Muni watch

[campbell]

Okay, I've decided munis are different from sovereign debt [b/c they are... is the IMF going to swoop down and take over Illinois, a la Greece? ...ah, to dream...]

http://nalert.blogspot.com/2010/06/m...suries-as.html

Business Week reports:

Municipal bonds underperformed U.S. Treasuries in the first half as default speculation drove state and local government yields to the highest level relative to government bonds in 13 months.

The perceived ability to payback principal is going to a big issue.

Forget about the perceived ability. Let's just talk about the ability. Especially POBs.

[DixieFlyer]

Originally Posted by campbell

Forget about the perceived ability. Let's just talk about the ability.

don't worry, the banking cartel will instruct Congress and/or the Fed to bail the muni's out

[campbell]

well, here comes their chance to bail out!
http://www.nytimes.com/2010/07/03/bu...2&pagewanted=1

ven by the standards of this deficit-ridden state, Illinois’s comptroller, Daniel W. Hynes, faces an ugly balance sheet. Precisely how ugly becomes clear when he beckons you into his office to examine his daily briefing memo.

He picks the papers off his desk and points to a figure in red: $5.01 billion.

“This is what the state owes right now to schools, rehabilitation centers, child care, the state university — and it’s getting worse every single day,” he says in his downtown office.

Mr. Hynes shakes his head. “This is not some esoteric budget issue; we are not paying bills for absolutely essential services,” he says. “That is obscene.”
....

Then there is the spectacularly mismanaged pension system, which is at least 50 percent underfunded and, analysts warn, could push Illinois into insolvency if the economy fails to pick up.

States cannot go bankrupt, technically, but signs of fiscal crackup are easy to see. Legislators left the capital this month without deciding how to pay 26 percent of the state budget. The governor proposes to borrow $3.5 billion to cover a year’s worth of pension payments, a step that would cost about $1 billion in interest. And every major rating agency has downgraded the state; Illinois now pays millions of dollars more to insure its debt than any other state in the nation.

“Their pension is the most underfunded in the nation,” said Karen S. Krop, a senior director at Fitch Ratings. “They have not made significant cuts or raised revenues. There’s no state out there like this. They can’t grow their way out of this.”
....
“The pension move was Enron-esque,” said Mike Lawrence, a press secretary to the former Republican governor Jim Edgar, who was the last governor to sign an income tax increase. “Blagojevich was not a tax-and-spend governor; he was a spend-and-borrow governor.”

The state’s income tax burden is not terribly high — Illinois ranks in the bottom half of states — and its government is not terribly large. (The budgets in New York and California, per capita, are much larger). Even if the state cut out all family and human services spending, more than half of the budget deficit would remain.

Yes, I will be cross-posting this in my pensions thread.

[zeuz]

Mr. Hynes shakes his head. “This is not some esoteric budget issue; we are not paying bills for absolutely essential services,” he says. “That is obscene.”

Bullshit. Nothing is absolutely essential. Cut your damn spending.

[campbell]

Well, I think breathing is essential.

But at least breathing is free. For now.

[Guilty Bystander]

I'm kinda fond of police services myself.

[campbell]

http://www.businesswire.com/portal/s...20&newsLang=en

Fitch Rates Evanston, IL GOs 'AAA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to the following Evanston, Illinois (the city) unlimited tax general obligation (ULTGO) bonds:

--$8 million general obligation bonds, series 2010A;

--$8.5 million taxable general obligation bonds, series 2010B.

In addition, Fitch affirms the following ratings:

--$151.5 million outstanding ULTGO Bonds at 'AAA.'

The Rating Outlook is Stable.

RATINGS RATIONALE:

--Residents display a superior socioeconomic profile reflecting high wealth, employment and education levels.

--Evanston's advantageous location provides abundant employment opportunities both within the city and throughout the Chicago metropolitan region although cyclical economic pressure is currently evident.

--Despite generating operating deficits after transfers for three consecutive years, the city still maintains sound reserves and furthermore, management has taken meaningful steps to restore long-term structure balance.

--The unfunded pension liability is notable.

KEY RATING DRIVERS:

--The city's ability to restore financial equilibrium while adequately addressing its severely under-funded pension system especially given the general malaise of the current economic climate.

[campbell]

More on Evanston
http://www.evanstonnow.com/story/new...op-debt-rating

Moody's Investors Service Monday announced it has given its highest debt rating -- "Aaa" -- to Evanston's new and existing bond debt.

And the agency labels the city's future financial outlook as "stable."

Moody's had downgraded the city's rating by one notch, to "Aa1" back in 2007 as concerns grew about the city's increasing pension liabilities and overall spending levels.

The firm Monday said it had "recalibrated" the city's existing debt rating to "Aaa" on April 16, a move that was not widely reported at the time.

The "Aaa" rating applies to $14.5 million of new general obligation bonds to be issued this year as well as existing debt of $151.5 million.

Of the new debt, $6.5 million will be used to finance capital improvement projects and $8 million will finance a payment to the Illinois Municipal Retirment Fund to cover early retirement benefits for city employees.

and what about those pension liabilities?

While noting that the city's unfunded public safety pension liabilities continue to grow, the report says that risk is balanced by the city's "unlimited ability to raise revenues" as a home rule community.

Wow, is there ever going to be a recalibration of what that term means in the years ahead.

[campbell]

http://www.theconglomerate.org/2010/...itigation.html

New Jersey is a special state in many ways, but my gut instincts tell me this SEC action is just the vanguard of a coming wave of state and municipal securities litigation. We have all the ingredients for an epidemic:

Start out with the dire budget situation of states and municipalities squeezed by the financial crisis.

Add the fact that many public entities have purchased complex derivatives whether to hedge interest rate risk, package together with bonds to work around statutory restrictions on public debt or get higher rating agency ratings, or just invest.

Pour in a hefty serving of accounting gimmickry which is a staple for getting around balanced budget rules

Mix in the fact that public bond deals are often dismissed as “cookie cutter” (I’ve posted before on how the “boring” areas of finance and law are often where the next crises lurk.)

Stir in some more obscure regulatory agencies (such as the Municipal Securities Rulemaking Board)

And voila! Crisis casserole.

[campbell]

http://www.nytimes.com/2010/09/03/bu...risburg&st=cse

The capital of Pennsylvania has taken a step closer to a possible bankruptcy declaration, warning this week that it was not going to make a scheduled payment of $3.3 million on its general obligation bonds because it did not have the money.
....
Even though municipal bond defaults have reached levels not seen since the early 1990s, the vast majority have been by small, special-purpose authorities in places hit hard by the real estate collapse. Harrisburg’s move was remarkable for a city of any appreciable size; the city’s annual budget is about $100 million.
....
The company that insured Harrisburg’s bonds, Ambac Assurance, has authority under Pennsylvania law to take Harrisburg to court within 30 days and seek an order that it raise property taxes to pay the bonds.
....
Harrisburg’s financial difficulties have been mounting for some time. Even before this week, it had missed several payments in connection with another batch of bonds. It had guaranteed nearly $282 million of bonds issued by a separate entity, the Harrisburg Authority, which raised the money to build a huge trash incinerator.