San Francisco earns its first triple-A credit rating in about 40 years

n theory, a higher credit rating lowers the interest rate a city must pay on its debt, the same way a higher FICO score will usually get you a cheaper mortgage.

However, with interest rates so low, the difference between being rated Aa1 and Aaa is very small, said bond analyst Matt Fabian, a partner with Municipal Market Analytics.

“San Francisco’s bonds are already received as if they’re AAA or almost AAA, so the actual upgrade, in dollar terms, won’t have a material impact on borrowing costs,” Fabian said in an email. “This is better seen as a political shot in the arm for the mayor.”

https://www.sfchronicle.com/business/networth/article/San-Francisco-earns-its-first-triple-A-credit-12736403.php

New Jersey bill would spur municipal bonds for commercial real estate development

Municipal Market Analytics analyst Lisa Washburn said the bill enables local governments with another mechanism to encourage economic development by facilitating developers with access to the tax-exempt market through ERG grants or securing bonds with PILOT payments. She noted that a positive of the legislation for bondholders is provisions assuring that the pledge of PILOTs are subject to a statutory lien.

“The presence of a statutory lien gives investors some comfort that their claim to the PILOT payments should survive a hypothetical chapter nine,” said Washburn. “They will be a secured versus an unsecured creditor thus improving recovery prospects.”

Washburn said there are risks associated with the proposal since bonds are non-recourse unless specifically guaranteed by the municipality. While local governments can be immune from the bonds, Washburn noted that some localities may feel pressure to eventually step in and specifically guarantee the debt to assure completion.

“Financings for some projects may be speculative and that may result in trying to get the municipality to guarantee the debt to allow it to secure better rates, which would be a risk factor to the municipality should the project sour,” said Washburn. “These would likely increase the amount of riskier debt issued in the state.”

https://eresearch.fidelity.com/eresearch/markets_sectors/news/story.jhtml?storyid=201803091857SM______BNDBUYER_00000162-0b3a-d525-a77e-ef7f8dbe_110.1

American's protest more speed bump than roadblock for Chicago's big O'Hare plans

“Modern American airports are essentially public-private partnerships and airport authorities typically move in concert with their airline, so to roll out a sweeping new plan without buy-in from a major airline is unique but it doesn’t mean it’s not possible” to proceed, said Matt Fabian, partner at Municipal Market Analytics.

“In general, Chicago’s economy is growing and it would make sense for them to make a big investment in the terminals,” but American’s opposition “complicates the situation and it could raise the price” of borrowing whether the airport takes a rating hit or not, Fabian added.

https://www.bondbuyer.com/news/muni-market-ponders-chicagos-big-borrowing-plans-for-ohare?feed=0000015a-fd09-d93b-abda-fddf17b30000

Center for Investigative Journalism: The Fantasy of the Fiscal Plan for Puerto Rico

Matt Fabian, financial analyst and partner at Municipal Market Analytics, believes Puerto Rico needs to be more self-sustainable and not bet it will receive more funds from Uncle Sam in the future. “There’s a line in the fiscal plan that talks about using the federal government as a partner or relying on them, and that’s madness. It’s madness to rely on the federal government and on ‘this’ federal government for incremental aid over the next five, ten years. They need to think sustainably about what they can do on their own,” Fabian commented.

http://caribbeanbusiness.com/the-fantasy-of-the-fiscal-plan-for-puerto-rico/

Chasing Yields, Muni Buyers Sign Away Safeguards Against Default

When Mount St. Mary’s University, a small Catholic college, borrowed money a decade ago to build and renovate dorms at its rural Maryland campus, it pledged a 179-bed residence hall as collateral, leaving investors with an asset they could seize if it defaulted.

In December, it refinanced the debt without extending bondholders that security. Lenders didn’t mind, placing nine to 12 times as many orders for $56.6 million of junk-rated bonds than were available, according to William Davies, the university’s chief financial officer.

The demand for higher-yielding debt during the decade-long era of low interest rates has allowed hospitals, schools and other borrowers in the $3.8 trillion municipal-bond market to jettison some of the protections they previously provided to investors. Even now, amid growing speculation about rising interest rates, a steady flood of cash has pushed risk premiums to their lowest level since the financial crisis.

High-yield municipal-bond funds have drawn in $23 billion in the last four years, about a quarter of inflows into state and local bond funds over that time, according to Lipper U.S. Fund Flows data. That has helped drive spreads over top-rated bonds to 2.92 percentage points by Feb. 12, down by about two-percentage points from two years ago.

“Borrowers have had very strong leverage over lenders for three years," said Jim Murphy, who oversees T. Rowe Price Group Inc.’s $5.5 billion Tax-Free High Yield Fund.

In addition to forgoing mortgage pledges, borrowers are selling bonds without reserve funds they can tap if they don’t have enough cash to service debt. Early warning mechanisms, such as rate covenants, which require borrowers to charge enough fees to pay debt service, are often weaker and remedies can be more limited than they had been, according to Municipal Market Analytics.

That will likely cause an increase in defaults -- which are extremely rare -- if the economy weakens, said Matt Fabian, a partner at MMA. 

“The more bonds done without a reserve fund or without a mortgage or with minimal coverage, the more likely they are to transition directly to default from under stress," he said.

Sales by the riskiest segments of the municipal market, which includes hospitals, charter schools and retirement facilities, has risen to 16 percent of issuance from 11 percent in 2014, according to the firm. Before the financial crisis, in 2007, such sectors made up about a quarter of municipal bond sales, according to MMA.

https://www.bloomberg.com/news/articles/2018-02-20/chasing-yields-muni-buyers-sign-away-safeguards-against-default

After Muni-Bond Boom, Analysts Expect Distress to Be on the Rise

Bankers say bad loans are made in good times, and the $3.8 trillion municipal-bond market may be no exception.

High demand from investors, a dwindling supply of new deals, and historically low yield penalties on the riskiest bonds has created an borrower’s market, Municipal Market Analytics analysts Matt Fabian and Lisa Washburn wrote in a note to clients Monday. This atmosphere has produced a rise in issuance in sectors most "prone to impairment," they said. "Over recent years the mix of defaults has become more diversified than it was previously," Washburn wrote.

https://www.bloomberg.com/news/articles/2018-02-14/after-muni-bond-boom-analysts-expect-distress-to-be-on-the-rise

Muni money funds show signs of life

If 2017 was the year the municipal money market funds stopped bleeding assets, 2018 is the year they've started growing again.

Tax-exempt money market fund assets have increased by almost $7 billion since the beginning of the year, seven times as much as all last year, according to Investment Company Institute data.

"With rates rising there's just been a better bid for floating-rate products," said Matt Fabian, a partner at Municipal Market Analytics. "It's a reasonable place for investors to park cash."

http://www.investmentnews.com/article/20180212/FREE/180219985/muni-money-funds-show-signs-of-life

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.

https://www.bondbuyer.com/news/bankruptcies-and-closures-on-the-upswing-for-rural-hospitals

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. 

https://www.bondbuyer.com/news/live-market-survey-answers-split-on-infrastructure-prospects?feed=0000015b-11b9-dcff-abff-f9fd85f60000

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.

https://www.highbeam.com/doc/1G1-524880963.html

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.

https://www.bloomberg.com/news/articles/2018-01-25/puerto-rico-bondholders-undeterred-by-plan-await-day-in-court

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. Based on the market value, the t

https://www.bondbuyer.com/news/funding-gap-spurs-unlikely-proposal-for-100-billion-of-new-illinois-pension-bonds?feed=0000015b-11b9-dcff-abff-f9fd85f60000

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.

https://www.bondbuyer.com/news/muni-market-participants-applaud-pabs-in-purported-infrastructure-plan

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.

https://www.bondbuyer.com/news/sales-tax-securitization-delay-gives-chicago-time-to-fiddle-with-structure?feed=0000015b-11b9-dcff-abff-f9fd85f60000

Nobel winner would slash Puerto Rico debt

obel 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.

https://www.bondbuyer.com/news/nobel-winner-calls-for-deep-puerto-rico-debt-cuts?feed=0000015b-11b9-dcff-abff-f9fd85f60000

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.

https://www.bondbuyer.com/news/deep-budget-challenges-greet-new-jerseys-new-governor

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.

https://www.bloomberg.com/news/articles/2018-01-11/florida-s-population-boom-helps-fuel-demand-for-dirt-bonds

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.

http://www.pionline.com/article/20180108/PRINT/180109893/fiscal-woes-greeting-nj-governor

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

Corporate Tax Break Already Affecting Muni Market

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.

http://www.governing.com/week-in-finance/gov-finance-roundup-tax-reform-muni-market-california-local-pensions.html

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. 

https://www.highbeam.com/doc/1G1-521461982.html