a balanced budget that will allow further reduction of its bill backlog, and elevated vulnerability to national economic downturns or other external factors,” the Moody’s report on the state’s bond offering said.

To reverse that trend, Illinois needs massive reforms that change from the way Illinois politicians do budgets, dole out retirements, control local governments manage labor rules and handle education finance.

If there’s not a major reversal, prepare for a downgrade – and the plunge to junk.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #715  
Old 04-24-2018, 12:12 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 82,061
Blog Entries: 6
Default

https://www.bloomberg.com/news/artic...market#new_tab

Quote:
Illinois Faces Rising Yields as Politics Cloud Return to Market
By
April 23, 2018, 9:44 AM EDT
State is selling $500 million of general-obligation bonds
Yields on its bonds are nearly twice as much as benchmark
Spoiler:
When Illinois returns to the bond market this week, its legacy of protracted fights over the budget will cast a costly shadow.

The lowest-rated state’s $500 million sale Wednesday comes as investors demand steadily higher payouts to compensate them for the government’s financial strife. While the difference between the yields on Illinois bonds and top-rated securities narrowed sharply after the state boosted taxes and ended its budget impasse in July, the gap has been steadily rising again amid the uncertainty caused by election-year politics.

Yields on Illinois bonds that mature in 2028 have jumped 0.85 percentage point since they were first sold in October, almost twice as much as those on benchmark debt, according to data compiled by Bloomberg.

“The yields will be more than they should be paying given their rating,” said Dan Solender, head of municipal investments at Lord Abbett & Co., which holds $20 billion of state and local debt, including some issued by Illinois. “They have a lot of headline risk. The budget is going to be not a simple thing to get through.”


Illinois’s finances are still recovering from the record budget impasse that ended in July after the Democrat-led legislature overrode Republican Governor Bruce Rauner’s veto to enact an income-tax hike to help close the deficit. The gridlock drove unpaid bills to a record $16.7 billion, and that backlog is still nearly $9 billion. The red ink reflects its “strained operating fund liquidity and a history of insufficient revenue,” Moody’s Investors Service said in a report this month.

Illinois’s yields have increased modestly compared with those on other bonds in anticipation of the deal, which follows two large offerings at the end of last year, according to Peter Hayes, head of the municipal bond group for BlackRock Inc., which oversees about $129 billion of state and local debt. Those sales, totaling about $6.75 billion, could curb demand because some investors have diversification rules that limit how much debt they can hold from one issuer, Hayes said.

“There are several elements that are definitely a headwind to Illinois here that investors are aware of,” said Hayes, whose firm’s municipal holdings include about $484 million of Illinois general-obligation bonds. “That probably will require premium for them to get market.”

The state has six weeks to approve a spending plan by a simple majority. After May 31, a higher threshold -- three-fifths majority vote in each legislative chamber -- is required to pass anything. In February, Rauner, a Republican who is seeking a second term in November, presented his budget for the year that starts July 1. The plan relies on $500 million in savings from shifting pension costs to local school districts and universities, which Democrats have said would be a shock to localities.

Moody’s Investors Service and S&P Global Ratings rank Illinois one level above junk. Investors want to be compensated for the state’s risks, said Dennis Derby, a portfolio manager at Wells Fargo Asset Management, which holds $41 billion of municipal debt, including Illinois bonds. His firm is considering buying the deal, he said.

“We don’t view Illinois as a default risk,” Derby said. “However, there’s obviously very strong headline risk and very strong political risk going into an election year with a budget that feels uncertain at this point in time.”

The budget for the year that ends June 30 still has an estimated deficit of $1.5 billion, according to bond documents. Rauner and lawmakers need to cut costs and or adjust revenue, and there’s no guarantee that might be addressed, according to the documents.

“This is a competitive sale and the market will dictate the levels,” Rachel Bold, a spokeswoman for Rauner, said in an email.

But overall, the financial outlook for the state has improved since last summer, said Neene Jenkins, a vice president and municipal credit analyst at AllianceBernstein, which oversees $41 billion of municipals. That’s reflected in the yield penalty the state pays, which jumped to as much as 3.4 percentage points in June. It’s now just about 2 percentage points.

“We saw some progress last summer,” which the market recognizes, Jenkins said. “There’s still work to be done.”
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #716  
Old 04-24-2018, 05:55 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 82,061
Blog Entries: 6
Default

http://www.sj-r.com/news/20180423/il...r-past-3-years

Quote:
Illinois’ late fees skyrocket over past 3 years
Spoiler:
Illinois has racked up more in late-payment fees in less than three years than it did in the previous 18 years combined, according to a report The Associated Press obtained Monday, and some major creditors say they’ve waited more than a year to receive the interest they’re owed.

The report by state Comptroller Susana Mendoza found that the $16 billion in past-due debt that piled up during a two-year budget stalemate comes with a steep price. Since July 2015, Mendoza reported, prompt-payment penalties have totaled $1.14 billion, $100 million more than the total from 1998 up to then.

Mendoza, a Democrat, was scheduled to release the report Tuesday, the first accounting of past-due bills and accrued interest since she was successful in getting a law requiring state agencies to report their incurred bills monthly.

Earlier Monday, private companies, which have kept government vendors afloat by paying their bills and relying on state reimbursement with interest, told lawmakers they’ve waited months for late-penalty payments, threatening the program.

Representatives of the four so-called qualified purchasers told the Commission on Government Forecasting and Accountability that banks and other lenders could dry up without timely late-fee payment.

“We essentially get slapped in the face when we’re paid the base invoice amount and none of the $100 million in prompt payment penalty due,” said Gregory Gac, secretary-treasurer of Illinois Financing Partners, a qualified purchaser.

Mendoza spokeswoman Jamey Dunn said Mendoza is “still in triage mode” in paying what ballooned to $15.9 billion in overdue bills last summer after a historic, two-year budget standoff between Republican Gov. Bruce Rauner and Democrats who control the General Assembly.

Additional borrowing — at a lower interest rate — through a $6.5 billion bond issue last fall cut that backlog in half, but Dunn said vendors statewide “are still experiencing payment delays.” Mendoza is prioritizing education and assistance to the “most vulnerable residents,” Dunn said.

The state has paid roughly $300 million in penalties since the beginning of 2017, Dunn said. With bills paid from the bond issue, interest-payment vouchers have been ticking up. The comptroller held $553 million in penalty vouchers on March 31, up from $116 million at the end of December.

The state must pay 12 percent annual interest on many bills unpaid after 90 days. State law requires those charges be paid “within a reasonable amount of time.” Another law requires penalties on some health insurance bills to be paid within 30 days.

Mendoza’s report indicated that $149 million in penalties fall under the 30-day window, although not all of it had missed the deadline. Gac said some of the $115 million in penalties that Illinois Financing Partners is owed should have been paid within 30 days.

Sen. Heather Steans, a Chicago Democrat and co-chairwoman of the commission, said it seems a reasonable strategy to stop interest from continuing to build by paying the principal.

But Gac said that during the budget stalemate, some lenders nixed further borrowing and others tightened loan terms. Another showdown could “kill the program,” he said.

Vendor Assistance Program, one of the qualified purchasers, began buying overdue vendor invoices even before the program was authorized by state law in 2012. Founder Brian Hynes said that since 2010, his firm has financed $4 billion but received only $65 million in prompt payment penalties and is awaiting $250 million more.

“At some point,” Hynes said, “you have to remember that these qualified purchasers helped sustain the state through a difficult time.”
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #717  
Old 04-24-2018, 06:09 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 82,061
Blog Entries: 6
Default

https://www.bondbuyer.com/news/illin...0-million-deal

Quote:
Illinois offers investors mixed messages ahead of $500 million deal

Spoiler:

More in
Primary bond market
State tax revenues
State budgets
Municipal disclosure
State of Illinois
Illinois
CHICAGO – Illinois officials are trying to shake market skepticism about the state's credit by casting its fiscal health in a more positive light, even as offering documents lay out a starker assessment.

In a recorded investor presentation ahead of Wednesday's $500 million competitive general obligation sale, Gov. Bruce Rauner’s finance team highlights fiscal gains following adoption of income tax hikes and more recent positive fiscal news.

Richard Ciccarone, president and CEO of Merritt Research Services. He was photographed at the Bloomberg Link State and Municipal Finance Briefing in New York, U.S., on Tuesday, March 22, 2011.
Putting the emphasis on the positive gains could help keep “more aggressive investors interested in Illinois paper,” said Richard Ciccarone, president of Merritt Research Services LLC.
Bloomberg News
The modest gains are due in large part to measures opposed by Rauner, and the positive portrayal runs counter to the position he often strikes in public appearances to promote his policy initiatives. Rauner’s team made similarly positive statements ahead of a deal last year after a two-year budget impasse ended last year despite the governor’s veto.

Wednesday's sale comes as widening spreads reflect investors' concern about whether ongoing partisan bickering could trigger renewed gridlock that would drive the state's rating to junk.

“Recent positive developments by the state include passage of the fy 2018 budget, increases in projected revenues,” and passage of school funding overhaul as well as the reauthorization of business tax credits and a reduction in the state's unpaid bill backlog, state capital markets director Kelly Hutchinson told potential investors.

Illinois expects to end fiscal 2018 June 30 with the backlog down to $7.7 billion, which is “less than half of what it was at its peak in 2017,” Hutchinson said. The backlog hit a peak last November of more than $16.7 billion but has since been whittled down to $8.2 billion due to $6 billion in bond borrowing late last year. That borrowing yielded $6.5 billion in proceeds because of a premium structure and leveraged $2.2 billion of federal matching Medicaid dollars.

The backlog “may increase unless balanced budgets are enacted in the future,” warns the offering statement, which must present investors with a full fiscal picture and description of potential risks to prevent an issuer from running afoul of regulators.

“There can be no assurance that a general funds budget will be enacted for fiscal 2019 or in future fiscal years,” the offering statement says.

Putting the emphasis on the positive gains could help keep “more aggressive investors interested in Illinois paper,” said Richard Ciccarone, president of Merritt Research Services LLC.

“We would expect the state to remark about their positives while the analysts will then dwell on the negatives,” Ciccarone said, adding that in the end, the state’s spreads speak loudest and it’s not likely to see an appreciable, longer-term improvement in its fiscal position.

On Friday, the state’s 10-year GO bond was at a 210 basis point spread above Municipal Market Data’s AAA benchmark, up from 177 bp at the start of the year. Illinois saw a 170bp spread on its November sale.

State budget director Hans Zigmund highlights the state’s “inherent credit strengths” including its strong economic base, status as one of the largest states by population, improving employment base, and growing per capital income – data Rauner often portrays negatively in speeches attacking Democrats’ opposition to his economic proposals.

Rauner and the general media have also drawn attention to the state’s loss of population and businesses over the course of the budget stalemate.

Revenues are on the rise, Zigmund notes, with more than $4.5 billion in additional cash expected from the income tax hikes that lifted the personal rate to 4.95% from 3.75% and the corporate rate to 7% from 5.25%. Rauner vetoed the budget last summer because of the tax hikes but it was adopted after a handful of Republican lawmakers sided with majority Democrats to override the veto.

Current spending exceeds a projected $36.8 billion in revenue by about $600 million this fiscal year, but that’s expected to decline as one-time revenue sources tied to the bill backlog borrowing are accounted for in the general fund.

Deputy budget director Charlie Weikel notes some “key highpoints” in the state’s pension system including most recent annual investment returns of 10%, the lowering of assumed returns, and the state’s contributions that have accounted for between 74% and 89% of what would be an actuarially determined contribution.

In other words, the payments last year totaling $7.6 billion fell short of an actuarially determined contribution by 26%. The offering statement notes that the pension funds “have deteriorated dramatically” over the last 10 years.

Bondholders benefit from the state’s conservative $31 billion GO debt portfolio which is mostly fixed-rate with level principal, the pre-funding of debt service, and strong statutory protections offered bondholders who can sue to compel the state to make good on GOs. The state has about $12 billion in non-general fund accounts that can be tapped for repayment. All are highlighted by the administration and backed up by rating reports.

But the offering statement notes that legal remedies for bondholders could be delayed if the matter ever ended up in the court system.

Ahead of the sale, Fitch Ratings affirmed the state’s BBB rating and negative outlook, Moody’s Investors Service affirmed its Baa3 and negative outlook, and S&P Global Ratings affirmed its BBB-minus and stable outlook.

The offering statement warns any revision of the ratings could have “material adverse effect” on the bonds’ future market -- one more downgrade from S&P or Moody's would make Illinois debt junk.

Illinois’ five-year spreads are up 25 bp from its November 29 sale and its 25-year bond is up 35bp, MMD’s analysts team said in a report Monday.

“Illinois may have to be sold at even higher spreads this round for this upcoming issue to clear the market,” the report says.

The Illinois 10-year spread of 210 bp is significantly higher than the BBB benchmark spread of 84 bp, the 88 bp spread seen by single-A rated Connecticut, and the 75 bp spreads for single-A rated New Jersey, both states facing severe pension funding strains, MMD said. “This analysis highlights the market’s opinion that Connecticut is seen as a BBB rated credit while Illinois is not viewed as investment grade,” the report says.

Illinois will take bids on a $450 million series that matures from 2019 through 2043 with a 10-year par call. A second series $50 million matures from 2019 through 2028 and does not include a call. Investor calls were held last week and on Monday. Chapman and Cutler LLP and Pugh, Jones & Johnson PC are bond counsel and PFM Financial Advisors LLC is municipal advisor.

Proceeds will fund capital projects under the state’s capital plan to finance information technology projects, and pay cost of issuance of the bonds.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #718  
Old 04-25-2018, 09:13 AM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 82,061
Blog Entries: 6
Default

https://fixedincome.fidelity.com/ftg...000135#new_tab

Quote:
Near-Junk Illinois to Sell More Bonds -- Will Investors Buy In?
Spoiler:
Illinois will add to its more than $30 billion debt load with a bond sale Wednesday, testing yield-hungry investors' desire to lend to the lowest-rated U.S. state as it grapples with ongoing political and financial issues.

Illinois is already the worst-rated state in the municipal market. The Prairie State's credit quality has crumbled in recent years as expenses have far outpaced revenues.

That has also been the case since the 2008 financial crisis for some other states and cities, who like Illinois also face potentially debilitating pension liabilities. Investors have given most a pass, though, because states are still generally thought of as safe credits.

This is due to their ability to raise revenues through taxes or slash expenses, as well as their inability to file for bankruptcy. No state has defaulted on its general obligation bonds since Arkansas in 1933.

Illinois may be challenging this notion. While its debt is technically rated as investment grade, its bonds currently trade in line with noninvestment grade or junk municipal debt, according to Thomson Reuters Municipal Market Data.

"Illinois has increasingly become an outlier among the 50 states," wrote Moody's Investors Service analysts in October before a state bond deal. The rating firm has a negative outlook on the state, meaning it could be downgraded further. S&P Global Inc. and Fitch Ratings also grade the state slightly above junk, at "BBB-" and "BBB" respectively.

One of Illinois's biggest problems: political logjams. State lawmakers have squabbled over everything from taxes to pensions. The state went more than two years without a budget before passing one in July 2017.

Now, with another budget deadline looming, some investors are skeptical that Illinois will be able to reach a fiscal agreement so soon after it issues millions of dollars in fresh debt. The state plans to sell $500 million in tax- exempt debt Wednesday with maturities ranging from 2019 to 2043.

Republican Governor Bruce Rauner's proposed budget needs to be passed by May 31. Last summer, Mr. Rauner wasn't able to reach agreement with Democrats or Republicans, leading politicians from both parties to make the rare move of overriding his veto on a tax increase, reaching a budget agreement and averting a junk rating. That allowed them to finally reach a budget agreement and for the state to avoid being downgraded to junk.

Investors and credit rating firms are watching this week's debt sale closely. Fitch Ratings said in a recent report that if political gridlock returns, Illinois could be downgraded once again.

"The question becomes, do they run into the same problem they ran into last year?" said Nicholos Venditti, a Santa Fe, New Mexico-based portfolio manager at Thornburg Investment Management, which oversees $11.5 billion in municipal bonds. "Now probably isn't the time to be buying Illinois' bonds" unless investors expect political woes to dissipate later this year.

The state's debt is already some of the most volatile of its kind in the municipal market, Mr. Venditti said. There is likely more turbulence ahead given the political clashes that have dominated the statehouse in the past, he said.

Some investors said demand for higher-yielding investments could woo investors on Wednesday. Additionally, lawmakers' willingness to pass a budget last year was a positive sign to some.

Another factor that may work in the state's favor this week: yields on Treasurys -- which often compete with municipal debt -- have climbed since last year but still remain historically low. Bond issuance from states and cities has also been light this year, traders say.

"It's not going to go smoothly but I think it's going to happen," said Chris Brigati, New York-based head of municipal trading at Advisors Asset Management, of a budget deal. "It's Illinois, and things don't go easy."

The state could be forced to sell its debt this week at higher yields than where bonds currently trade in the secondary market, said Daniel Berger, a senior market strategist at Thomson Reuters' Municipal Market Data. Yields rise as bond prices fall.

Investors currently demand more yield from Illinois general obligation bonds than they do from some tobacco bonds, data from Thomson Reuters Municipal Market Data show -- an unusual instance and potential sign of deteriorating faith in some state-issued debt.

Illinois has accumulated a massive load of unpaid bills. Through last year, some hospitals, doctors and dentists didn't get paid for patient care and the state was late paying utilities bills to Springfield, its capital city. It had about $8.9 billion in unpaid bills as of March 1, according to the state. That is substantially greater than most states, according to Fitch Ratings.

Earlier this year, a lawmaker floated other financing means, such as issuing pension obligation bonds again. Pension obligation bonds entail selling debt to fund retirement systems and investing the money. Such a move counts on investments like stocks surpassing the cost of bond interest. Illinois has one of the biggest pension shortfalls in the country, with more than $200 billion in pension debt, according to Moody's calculations.

Injecting other uncertainty into the state's finances, Gov. Rauner, a former venture capitalist, is up for re- election this November. The billionaire has routinely clashed with Democratic House Speaker Michael Madigan, who has sat atop the house for more than 30 years.


__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #719  
Old 04-25-2018, 09:13 AM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 82,061
Blog Entries: 6
Default

http://www.wirepoints.com/no-ms-mend...ees-quicktake/

Quote:
No, Comptroller Mendoza, the Budget Impasse Did Not Cause Late Fees - Wirepoints Original
Spoiler:
“Illinois’ Budget Impasse Leads to ‘Out of Control’ Interest Payments.”

That WTTW headline and similar story lines were common Tuesday after release of a report by Illinois Comptroller Susana Mendoza on late fees paid by Illinois on its backlog of unpaid bills — 1.4 billion just in the last two-and-one-half years. Her report and the accompanying press release say basically just that: “The fact that, under Governor Rauner, the state allowed its bill backlog to grow to a point where we incurred nearly two decades worth of late payment interest penalties in just over two years is asinine,” Mendoza said.

It’s bunk. Baloney. Nonsense. It didn’t matter whether a budget was in place.

During the impasse, tax revenue came in and bills were incurred just as they did when there was a budget. Bills went unpaid because we were spending more than we were taking in. It’s that simple. We spent everything we had and more, just as we did before the impasse, and just as we are doing today. The backlog was as high as $9 billion in January 2013, long before the impasse started.

But didn’t the backlog drop dramatically after the budget was passed last July — from $16.7 billion to about $8 billion today? Yes, but that’s because we moved bills to a different credit card. Through a bond sale shortly after the budget was passed (and some resulting reimbursements from the federal government) the state raised $8.8 billion, which was applied entirely against the unpaid bills. There is nothing to show for any budget impact on the backlog.

Also, Mendoza’s own numbers don’t really support her blame-Rauner theme. On the right is a graphic from her report, which she didn’t discuss. It shows that late penalties in the Quinn years weren’t that much lower than during Rauner’s term. Remember that Democrats had super majorities in both houses of the General Assembly during those Quinn years

Susana Mendoza is charismatic, articulate and a bundle of energy. She’s also a superb spin artist, as this chapter shows. Much of the press, like WTTW as shown in that headline, bought the spin.

It’s part of a theme clearly central to Illinois Democrats this election: Most of our problems were caused by the budget impasse, and Governor Rauner is entirely to blame for the impasse.

The second part of that theme is just as silly. The Democrat controlled General Assembly obviously shares blame. Ominously, it looks like they’re prepared to double down by ensuring another impasse. They’ve made no semblance of a counter offer to the budget Rauner proposed, but they’ll no doubt be blaming an impasse on Rauner.

They’ll probably get away with it. In the meantime, the real problem, which is deficit spending, goes ignored.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #720  
Old 04-26-2018, 09:57 AM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 82,061
Blog Entries: 6
Default

http://www.sj-r.com/opinion/20180424...-bad-budgeting

Quote:
Guest View: Illinois’ 4 pillars of bad budgeting
Spoiler:
In Illinois, tax hikes will always be a lingering threat as long as lawmakers continue to borrow money and refuse to pass balanced budgets.

Unfortunately, Illinois lawmakers haven’t passed a balanced budget since 2001 and couldn’t even agree on a budget between 2015 and 2017.

Politicians should be held accountable for their mistakes — but rather than pointing the finger, a better approach to fixing Illinois’ budget woes is to change the state’s (bad) budgeting process.

Illinois has four bad budgeting practices that make an already difficult job even harder.

1. Lawmakers pass budgets without knowing what the state can afford.

Revenue estimates allow state governments to base their budget for the coming fiscal year on economic projections.

But the Illinois General Assembly has been flying blind since 2013 — spending money without adopting a revenue estimate that says how much there is to spend.

And when lawmakers have adopted an estimate, the numbers are often unreliable, according to a standard used by the National Association of State Budget Officers. During the past decade, Illinois state agencies have overestimated revenue more often than not.

The problem is not that Illinois is particularly bad at estimating revenue; rather, that revenue estimating is an inherently unreliable way to plan budgets.


2. Hidden deficits.

Imagine if you could balance your household budget by simply not paying your electric bill this month. Sound ridiculous? That’s exactly what Illinois’ budgeting system allows politicians to do.

The state uses a cash-based system during budget planning, which means revenues are counted when they’re received but spending is counted when a bill is actually paid, not when it’s incurred.

The true size of Illinois’ debt and deficits are hidden by this accounting gimmick. For fiscal year 2017, the cash-based budget deficit was $7.98 billion while the accruals-based deficit was $14.6 billion — that’s a $6.6 billion hidden deficit. Unfortunately, this information isn’t available until months after the budget year ends.

3. A minuscule rainy-day fund.

Illinoisans know that saving is important. Money should be put aside for unexpected occasions or emergencies.

State governments are supposed to have a rainy day fund too. Illinois’ Budget Stabilization Fund is designed as a reserve that lawmakers can use to balance the budget when a recession or emergency hits.


The Commission on Government Forecasting and Accountability recommends Illinois maintain 10 percent of annual revenue in this fund, or about $3.6 billion for fiscal year 2018. Instead, Illinois lives from your paycheck to your paycheck with a meager $98,000 saved up.The fund has been continuously raided for non-emergency purposes.

4. Short-term cash infusions.

One of the ways lawmakers get around the state’s balanced budget requirement is by using short-term cash infusions such as issuing bonds to pay for pensions and sweeping funds meant for other purposes.

Sweeping special funds with dedicated revenues and throwing them into the black hole of general funds is a bad practice. And adding more debt to pay annual pension bills is an unsustainable process.

Common sense solutions

There’s a way to end these bad budgeting practices and give Illinois taxpayers a responsible and sustainable budget without tax hikes. And by adopting common sense solutions, Illinois can end what S&P Global Ratings referred to as a “persistent crisis-like budget environment.”

First, lawmakers need to change the state’s accounting system for the budget planning process. It’s the only way to consider the long-term sustainability of today’s spending and provide transparency for taxpayers.


Second, Illinois lawmakers should adopt a constitutional amendment that ties growth in spending to growth in the economy. A spending cap — such as Senate-Joint Resolution Constitutional Amendment 21, which has Democratic and Republican sponsors in the Senate — would give lawmakers a “magic number” to base their budgets on, rather than unpredictable revenue estimates.

If revenue came in higher than the cap, lawmakers could put that money aside in a rainy-day fund or provide tax relief to Illinois residents. The cap would also reduce the temptation to borrow money or sweep funds to pay for operations.

After years of turmoil, taxpayers deserve a state where they feel comfortable planting roots. No matter who voters send to Springfield, lawmakers won’t be able to do right by them until they fix the broken budget process.

Adam Schuster is the director of budget and tax research at the Illinois Policy Institute, a Springfield- and Chicago-based think tank that promotes smaller government and free-market principles.


__________________
It's STUMP

LinkedIn Profile
Reply With Quote
Reply

Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off


All times are GMT -4. The time now is 11:17 PM.


Powered by vBulletin®
Copyright ©2000 - 2018, Jelsoft Enterprises Ltd.
*PLEASE NOTE: Posts are not checked for accuracy, and do not
represent the views of the Actuarial Outpost or its sponsors.
Page generated in 0.33650 seconds with 11 queries