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The Bond Buyer

Multiple factors drive upswing of bankruptcies, closures among rural hospitals

LOS ANGELES — The number of Chapter 9 bankruptcies by rural hospitals has climbed over the past five years as populations shrink and federal reimbursements decline.

In the last five years, not including this year’s first filing, 13 hospitals have filed for Chapter 9, said Matt Fabian, a principal with Municipal Market Analytics.

With the distress in the sector trending up, Fabian said, it was no surprise that the first Chapter 9 bankruptcy filing of the year is a rural healthcare district.

 

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Tim Holler
The Bond Buyer

Survey splits on infrastructure prospects

A survey of municipal bond market participants found a split on whether an adopted infrastructure

plan will make a difference in kick-starting projects.

Attendees at The Bond Buyer's National Outlook Conference had the opportunity to vote in a live market survey, which was sponsored by Fitch Ratings.

“It has been a dynamic past few months for the U.S. public finance market, with the rush to issuance in late ’17 and then tax reform,” said Dan Champeau, head of global public and infrastructure finance at Fitch, who moderated the survey panel. 

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Tim Holler
The Bond Buyer

New Tax Law Colors Marketing and Demand for Chicago Sales Tax Securitization

Byline: Yvette Shields

Chicago's top-rated sales tax securitization bonds required more leg work and styling to cater to post tax-reform market appetites, market participants said.

On its second outing with the Sales Tax Securitization Corp. credit, the city faced a market environment with higher yields and weaker demand compared to its inaugural sale in December, and its tax-exempt spreads widened as a result, but a one-week delay in the pricing that saw the transaction downsized and the addition of a taxable piece improved its prospects.

"The fact it got pushed meant it wasn't a slam dunk," said Matt Fabian, partner at Municipal Market Analytics. "The underwriting seemed to face some hurdles that the first underwriting didn't."

The city had planned a nearly $900 million tax-exempt issue last week -- a follow-up to the $744 million debut last December -- but held the deal citing a tougher "market tone" and investor input that prompted a look at an index-eligible taxable bond.

The city returned with $376 million of tax-exempts that priced Tuesday and $304 million of taxables that priced Wednesday.

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Tim Holler
Bloomberg

Puerto Rico Bondholders, Undeterred by Plan, Await Day in Court

General obligations with an 8 percent coupon and maturing in 2035 traded Thursday at an average price of 26.8 cents on the dollar, up from 26 cents Wednesday, according to data compiled by Bloomberg. Those securities, the island’s most actively traded, were first issued for 93 cents four years ago.

“It’s hard to picture investors who are still holding these bonds selling based on this news because this is what they expected to happen,” said Matt Fabian, a partner at Municipal Market Analytics.

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Tim Holler
The Bond Buyer

Funding gap spurs unlikely proposal for $100 billion of new Illinois pension bonds

CHICAGO – Municipal market participants threw cold water on a proposal pitched by an Illinois pension advocacy group to borrow more than $100 billion to pay down the state’s massive unfunded pension tab.

The proposal pitched by the State Universities Annuitants Association calls for Illinois to issue $107 billion of 27-year fixed-rate bonds this year to bring the five-fund state system up to a 90% funded ratio.

The state has $128.9 billion of unfunded liabilities and the retirement system is just 39.9% funded based on fiscal 2017 actuarial data. 

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Tim Holler
The Bond Buyer

Muni market participants applaud PABs in purported infrastructure plan

Muni market participants are pleased that the latest purported version of the Trump administration’s infrastructure plan would expand and ease restrictions on private activity bonds so that they could play a major role in helping to finance infrastructure projects.

The six-page plan was circulated on Monday by lobbyists and publications such as Axios. It makes no mention of the Trump administration and is not dated.

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Tim Holler
The Bond Buyer

Sales tax securitization delay gives Chicago time to fiddle with structure

CHICAGO — Faced with rockier post-tax reform market conditions, Chicago put off the pricing of its sales tax securitization borrowing and will use the delay to consider tinkering with its structure.

The city and its finance team plans to continue discussions with market participants and will look at adding a taxable advance refunding component. Tax-exempt advance refundings were eliminated in the reform package signed by President Trump. The city could also shift coupons and calls to cater to current demand.

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Tim Holler
The Bond Buyer

Nobel winner would slash Puerto Rico debt

Nobel prize-winning economist Joseph Stiglitz is calling for cuts in Puerto Rico’s outstanding debt of 50% to 80% or more.

Economists Stiglitz, Martin Guzman, and Pablo Guzman released the report on the need for the cuts to help restore the island’s economy.

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Tim Holler
The Bond Buyer

Deep budget challenges greet New Jersey's new governor

The Chris Christie era in New Jersey ended late Tuesday morning with the swearing-in of Gov. Phil Murphy, who will be tested right out of the gate with a host of fiscal obstacles.

Murphy, a former executive at Goldman Sachs and ambassador to Germany, inherits a state that was downgraded 11 times during Christie's eight years, driven largely by a rising unfunded pension burden. Murphy, a Democrat, campaigned on a proposal to structurally balance the state budget with a millionaire’s tax, but new federal tax legislation that caps deductions on state and local taxes creates a potential hurdle to this revenue strategy.

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Tim Holler
Bloomberg

Florida's Population Boom Helps Fuel Demand for Dirt Bonds

While the bonds are benefiting from a stronger housing market, land-backed debt accounts for 25 percent of payment failures in the $3.8 trillion municipal market. Of the $9.3 billion of municipal debt in default -- excluding Puerto Rico -- $2.3 billion, the largest portion, are dirt bonds, according to Municipal Market Analytics.

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Tim Holler
Pensions and Investments

Fiscal woes greeting N.J. governor

Mr. Bryan was referring to the impact on municipalities which, according to actuarial reports and the treasurer's office, must come up with an extra $422.5 million in pension fund contributions for the 2019 fiscal year under the 7% rate. By law, they must contribute 100% of their actuarially required contribution, and they don't have many choices for raising revenue.
"The change in the assumed rate of return has made budgeting more difficult at the state and local levels," said Lisa Washburn, a Summit, N.J.-based managing director for Municipal Market Analytics, a research firm.

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Tim Holler
Governing

The Week in Public Finance: Tax Reform Hits Muni Market, California Plays Tax Games and Local Pensions Do Better Than State

Even though the federal tax overhaul has yet to go into effect, the cuts to the corporate tax rates are already impacting the municipal market. Preliminary data shows that banks have begun to reduce their muni bond buying. According to Municipal Market Analytics (MMA), banks' third quarter net buying fell to about $5.7 billion. That’s the lowest quarterly number since 2009, when banks collectively sold off a net $10.3 billion.

In addition to reducing how much they buy, MMA’s Matt Fabian says it’s “not unreasonable that at least some institutions will become net sellers” of tax-exempt municipal bonds in the early months of 2018. This, he says, could counteract what was expected to be an advantageous interest rate climate for governments.

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Tim Holler
The Bond Buyer

Tax Overhaul, Pension Change Are an 'Unwelcome Gift' for New N.J. Governor

New Jersey and its municipalities are likely to face greater fiscal pressures in the year ahead after the state opted to lower the assumed rate of return for pension assets, according to Municipal Market Analytics.

The state treasury's decision to change the investment return assumption to 7% from 7.65% is "an unwelcome gift" from outgoing Gov. Chris Christie to Governor-Elect Phil Murphy, MMA analyst Lisa Washburn said in a Jan. 3 report. The more fiscally conservative assumption will translate into higher unfunded pension liabilities, lower funded ratios and higher required contributions for New Jersey local governments, Washburn said. The timing is also problematic, she said, because the state's revenue-raising ability "has likely been impaired" following a tax overhaul package signed by President Trump that caps the federal deduction on state and local taxes at $10,000. …

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Tim Holler
The Bond Buyer

Tax overhaul, pension change are an ‘unwelcome gift’ for new N.J. governor

New Jersey and its municipalities are likely to face greater fiscal pressures in the year ahead after the state opted to lower the assumed rate of return for pension assets, according to Municipal Market Analytics.

The state treasury’s decision to change the investment return assumption to 7% from 7.65% is “an unwelcome gift” from outgoing Gov. Chris Christie to Governor-Elect Phil Murphy, MMA analyst Lisa Washburn said in a Jan. 3 report. The more fiscally conservative assumption will translate into higher unfunded pension liabilities, lower funded ratios and higher required contributions for New Jersey local governments, Washburn said. The timing is also problematic, she said, because the state’s revenue...

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Tim Holler
The Bond Buyer

Virgin Island bonds stir concern

U.S. Virgin Island bonds have plunged since Hurricane Maria amid deepening concern over the territory's ability to make payments due in the coming year.

Prices of the Series 2014C U.S. Virgin Islands gross receipts tax bond in the secondary market have declined by 40%, according to Markit. The bonds are trading at about 44 cents on the dollar, down from about 74 cents in mid-September.

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Tim Holler
The Bond Buyer

Muni investors left reeling from a year of political change

The final days of 2017 find municipal bond investors looking back on a year of unprecedented volatility, mostly driven by political change in President Trump's first year in office.

It was a year marked by price fluctuations, yield curve flattening, spread compression, credit quality concerns, supply and demand imbalances, and most of all, political wrangling over tax reform, strategists and fund managers said.

“The political backdrop provided an overriding influence for the municipal bond market in 2017,” said Jeffrey Lipton, head of municipal research and strategy at Oppenheimer & Co.

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Tim Holler
elnuevodia.com

FEMA loan to the government remains uncertain

In the case of the Virgin Islands (USVI), FEMA indicated that it granted a financing of $ 202 million for the water and electricity systems of the territory, its central government and two hospitals.

Governor Kenneth Mapp, according to USVI news media, has stated that the financing already approved by FEMA reaches about $ 500 million.

According to Fabian, in the case of the USVI CDLs, the federal Treasury requested a repayment priority on the bonds of the territory, but this did not prosper.

USVI, according to Fabian, had to offer as collateral to the financing the collections of the "gross income tax", which would be equivalent to the Sales and Use Tax (SUT) of Puerto Rico and the collections for matching that it receives through the reimbursement of the rum tax.

In addition, the USVI CDLs have the same payment priority as debt owed by creditors in the territory.

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Tim Holler
Reuters

Race is on to sell tax-free bonds ahead of U.S. tax changes

That possibility, which first surfaced Nov. 2 in the U.S. House Republicans’ tax bill, would saddle nonprofits with higher borrowing costs as well as eliminate a way all muni issuers can take advantage of lower interest rates to save money.

“We’re seeing a huge race to get to market and every kind of transaction. December may be the best market for issuance that we’ve seen in a long time,” said Matt Fabian, a partner at Municipal Market Analytics.

Muni issuance totaled $40.3 billion in November, the biggest supply for that month since $45 billion of bonds were sold in November 2010, according to Thomson Reuters data. That was when issuers rushed Build America Bonds to the market before the federal government’s subsidy program for the debt expired at year end.
 

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Tim Holler
The Bond Buyer

Sanders' Puerto Rico bill dwarfs requests from Gov. Rosselló, Trump

U.S. Sen. Bernie Sanders, I-Vt., introduced a comprehensive support bill for Puerto Rico and the U.S. Virgin Islands Tuesday, calculated to cost up to $146 billion.

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Tim Holler
newhampshire.com

Trump seeks Texas, Florida hurricane relief; Puerto Rico request to come later

No matter how much the island gets, it won’t be enough, said Matt Fabian, a partner with Municipal Market Analytics. “Puerto Rico will likely be requesting aid this time next year,” he said. Officials in the White House “probably think that that’s an incredibly generous offer.”

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Tim Holler