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Bloomberg

The Bloomberg Baystate Business Hour: Bonds and SUVs

Tom Doe, president of Municipal Market Analytics, on the state’s bond rating being downgraded for the first time in 30 years, and what Governor Charlie Baker is doing to change it.

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Tim Holler
NJ.com

Christie may not like what Wall Street just said about his plan to ease pension pain

A bond market analyst, Municipal Market Analytics, advised the improvement would be in appearance only.

"The details of the transaction suggest the greater benefit is more of an accounting scheme (and gamble) for optics and budgetary relief," that report said.
 

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Tim Holler
WBEZ News

CPS Proposes Budget With $269 Million From Unnamed ‘Local Sources’

Matt Fabian, an analyst at a research and credit firm called Municipal Market Advisors, said investors have been expecting the city to help CPS. 

“It is positive in that it diminishes CPS’ reliance a little on the state going forward, which is important because the state has been unreliable in the past,” he said. “It opens up a closer relationship between the school district and the city, which, given (the school district’s) struggles, could only be a good thing going forward.”

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Tim Holler
PUBLIC CEO

Metropolitan Water District Has Paid Almost $88M to Get Out of Risky Swap Deals

Though swaps have largely disappeared from the public sector, governments far and wide signed risky swap deals with Wall Street over the years. Financial advisers often emphasized what could go right, instead of what could go wrong.

“You are betting with public money,” Lisa Washburn, managing director for the Massachusetts firm Municipal Market Analytics, who formerly worked at Moody’s Investors Service, told Voice of San Diego in June. “As long as the swap liability persists, it’s continued evidence of the bad bet they made before.”

When interest rates fell in the market crash and stayed low, huge liabilities quickly appeared on government balance sheets. Some swaps remain, while some agencies cut large checks to get out of the losing bets.

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Tim Holler
Financial Advisor Magazine

U.S. Muni Bond Sales Fall

The market anticipates an average annual primary issuance decline of $50 billion to $100 billion over the next five to seven years because of fewer refundings, Municipal Market Analytics (MMA) wrote on July 24.

When the lower supply is coupled with "increasingly challenged state budgets likely to discourage expansion of traditional infrastructure programs, the tax-exempt and AMT (alternative minimum tax) sub-markets are headed for worsening scarcity issues," MMA wrote.

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Tim Holler
Bloomberg

Chicago School Bonds Rally Despite Governor's Veto Threat

But Rauner, a Republican, plans to issue an amendatory veto to remove what he calls a Chicago "pension bailout.” Democrats haven’t sent the bill to his desk yet, prompting Rauner to call lawmakers back to the capital for a special session starting Wednesday to address school funding.

“The market sees Rauner as effectively neutered so his attempts to defund the schools are taken somewhat less seriously than they would have been a month ago,” said Matt Fabian, a partner with Municipal Market Analytics Inc.

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Tim Holler
OIA News

Why Gov. Chris Christie’s big plan to shore up N.J. pensions is all wet

“This is a questionable maneuver designed to produce a better-looking funding ratio,” said Lisa Washburn, managing director of Municipal Market Analytics. “I see it as more of an optical benefit for the state than a material improvement in the state’s fiscal dilemma.”

 

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Tim Holler
Bloomberg

Scoreboard: What If Congress Nixed Federal Stadium Subsidy? (Corrected)

The tax-exempt bond market probably would fare well if the stadium bills were enacted, according to Matt Fabian, a partner at Municipal Market Analytics Inc.

Tax-exempt stadium financing is a controversial corner of the municipal market. “It accounts for less than 1 percent of the bond market and yet it probably draws 25 percent of the criticism,” Fabian said. Eliminating that small, problematic corner would legitimize the remainder of the market and reduce the risk of other areas losing their tax exemption, he said.

Any negative effects of killing the stadium-bond exemption would likely be felt by public finance bankers, he said.

Cutting stadium financing out of the tax-exempt space would mean that those bankers could no longer charge fees for their underwriting services on stadium bond issues. And while there aren’t a lot of these bond issues in the market, they are generally lucrative for banks to bring in, Fabian said.

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Tim Holler
Bloomberg

Here's One Record Illinois Doesn't Want to Attain: QuickTake Q&A

Some of the biggest money-management firms that own Illinois bonds

have said they could continue to hold them if the rating is cut. Matt Fabian, a partner at Municipal Market Analytics, said that funds that would have to sell their bonds have likely already done so, given that the downgrade is widely expected and was telegraphed in advance. Prices have already declined considerably since the last downgrades on June 1. The yields on Illinois 10-year bonds have jumped nearly half a percentage point to around 4.8 percent, almost 3 full percentage points more than those on top-rated securities, according to data compiled by Bloomberg.

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Tim Holler
Fidelity

Municipal Debt Lures Yield-Hungry Investors in Second Quarter

Many investors still view public debt as a relatively safe way to make money because municipal defaults are rare and states aren't allowed to seek bankruptcy protection. But some observers say they see greater potential for losses as public expenses rise.

"Risk in the municipal market is building," said Matt Fabian, a partner at Municipal Market Analytics, in a recent note.

The performance of the municipal-debt market in 2017 is a surprise to many observers, who expected a pullback following the election of President Donald Trump. The S&P Municipal Bond Index fell 3.46% last November largely because of expectations that tax cuts and higher inflation would reduce the value of tax-exempt debt, analysts said.

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Tim Holler
ADVFN.com

Illinois Is in Deep Trouble: What Investors Need to Know

Is Illinois on its way to becoming the next Puerto Rico?

Analysts say no, noting that Illinois's problems are largely political. Unlike Puerto Rico, which is in the midst of a court-supervised restructuring, Illinois has a strong underlying economy and annual revenues that are about 10 times its yearly debt service payments. Puerto Rico, on the other hand, has endured more than a decade of economic distress. "There's no risk of Illinois losing market access," said Matt Fabian, a partner at Municipal Market Analytics.

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Tim Holler
Marianas Variety

After Puerto Rico’s debt crisis, worries shift to Virgin Islands

Now the G.A.O. auditors are back, re-examining the debt and repayment ability of each territory, amid concerns that other crushing debt burdens may have escaped notice. An agency spokesman, Fuller O. Griffith, said it would report by the end of the year on “federal options to avert the future indebtedness of territories.” It is not clear what those options will be.

“Washington can’t appropriately manage its relationship with the states, much less the territories,” said Matt Fabian, a partner at Municipal Market Analytics.

FEATURE: After Puerto Rico’s debt crisis, worries shift to Virgin Islands

Even the states are not immune, despite their legal status as sovereigns. Illinois, stuck in political gridlock, is just days from entering its new fiscal year without a balanced budget, in violation of its own constitution. The ratings agencies warn that Illinois’s bond rating is in peril of being downgraded to junk. Once that happens, as the territories show, hedge funds move in and economic management becomes a series of unpleasant choices.

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Tim Holler
PUBLIC CEO

SANDAG Bet Against Big Banks — and Taxpayers Are on the Hook for Millions

“You are betting with public money,” said Lisa Washburn, managing director for the Massachusetts firm Municipal Market Analytics, who formerly worked at Moody’s Investors Service. “As long as the swap liability persists, it’s continued evidence of the bad bet they made before.”

In recent years, when SANDAG has gone back to the bond market to borrow money to build more projects, it has opted for old-fashioned fixed-rate debt. Altogether, swaps and related variable-rate bond debt now account for 23 percent of all the agency’s debt, Gao said.

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Tim Holler
Rare Chicago

Thanks to the state’s failing budget, Chicago Public Schools were forced to borrow $112 million with almost-unreasonable interest rates

The Illinois budget stalemate poses a problem for CPS because of the short-term borrowing structure they operate with, a system largely financed through grant anticipation notes that are eventually repaid by state block grant money owed to CPS.

While the monstrous rates are an indication of the tight financial situation CPS is currently facing, its consistent permission and access to a borrowing market is a positive sign of lenders’ financial optimism for the school district, Matt Fabian, a partner at Municipal Market Analytics, told the Sun Times.

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Tim Holler
Daily Record

Unprecedented lottery plan quietly embraced by lawmakers in budget battle

Even though Christie's lottery proposal is unprecedented, it has undergone no serious analysis outside of the state treasurer's office. That is at least partly due to timing, since the bill wasn't introduced until June 15.

One firm that did look at the plan, Municipal Market Analytics, criticized the administration's accounting "magic" as a "gamble" that is "unlikely to generate the positive response the state is anticipating from the market participants, including rating agencies." 

Revenue projections by the administration and the lottery's private operator have routinely missed the mark, as well.

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Tim Holler
American School & University

Chicago schools borrow millions at high interest to provide funds for 2017-18

Experts say the high interest rates reflect the school system’s dire financial condition, but at least, says Matt Fabian, a partner at Municipal Market Analytics, having consistent access to borrowing markets is something of an improvement.

Meanwhile, the borrowed money will help Chicago Public Schools make a $721 million payment due to the teacher pension fund on Friday and get the 2017-18 school year started.

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Tim Holler
The Bond Buyer

National dealt two-notch blow by S&P as BAM, Assured ratings affirmed

Matt Fabian, partner at Municipal Market Analytics, said the downgrade doesn't put National out of business.

“It could and probably will at least temporarily stop their new business generation, but their guaranty on outstanding, wrapped bonds doesn’t go away,” he said. “Frankly, National still has balance sheet ratios that show credit strength in excess of S&P’s triple-A standard, so National’s guaranty to policyholders is not in jeopardy.”

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Tim Holler
Value Walk

The Pension Crisis And The Muni Bond Market

“It’s all about investing the massive amount of money coming into this sector,” Doe said. He added that this is the biggest supply shortage since the fall of 2013.

Doe is the founder and chief executive officer of Concord, MA-based Municipal Market Analytics (MMA), an independent research firm that provides strategic market and credit research on the U.S. municipal market and industry. I spoke to him on June 23.

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Tim Holler
Voice of San Diego

SANDAG Bet Against Big Banks — and Taxpayers Are on the Hook for Millions

But where Goldman Sachs is a private entity, which answers to its shareholders if a bet turns bad, SANDAG is a public agency.

“You are betting with public money,” said Lisa Washburn, managing director for the Massachusetts firm Municipal Market Analytics, who formerly worked at Moody’s Investors Service. “As long as the swap liability persists, it’s continued evidence of the bad bet they made before.”

In recent years, when SANDAG has gone back to the bond market to borrow money to build more projects, it has opted for old-fashioned fixed-rate debt. Altogether, swaps and related variable-rate bond debt now account for 23 percent of all the agency’s debt, Gao said.

SANDAG’s swap liability could have been worse today, if not for a big move in 2012. But reducing its swap headache came at a price.

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Tim Holler