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
  #801  
Old 08-16-2018, 12:15 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: 84,167
Blog Entries: 6
Default

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

Quote:
Illinois deals to shed floating-rate and swap risks

Spoiler:
CHICAGO — Illinois will shed its only floating-rate paper and cancel associated interest rate swaps with proceeds from a $920 million general obligation refunding deal.

The preliminary offering statement is expected to post midweek and pricing is expected as soon as next week, according to state documents. The deal will offer two series, one for $650 million, and a second for $270 million.

The deal is expected to be priced favorably to an April sale because Moody's Investors Service (MCO) eased its outlook for Illinois when the state passed its first on-time budget in several years.

The issue will refund $600 million of floating-rate 2003 bonds and cover swap termination fees — negatively valued at $83 million in April — used to synthetically fix the debt. The structure had given the state headaches as its ratings deteriorated, threatening termination events and higher interest costs.

“The financing plan will de-risk the state's debt portfolio by refinancing into fixed-rate bonds its $600 million in variable-rate demand obligations,” S&P Global Ratings wrote.

The deal will also refund other GO debt for savings. Ahead of the sale, the three major rating agencies affirmed their ratings with two at the lowest investment grade level and the third at two notches above junk.

“It’s impossible to call interest rates so it’s good policy any time you can extinguish interest rate risk,” said Brian Battle, director of trading at Chicago-based Performance Trust Capital Partners.

The buyside should also look more favorably on the state’s paper than it did with its last sale in April based on secondary market trading levels that narrowed after passage of a fiscal 2019 budget at the end of May and Moody’s July 19 outlook revision to stable from negative on its Baa3 rating.

The state’s April GO issue came amid increasing market concerns about whether Republican Gov. Bruce Rauner and the General Assembly’s Democratic majorities would return to budget gridlock ahead of the looming November state elections.

The state went two years without a budget until lawmakers overrode Rauner's veto in July 2017 to pass the fiscal 2018 spending plan. It raised income taxes by about $4.5 billion and provided $6 billion in borrowing authority to pay down the state's $16 billion unpaid bill backlog.

The $38.5 billion fiscal 2019 budget was the first Rauner signed since taking office in 2015.

“They are coming at a time when there’s not a lot of supply and a lot of demand with reinvestment dollars available and they will definitely benefit from the outlook change,” Battle said. “They will be happy the state has gone to stable.”


The state’s 10-year GO paper is currently trading at about 160 basis points to the Municipal Market Data’s AAA benchmark with spreads at 142 basis points on the longer end.

The 10-year yield in its April 25 sale landed at 4.55%, a 205 basis point spread to the AAA early in the trading day and a 121 bp spread to the BBB. The long 25-year maturity in the April sale landed at 4.88%, a 185 bp spread to the AAA early in the trading day and a 102 spread to the BBB.

Spread tightening followed passage of a budget in late May — narrowing to about 165 bp — and they further narrowed late last month to a range of 150 bp to 153 bp after Moody’s outlook revision.

Spreads in April increased from the state's previous GO deal in November, when the 10-year landed at about 170 bp.

The true interest cost on the state’s November sale was 4.29%. Rising rates and state penalties boosted the TIC to 4.72% on the April sale.

The state’s spreads have fluctuated widely over the last three years, with the 10-year peaking at more than 335 bp in June 2017, finishing 2017 at 177 bp. Spreads again topped 200 bp this spring before the state passed a budget.

FLOATERS/SWAPS
The fiscal 2019 budget package paved the way for the swap payoff by providing the needed authority to finance the termination payments.

Rauner’s finance team remarketed the paper in direct placements in 2016 with a mandatory tender coming up on Nov. 17, and also renegotiated the swap rating triggers.

The 2016 terms on its five swaps with four counterparties included the novation of two to lower the ratings thresholds for triggering termination events.

Terminations were to have been triggered on the derivative contracts with Barclays (BCS), JPMorgan (JPM), and Bank of America (BAC) if the state’s rating from Moody’s Investors Service or S&P Global Ratings fell to junk.

The state already had more breathing room on the largest swap, with Deutsche Bank (DB), which was set at a lower threshold.

The counterparties lowered the rating thresholds again last year so that a state downgrade to BB/Ba2 would trigger termination events.

Illinois is rated at Baa3 with a stable outlook by Moody’s, BBB-minus with a stable outlook by S&P, and BBB with a negative outlook by Fitch Ratings.

Barclays (BCS) is counterparty to two swaps each for $54 million, Bank of America (BAC) is on one for $54 million, JPMorgan Chase (JPM) is on one for $54 million, and Deutsche Bank (DB) is on $384 million.

The swaps were negatively valued at $153 million in 2016 and $107 million last year, compared to $83 million as of April, according to state disclosure documents.

In 2016, the state also remarketed the floating-rate paper that was supported by letters of credit from six banks set to expire in November 2016 putting it in direct placements with four banks. The bonds bear either a LIBOR or SIFMA-based interest rate that rises if the state is downgraded.

DNT Asset Trust accounts for $226 million, PNC Bank NA accounts for $224 million, State Street Public Lending Corp. accounts for $75 million and RBC Municipal Products LLC accounts for $75 million.

The state’s spread previously rose to 3.45% from 2.95% based on downgrades in 2017, with further increases that would have been triggered by a downgrade to junk.

RATINGS
Rating analysts warn that the state’s deep fiscal stains will demand action after the November election. Rauner running for re-election against Democrat J.B. Pritzker, and all state House seats and one-third of Senate seats are up. Democrats hold a supermajority in the Senate and are just shy of a supermajority in the House.

The BBB-minus rating “reflects our view of the state's lack of budget reserve and generally weakened financial condition, lingering structural budget imbalance, backlog of unpaid bills, and distressed pension funding levels, offset by its well-established record of treating transfers for GO debt service as priority payments, deep economic base, and above-average per capita personal incomes," said S&P analyst Gabriel Petek.

Illinois is saddled with a $129 billion unfunded pension tab and is overdue on $6.8 billion of bills as of Tuesday. Another material risk is the state’s poor preparation for the next recession.

“Although our forecast anticipates continued economic growth, Illinois' finances are stretched and retain minimal cushion to weather the additional fiscal pressures that would accompany an economic downturn,” S&P said.

Fitch said its negative outlook reflects that “fiscal pressures may accelerate in the near term as the fiscal 2019 budget entails significant implementation risk and uncertainties remain regarding ongoing fiscal management and decision making, particularly given the contentious political environment."

Adoption of a budget is a plus, but all three rating agencies say implementation risks diminish the positives. It relies on $300 million from the long-stalled sale of the state’s downtown Chicago headquarters, $400 million from uncertain savings from pension reforms including buyouts and it doesn’t account for about $400 million in overdue raises.


__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #802  
Old 08-20-2018, 12:00 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: 84,167
Blog Entries: 6
Default

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

Quote:
Illinois offering document paints a gloomier picture than its politicians

Spoiler:
CHICAGO – The Illinois budget labeled as “balanced” by Democrats and Republicans alike has an estimated $1.2 billion structural imbalance, according to the state’s new offering statement.

“To avoid future structural deficits, the governor and General Assembly would, among other potential solutions, need to reduce expenditures, adjust revenue collections, or approve a combination of revenue adjustments and reductions in expenditures,” says the preliminary official statement for a $920 million general obligation bond refunding set to price Wednesday.


Even as the state highlights its fiscal strides in a recorded investor presentation, the structural deficit is among "investment considerations" investors are warned about in the POS along with the state's bill backlog, weak ratings, and $129 billion of unfunded pension liabilities.

The state will shed the only floating-rate paper exposure in its $29.7 billion general obligation debt portfolio and cancel related interest rate swap contracts negatively valued at $74 million as of Aug. 1, according to the offering document. The state will current refund other debt for savings.

JPMorgan (JPM) is running the books on the deal with Bank of America Merrill Lynch, Loop Capital Markets, Siebert Cisneros Shank & Co. and PNC Capital Markets (PNC) as co-senior managers. Columbia Capital Management LLC is advisor and Swap Financial Group is swap advisor. Chapman and Cutler LLP and Burke, Burns & Pinelli Ltd.

“By converting the remaining outstanding variable rate bonds to fixed-rate bonds and terminating the swaps, the state will mitigate the interest rate risks associated with these instruments in a rising rate environment,” said administration spokeswoman Patty Schuh. “Additionally with the continued positive outlook from the ratings agencies, we are capitalizing on the tightening spreads of the state’s credit.”

This month's deal is expected to fare better in pricing than an April sale because Moody's Investors Service (MCO) eased its outlook on its Baa3 rating of Illinois to stable from negative after the state passed its first on-time budget in several years. Ahead of the sale, the three major rating agencies affirmed their ratings: S&P Global Ratings has Illinois at BBB-minus with a stable outlook, and Fitch Ratings has Illinois at BBB with a negative outlook.

The budget relies on one-shot measures that lead to structural imbalance, such as $800 million of interfund borrowing and assuming $300 million from the long-stalled sale of the state government’s downtown Chicago headquarters.

Other fiscal risks that could leave the state with a cash hole this year include the reliance on $400 million in uncertain pension fund reform savings, largely from buyout programs that are not yet in place.

“While these buyout programs have yet to be implemented, it is expected to create savings for the state in the long term,” state budget director Hans Zigmund said in a recorded investor presentation. “The state can provide no assurance as to the amount of savings actually realized from the implementation of such programs.”

The state also has not accounted for $400 million in overdue raises based on experience that labor board rulings have said must be paid.

The General Assembly’s Democratic majorities and Gov. Bruce Rauner and most of his fellow Republican legislators struck the budget agreement ahead of an end of May deadline. It marked the state’s first, full-year, on-time budget agreement since Rauner took office in 2015.

All acknowledged the budget’s flaws but they still labeled it balanced, a description some rating agency analysts and investors disagreed with, particularly given the state's more than $6 billion of unpaid bills.

The lack of acrimony in crafting a budget as lawmakers focused on the November elections marked a sharp contrast to a year earlier when Rauner vetoed a fiscal 2018 budget that raised income taxes. Some GOP members broke ranks to override the veto.

Rauner is again ramping up his attacks on the tax hike, even though he signed the new budget that relies on more than $4.5 billion in additional revenue generated by the income tax increase.

He labels it the Madigan tax hikes, referencing House Speaker Michael Madigan, and warns of the close ties between Madigan and the Democratic candidate in the governor's race, J.B. Pritzker. Rauner accuses both of planning further raise taxes. Pritzker supports moving toward a graduated income tax from the current flat tax, which would require changing the state constitution.


At the same time, Rauner's finance team paints a rosier picture supported by the revenue from the tax hike.

“Several developments which have taken place since the beginning of fiscal year 2018 are putting the state on an improved trajectory for the future,” state capital markets director Kelly Hutchinson says in a recorded investor presentation, saying the permanent income tax hike “helped drive a 21% increase in general fund revenues.”

Hutchinson also highlights passage of the fiscal 2018 and 2019 budget and the bill backlog reduction to $6.8 billion at the close of fiscal 2018 on June 30. That’s $900 million better than expected. Other positives include the plan to shed the state’s only floating rate risk and swaps that will lower interest costs and risks and the U.S. Supreme Court’s decision paving the way for states to collect sales taxes from online companies, Hutchinson said. Another plus is the anticipated $1 billion reduction in debt service in fiscal 2020 as portion of the state’s pension related debt is retired.

Zigmund touted the state’s improving economy, growing per capita income, and declining unemployment.

More Fixed Income News
Fed Research Director David Wilcox to Retire at Year's End -- Update
BY DJ BUSINESS NEWS |ECONOMIC
11:55 AM EDT
U.S. Treasury yield curve flattest in 11 years
BY MARKETWATCH |TREASURY
11:24 AM EDT
Fed Research Director David Wilcox to Retire at Year's End
BY DJ BUSINESS NEWS |ECONOMIC
11:18 AM EDT
News Highlights: Top Global Markets News of the Day
BY DJ BUSINESS NEWS |ECONOMIC
11:15 AM EDT

http://www.wirepoints.com/illinois-t...not-quicktake/
Quote:
Illinois Tells Voters Its Budget Is Balanced, Warns Bond Investors It's Not - Quicktake
Spoiler:
Print Friendly, PDF & Email
Illinois has one story for voters and a different story for bond investors when it comes to its budget. That’s because you get sued for lying to investors but not for lying to voters.

Remember the bipartisan high fives and back slapping a couple months ago after Illinois passed its “balanced budget”? Officeholders too numerous to list were bragging about how they balanced the state’s new budget. They included Governor Bruce Rauner and legislative leaders from both parties. Much of the press carried the same message.

But now comes the state’s latest offering statement — the disclosure document for an upcoming bond issue. It says Illinois actually has a $1.2 billion structural imbalance. That structural deficit is among “investment considerations” investors are warned about. A Bond Buyer article linked here has the details.

In fact, if you spent a little time looking, it was apparent from the start that the budget wasn’t balanced. We told you why at the time.

Keep in mind that even that $1.2 billion deficit described to bond buyers is based on the usual budget accounting which, as we’ve explained often, is nearly meaningless. It’s really just a prediction of where the cash will come and go for the year.

Honest budget accounting would reflect what gets accrued in ever growing debt, including unfunded pension liabilities. By that measure, Illinois’ budget has been routinely unbalanced by roughly $10 billion per year — over a third of its total tax revenue.

In other words, Illinois doesn’t keep its story straight even using phony budget accounting.
http://www.wirepoints.com/unbalanced...ain-and-again/
Quote:
Unbalanced Illinois...again and again and again
Spoiler:
Illinois’ sham state budget is unbalanced yet again. A fiscal year 2019 budget that was celebrated by both sides of the aisle as “balanced” just a few months ago is already facing a $1.2 billion structural imbalance, according to a new government bond document. Wirepoints warned this would be the case in “A budget for lawmakers, not Illinoisans,” shortly after the budget was signed.

That budget was the result of a “compromise” deal between Gov. Bruce Rauner and House Speaker Mike Madigan after nearly three years of budget fights and partial budgets. Large deficits and a ramp up in unpaid bills were blamed on the budget impasse that existed prior to the compromise.

“This budget is balanced, it is disciplined, it is pragmatic,” Democratic Sen. Andy Manar of Bunker Hill said in floor debate just before the budget was passed.

“I commend Governor Rauner for his leadership in helping get us a budget we can balance,” exclaimed Senate Republican Leader Bill Brady.

These kinds of praises for the budget were echoed by legislators throughout the media.

But the reality is, official budgets in Illinois are a sham because they’re never balanced – even when the numbers or politicians say they are. The official budgets never include the losses that are stuffed into debts annually, even though those losses typically amount to billions each year.

The $1.2 billion budget imbalance, even under phony budget accounting, was confirmed to prospective investors in an upcoming $920 million bond offering.

Illinois’ deficit is the result of the state’s typical gimmicks:

$800 million in interfund borrowings – taking money from other, unrelated, state accounts to fill the hole in the general budget.
$300 million expected from the sale of the Thompson Center. This is the third year in a row the state is banking on the sale of the Thompson Center to balance the budget.
$400 million in savings from an untested and not-yet-ready pension buyout proposal. The public has never seen the background math behind this scheme.
$400 million in unaccounted for, long-delayed raises for state AFSCME workers.


Unsurprisingly, the state is still playing games and using one-time fixes, even after using every bit of the $5 billion dollar tax hike passed last year. Lawmakers have been lying about balanced budgets for nearly 20 years. Illinois hasn’t had a truly balanced budget since 2001.

Why the state is being so “forthcoming” to investors is also worth noting.

The state explicitly warned in the upcoming bond issue: “The fiscal year 2019 General Funds budget has an estimated underlying structural deficit of 1.2 billion.” It also warned about the state’s bill backlog and its “severe” pension mess.

There’s no mystery as to why. Illinois was busted for securities fraud in 2013 by the Securities Exchange Commission for lying to bondholders about how bad off the state pension plans really are.

Too bad the SEC can’t bust Illinois lawmakers for lying to residents about their “balanced budgets.”
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #803  
Old 08-21-2018, 04:06 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: 84,167
Blog Entries: 6
Default

https://www.bloomberg.com/news/artic...cipice-of-junk

Quote:
Illinois Prepares to Borrow After Moving Off Precipice of Junk
Preliminary yields are about 30bps lower than April deal
Illinois’s 30-year bonds over AAA are near tightest since 2015
Spoiler:
Illinois is poised to reap lower borrowing costs as it returns to the municipal-bond market for the first time since pulling back from the brink of becoming the first junk-rated U.S. state.


Illinois is offering $920 million of general-obligation refunding bonds for yields ranging from 3.05 percent to 4.41 percent, according to three people familiar with the terms who declined to be named as the pricing isn’t final. The preliminary yields are about 30 basis points lower than the state’s deal in April, according to data compiled by Bloomberg. Proceeds from the negotiated offering will also pay termination payments to banks to cancel interest-rate swap agreements and eliminate Illinois’s derivative exposure, bond documents show.

Bondholders and rating companies have praised Illinois’s progress. Spreads on the worst-rated state’s 30-year bonds over benchmark debt tightened to the lowest since March 2015 after Moody’s Investors Service lifted its outlook to stable from negative last month. It’s the first time Illinois has been at that level since December 2012, according to Moody’s.


The so-called Illinois penalty, or extra yield that investors have long demanded to own the state’s debt, has receded from the high of nearly 3 percentage points in June 2017. The premium was 1.4 percentage points on Monday.

“They’ve shown some progress with a successful budget,” said Gabe Diederich, portfolio manager for Wells Fargo Asset Management, which oversees $39 billion of state and local bonds, including Illinois debt. “At the same time, I think the yield penalty is certainly not going to evaporate with this deal given some of the continued work that lies ahead for the state.”

Illinois’s fiscal woes are far from over. The budget, while enacted before the July 1 start of the 2019 fiscal year, has a $1.2 billion structural gap, and the state is struggling with $137 billion of unfunded pension liabilities, according to bond documents.

Debt Swaps
The deal will “de-risk” Illinois’s portfolio by refinancing $600 million of variable-rate debt from 2003 into fixed-rate, according to S&P Global Ratings, which rates the deal BBB-. Proceeds will also terminate interest rate swaps that Illinois originally entered into to hedge risk associated with the variable-rate bonds, S&P said.

The variable-rate debt was backed by six letters of credit that were going to expire in November 2016, and Illinois refunded that with proceeds from bonds sold to four banks under direct purchase agreements. Those agreement are set to expire in November, according to S&P. As of Aug. 1, the termination payments were estimated at $74 million, bond documents show.

There’s “clear market recognition” of the budget progress, said Neene Jenkins, a vice president and municipal analyst at AllianceBernstein, which oversees $42 billion of state and local bonds, including Illinois debt.

"I recognize both the tremendous amount of progress the state has made relative to last year and the challenges that still face the state moving forward,” said Jenkins, who is looking at the deal. “They have a lot of work to do.”

The effects of the record two-year impasse that wrecked havoc on Illinois’s finances haven’t disappeared. That political stalemate drove unpaid bills to a record $16.7 billion. That backlog is now about $7.8 billion, reduced because the state borrowed $6 billion in November to pay it down.

“We are optimistic because the state is in a better fiscal position today with enactment of a full-year budget,” Elizabeth Tomev, a spokeswoman for the governor’s office, said in an email. “The ratings agencies have acknowledged our efforts to address our pension burden and are encouraged by the budget’s passage into law.”

Slim Calendar
Wednesday’s bond sale comes amid a much smaller issuance calendar compared to last week. U.S. state and local governments are scheduled to sell about $4 billion of debt this week, compared with about $12 billion last week. Illinois’s offering is the largest long-term deal this week, according to data compiled by Bloomberg. Texas is scheduled to sell $7.2 billion in short-term notes on Wednesday.

The offering comes amid ongoing demand for high-yield paper in a low-rate environment. Investors added $244.2 million to high-yield municipal funds in the week ended Aug. 15, according to Lipper US Fund Flows data. Those funds have seen inflows in nine of the past 10 weeks.

“They still pay a penalty because of their history and because of the uncertainty going forward,” said Daniel Solender, head of municipal investments at Lord Abbett & Co., which manages $20 billion of state and local debt, including Illinois bonds. “They’re definitely headed in a better direction, but there’s still a lot of things that need to happen for the situation to materially improve.”


__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #804  
Old 08-27-2018, 04:40 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: 84,167
Blog Entries: 6
Default

https://www.reuters.com/article/illi...-idUSL2N1VD1J2

Quote:
UPDATE 1-Investors demand fat yields for $966 mln in Illinois bonds

Spoiler:
(Changes amount of bonds to nearly $966 mln from $968 mln to reflect official revision, adds comments from governor’s office)

CHICAGO, Aug 22 (Reuters) - Yield-hungry investors snapped up nearly $966 million of Illinois bonds on Wednesday as the state was once again penalized in the U.S. municipal market for its big fiscal woes.

Illinois’ general obligation refunding bonds fetched a top yield of 4.34 percent for debt due in 2033 with a 5 percent coupon. That widened the state’s so-called credit spread over the market’s benchmark yield scale for 15-year bonds by 10 basis points to 160 basis points.

The nation’s sixth-largest state “definitely paid a price” to access the market, according to Shaun Burgess, a portfolio manager at Cumberland Advisors.

“They clearly found buyers for the paper - people willing to gamble,” he said.

Illinois has the lowest credit ratings among the U.S. states at a notch or two above junk due to financial problems that include a $129 billion unfunded pension liability and a chronic structural budget deficit estimated at $1.2 billion in fiscal 2019.

Strong demand, which allowed underwriters to reduce yields from an initial pricing, resulted in an overall borrowing cost of 4.19 percent, according to Governor Bruce Rauner’s office.

While yields for Wednesday’s bond sale were mostly lower than for the state’s last GO debt offering in April, spreads over Municipal Market Data’s triple-A yield scale generally widened by 5 to 10 basis points.

The state earmarked most of the bond proceeds to redeem its only outstanding variable-rate debt and pay about $74 million in swap termination fees to four banks. The $600 million of bonds sold in 2003 and related letters of credit and interest rate hedges on the debt have been a costly problem for Illinois.

The deal also included a refunding of some outstanding fixed-rate bonds that resulted in a present value savings of 5.89 percent, according to Rauner’s office.

“By refunding other outstanding bonds with higher fixed rates as part of the same bond sale, we maximized savings and minimized the costs of the sale. Taxpayers will realize these savings for years to come,” said Illinois Budget Director Hans Zigmund in a statement.

Heading into the bond sale, Illinois touted higher revenue, due largely to last year’s income tax rate hike that was enacted over a veto by Rauner, who wants to roll back rates. Another highlight was the state’s unpaid bill pile, which ended fiscal 2018 on June 30 at $6.8 billion, $900 million lower than expected. (Reporting by Karen Pierog in Chicago Editing by Matthew Lewis and Tom Brown)


__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #805  
Old 08-29-2018, 05:02 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: 84,167
Blog Entries: 6
Default

http://www.wirepoints.com/illinoisan...adbeat-status/

Quote:
Illinoisans to pay $2.6B in "penalty interest" for state’s fiscal-deadbeat status
Spoiler:
Don’t think just because the state of Illinois can still find investors for Illinois bonds that Illinoisans aren’t paying a hefty penalty for the state’s corruption and malgovernance. The state recently borrowed nearly $1 billion from the bond market and the penalty, while down from its peak last year, is still punitive.

Reuters reported that Illinois’ “borrowing penalty” for the deal – the extra interest rate Illinois pays to borrow money compared to AAA-rated states – was 1.6 percentage points. That means Illinois will be paying a $120 million extra over the life of the bond when compared to AAA-rated states like Indiana, Iowa and Missouri.

And that’s just for $1 billion in borrowing. Illinois has $30.6 billion in general debt still outstanding. Illinois will pay more than $2.6 billion in “borrowing penalties” for that debt over the next 25 years. It’s punishing.

Bad governance means big penalties

Perpetual deficits are just one of the reasons why Illinois – meaning taxpayers – typically pays some of the highest rates when borrowing. The state’s overpromised and collapsing pension plans is another. And its sham budgets is yet another.

Illinois has the worst credit rating in the nation among the 50 states, just one notch above junk according to Moody’s. So lenders charge the state more for when it borrows. That’s left Illinois paying the highest rates in the nation.

How much more does Illinois pay? It’s the difference between the interest rates that AAA-rated states pay vs the rate that Illinois pays.



At its worst point in late 2016/early 2017, Illinois paid 2.75 percentage points more than those AAA-rated states. That’s the difference between Illinois borrowing at, for example, 5 percent vs. the 2.25 percent of other states.

It’s a huge drag on taxpayers. Take the $968 million the state just borrowed. The average life of those bonds is 7.7 years and Illinois will pay 1.6 percentage points more than AAA-rated states. That means Illinois will be paying a $120 million extra because of its bad credit over the life of the bond.

And that’s just for the the most recent bond. Wirepoints has calculated how much Illinois is punished compared to other AAA-rated states when all the state’s general debt is added up.

In all, the state has $30.6 billion outstanding in general obligation bonds, the average life of those bonds is 8.7 years and the penalty spread for the bonds outstanding is approximately 1.0 percentage point, based on bond data in the most recent offering.

Run the numbers and you’ll find that Illinois will pay over $2.6 billion in extra interest costs over the next 25 years when compared to what it would pay if it was like its AAA-rated neighbors.



That’s just wasted money.

If Illinois wasn’t such a fiscal deadbeat, that money could be going to Illinoisans rather than to bondholders. From lower taxes to funding for social services, Illinoisans would be better off.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #806  
Old 09-04-2018, 12:54 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: 84,167
Blog Entries: 6
Default

https://www.illinoispolicy.org/moody...for-any-state/

Quote:
MOODY’S: ILLINOIS PENSION DEBT-TO-REVENUE RATIO HITS ALL-TIME HIGH FOR ANY STATE

According to a new report by Moody’s Investors Service, Illinois’ unfunded pension liabilities equaled 601 percent of state revenues in 2017, a U.S. record.
Spoiler:
Illinois’ pension debt has set a new record to which no state should aspire.

Credit ratings agency Moody’s Investors Service released a report Aug. 27 comparing unfunded pension liabilities across all U.S. states. According to the report, Illinois’ unfunded pension liabilities grew 25 percent in fiscal year 2017 to $250 billion. That equates to 601 percent of “own source” revenue, meaning money brought in by the state excluding federal funds. That ratio of pension debt to revenue is the highest on record for any U.S. state, according to Moody’s. The national median is 107 percent.

This matters much for the same reason banks look at an individual’s debt-to-income ratio when considering applications for a personal loan. Banks typically won’t issue a qualified mortgage to anyone with a debt-to-income ratio of more than 43 percent.

When a state’s pension debts far exceed its revenue, that means those debts are less likely to be repaid. Illinois’ inability to manage its pension system in a sustainable and affordable way is one of the main reasons both Moody’s and S&P Global Ratings put the Prairie State’s bond rating just one notch above “junk” status. The state’s credit rating has been downgraded 21 times since 2009, primarily due to runaway pension debt.

illinois credit rating downgrades

A low bond rating increases the cost of borrowing money for taxpayers and makes it difficult for state government to invest in core services residents want, such as needed infrastructure improvements.

Other measures of the state’s ability to repay pension debt tell a similarly bad story for Illinois. The state has the worst pension debt in the nation as a percentage of both GDP and personal income, which are broad economic measures that indicate how much money is being brought in by the funding sources for government expenditures: individual and corporate taxpayers.

A recent report from the Illinois Policy Institute, “Tax hikes vs. reform: Why Illinois must amend its constitution to fix the pension crisis,” details the threat of pensions crowding out core government services, which has led to calls for economically damaging tax hikes that can erode Illinois’ financial health. Annual state pension costs already exceed 25 percent of general revenue expenditures.

5&7-03

If tax hikes are off the table as a solution to this problem – as they should be given Illinois’ weak economy and already-painful total tax burden – lawmakers’ only remaining options are to structurally reform pensions so that they are in line with what taxpayers can afford going forward, or to allow pension spending to crowd out government services.

Crowding out effects can already be seen at the local level in Illinois. In Harvey, Illinois, pension obligations caused mass layoffs in the city’s police and fire departments. Because of a statutory provision that allows the state comptroller to intercept state money due to local governments that underfund their pensions, many other municipalities could soon find themselves in a similar situation. Over 50 percent of Illinois’ police and fire pension funds did not receive full payment in 2016, putting their municipalities at risk of facing the same choices as Harvey.

The city of Peoria on Aug. 15 and 16 sent layoff notices to 27 municipal employees, according to the Journal Star, after unions rejected a cost-saving plan requesting four furlough days. According to Peoria City Manager Patrick Urich, 85 percent of the city’s property tax revenue currently goes to pensions, rather than services. Urich told the Journal Star that the round of layoffs was necessary to close a $1.5 million deficit in the city’s budget.

Peoria’s 2018 budget warns, “[T]he growth in pension obligations is crowding out the use of property taxes for operations.” According to projections included in the document, the city will no longer be able to use any property tax dollars for operations starting in 2019.

Public employment data from the U.S. Bureau of Labor Statistics suggest this may be a statewide problem. Since the dramatic increases in pension expenditures began in 2008 – resulting from the Edgar ramp – Illinois state and local government employment has been decreasing.

Illinois government employment declines as pension costs increase

The only way out, as Peoria’s city budget documents note, is a “comprehensive solution” from the Illinois General Assembly.

To achieve balanced budgets and a strong credit rating – without gutting core services or crushing the state’s economy with more tax hikes – Illinois must amend its pension clause to make clear that while already-earned benefits are protected, future increases in those benefits are subject to change to bring them in line with what taxpayers can afford.

To eliminate the pension liability, lawmakers should focus on the following reforms:

Increasing the retirement age for younger workers
Capping maximum pensionable salaries
Replacing permanent compounding benefit increases with true cost-of-living adjustments, or COLAs
Implementing COLA holidays to allow inflation to catch up to past benefit increases
Enrolling all newly hired employees in 401(k)-style retirement plans, similar to what’s available to State Universities Retirement System employees, which will ensure government worker retirements are predictable and sustainable going forward.
Reforming future pension benefits growth through a constitutional amendment is the only way to ensure the retirement security of government workers, protect taxpayer budgets and provide core services to Illinoisans.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #807  
Old 09-05-2018, 09:55 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: 84,167
Blog Entries: 6
Default

http://www.chicagotribune.com/news/o...904-story.html

Quote:
Commentary: Dear Tennessee: Sorry about the ‘Illinois Exodus’
Spoiler:
On behalf of frustrated taxpayers in Illinois — those of us still here, mumbling into the firmament — I would like to offer apology and counsel to Tennesseans. The influx of newcomers clogging your thoroughfares, the eroding of your small-town charm and the opening of deep-dish pizza parlors will not slow anytime soon.

The Nov. 6 election in Illinois could sweep in a Democratic governor and an influx of Democratic lawmakers intent on changing the state’s tax structure through a constitutional amendment. The change would unlock Illinois’ flat tax and give politicians the flexibility to institute a graduated income tax — and then adjust the tax rates in perpetuity.

In which direction, Tennesseans, do you think those tax rates will head?

We can’t tell you precisely what a graduated income tax would look like because the Democratic gubernatorial nominee who supports the policy, J.B. Pritzker, won’t level with us. He won’t put numbers on his plan. He wants blind support from Democratic voters, and they’ll probably give it to him.

Frankly, it’s absurd. We live in a state where politicians jammed a 67 percent personal income tax hike through the General Assembly in 2011 and promised it would be temporary. Then they vacillated on keeping their word and tried to make it permanent. Under pressure, they did allow a portion of the tax to sunset. For a moment. Then they passed a new 32 percent income tax hike. And now they’re vowing to rewrite the state constitution to permit a graduated income tax without revealing how much it would cost. Tax rates? Us? Huh?

Even with the new revenue from Income Tax Hike II — now that tax hikes could start coming annually like Super Bowls, we should use Roman numerals — Illinois’ credit rating is stuck at junk-bond status. The state’s debts and pension liabilities are north of $200 billion and taxpayers are paying more than $1 billion annually in interest for late payments to our vendors. Property taxes are the second-highest in the country. Our elected officials continue to rely on borrowing to “balance” structurally unbalanced budgets. And they offer no pro-growth, innovative reform to expand and energize the economy.

They want us to write another check and shut up.

Or move. More residents left Illinois last year than did residents of any other state.

So I’m sorry, Tennessee. This is why we’re jamming up your roads, schools and workplaces. We’re replacing your dive-bar barbecue with our pizza and craft beers. We’re barging into your comforting Southern twang with hard vowels and incomplete sentences. We’re invading at a record pace, so get used to “frunchroom” and “Hey der.” Did you know a recent study found the Chicago accent to be the least attractive in the country? Do you agree yet?

“They are building a new development on every corner, in every farm field, everywhere you go,” says Robert Perunko of Gurnee, who drove through several neighborhoods south of Nashville this summer, house-hunting. “I couldn’t find the house we wanted to look at because there were so many Wi-Fi units flooding our devices. You have to turn off Bluetooth connectivity to access the internet.”

Sorry, Nashville. We’re messing up your technology too.

The good news is you’re getting people like Perunko and his wife: hardworking, civic-minded, family-oriented, modest — but fed up. Perunko is leaning toward leaving Illinois. Here’s why:

He drives a 2007 Toyota Corolla with more than 200,000 miles. He sold his motorcycle to manage mortgage payments, put off new windows on the family’s Cape Code-style house and started changing the oil on the car himself to save money. Family members eat meals at home. They bring their lunches to work. A recent splurge? Taking their young son to see the movie “Coco.” That’s it.

They paid $210,000 for their house, which now has a property tax bill of more than $6,000. They pay more than $4,000 in state income taxes. A graduated income tax under most scenarios Perunko has calculated would cost him another $900 at least.

Meanwhile, their friends in Tennessee pay about $500 a year in property taxes on a much more expensive home with a swimming pool.

“I am old and wise enough to know the difference between being male and being a man,” he says. “As such, having Democrats and (House Speaker Michael Madigan) stealing the very quality of life and ability for me to raise a family, our child … as a man I can’t tolerate that.”

Yet, so many others will. So many Illinois voters will buy into the rhetoric that more money through a graduated income tax will solve Illinois’ problems. It won’t. It will drive taxpayers away, many of them south.

So I’m sorry, Tennessee. Keep building out those cornfields. Erect more cell towers. Get used to sweet pickle relish and celery salt. More of us are coming your way.

Kristen McQueary is a member of the Tribune Editorial Board.


__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #808  
Old 09-07-2018, 05:32 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: 84,167
Blog Entries: 6
Default

HARVEY, ILLINOIS

https://www.bloombergquint.com/onweb...ult#gs.iOCv4aQ

Quote:
Teetering Chicago Suburb Sued by Investors After Bond Default
Spoiler:
(Bloomberg) -- A financially struggling Chicago suburb was sued by investment firms for defaulting on $32 million of debt, claiming the town violated its contract with bondholders.

The Oppenheimer Rochester High Yield Municipal Fund, Oppenheimer Rochester AMT-free Municipal Fund and Susquehanna Government Products sued Harvey, Illinois, its mayor and Cook County officials for the city’s failure to make more than $2.5 million of payments on bonds sold in 2007, according to a copy of the lawsuit filed in Cook County court.

The Sept. 4 suit alleges that the Cook County tax collector hasn’t been depositing property-tax revenue collected for the city into a separate account to pay principal and interest on the bonds, as the city had guaranteed. Instead, the revenue has been distributed to the city first, in violation of the bond contract, according to the suit. The funds are supposed to be transferred to the city only after the debt is paid, the suit says.

Tom Corfman, a spokesman for Cook County Treasurer Maria Pappas, didn’t immediately respond to a request for comment, nor did spokespeople for the companies that filed the suit.

Harvey, about 20 miles south of Chicago, has long been wracked by poverty and crime and was sued by the Securities and Exchange Commission four years ago for misusing money raised by selling bonds for an ill-fated hotel project.

The city missed six bond payments in fiscal year 2017, according to Moody’s Investors Service, which described the municipality as "structurally insolvent” in a May report. Its available fund balance was negative $56 million at the end of April 2017, according to Moody’s.

By Aug. 1, Harvey was more than $2.5 million in arrears on principal and interest payments due on the bonds sold in 2007. That includes more than $1.2 million owed to the plaintiffs, according to the suit.

Harvey Mayor Eric Kellogg didn’t immediately respond to an email seeking comment on the suit, and his voicemail box was full. In 2016, Kellogg agreed to never participate in another municipal bond-offering in order to settle the SEC’s charges of defrauding investors in connection with the hotel project.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #809  
Old 09-19-2018, 06:04 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: 84,167
Blog Entries: 6
Default

https://fixedincome.fidelity.com/ftg...ED_L2N1W41UB_1

Quote:
New Illinois laws no panacea for state's unpaid bill backlog -Moody's

Spoiler:
CHICAGO, Sept 18 (Reuters) - New laws enacted by Illinois in response to a huge backlog of unpaid bills fail to address the underlying problems that led to the state's reliance on payment deferrals, Moody's Investors Service said on Tuesday.

Illinois has the lowest credit ratings of any U.S. state, and its pile of unpaid bills is currently estimated at $8.1 billion. Moody's said that three measures signed into law by Governor Bruce Rauner last month are aimed at making management of the bill pile less costly and more transparent.

However, the credit rating agency said the underlying problem of the state's chronic budget deficits and ability to push bill payments into future years remains.

"To fully eliminate the backlog without resorting to non-recurring tactics such as further bonding, the state would have to do something that the new laws do not require: achieve budget surpluses over the course of several years," Moody's said in a report.

Illinois sold $6 billion of general obligation bonds last year to shrink the backlog, which ballooned to more than $16 billion in the wake of a political impasse that left the state without complete budgets for two-straight fiscal years. State officials have estimated the deficit in the fiscal 2019 budget at $1.2 billion.

The state accrued from fiscal 2016 through fiscal 2018 $1.14 billion in late bill payment penalties that could reach as much as 12 percent annually, according to Moody's, which rates Illinois at Baa3, a notch above junk. One of the new laws requires state agencies to budget for late-payment interest.

Another law authorizes the Illinois treasurer to use up to $2 billion in available state funds to help pay down the backlog at a lower interest rate.

Treasurer Michael Frerichs said on Tuesday he expects to begin implementing the law by year end, pending the completion of an intergovernmental agreement with the state comptroller, who is responsible for paying Illinois' bills.

"We are very close to doing something," Frerichs said in an interview.

Moody's noted the law will not eliminate the backlog.

"In fact, by making the backlog appear smaller, it might well dampen the current urgency to address the state's fiscal challenges," Moody's added.

A third law, which Moody's said is expected to have no credit impact, requires enhanced disclosures of Illinois' vendor payment program. Private lenders qualified by the state purchase unpaid receivables from vendors and pocket late-payment penalty fees once the bills are paid.

(Reporting by Karen Pierog in Chicago Editing by Matthew Lewis)


__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #810  
Old 09-25-2018, 01:14 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: 84,167
Blog Entries: 6
Default

a podcast with the state comptroller:
https://www.bondbuyer.com/podcast/lu...medium=twitter
__________________
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 03:44 AM.


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 0.15759 seconds with 11 queries