On June 8, independent research firm Municipal Market Analytics issued a note that said it’s “increasingly likely” that roughly $1.1 billion of American Dream’s municipal bond debt will be restructured. However, on June 15—one day before the deadline to avoid default—Triple Five paid the May PILOT payment in full, except for the late payment interest. To that end, the trustee says that the developer still hasn’t fully cured the default.
About $1.1 billion of municipal-bond debt sold for the American Dream mega mall in New Jersey is “increasingly likely” to be restructured, according to a June 8 note by Municipal Market Analytics, an independent research firm.
“I think things are turning around. I don’t think it’s a blip,” Municipal Market Analytics partner Matt Fabian said of the rally. “I think munis had gotten too cheap.”
A contributing factor in municipal bonds’ rise: They are in high demand in early summer when a swath of outstanding municipal debt gets paid off and investors need new sources of tax-free income. High-net-worth investors favor the roughly $4 trillion market for state and local government bonds because the interest they throw off is typically exempt from federal and often state taxes.
While Moody's Investors Service, S&P Global Ratings and Fitch are the biggest credit assessors, some state officials say their ratings aren't mandatory. Already, issuers increasingly are opting for a rating from just one of the companies, with single-rated sales totaling 28% of issuance year-to-date, up from 19% in 2008, according to a report from Municipal Market Analytics.
Investors and analysts have been trying to figure out how Florida’s unusual move to dissolve the district will play out in the municipal-bond market. Credit-rating companies have noted the uncertainty surrounding the situation, and have held off on downgrading the bonds. Research firm Municipal Market Analytics said last week that it’s a buying opportunity, and Barclays is now voicing a similar view.
Strategists at Barclays say the Reedy Creek bonds are protected by the state of Florida’s pledge not to impair the debt for the life of the obligations. The security on the bonds is “expressly contingent” on the state’s pledge not to limit or alter Reedy Creek’s right to own projects or collect taxes, which constitutes a non-impairment clause, they said.
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“If bond prices tumble again this week or after, investors able to ride out the volatility and manage related customer communications have an opportunity to earn incremental income,” Municipal Market Analytics’s Matt Fabian and Lisa Washburn wrote in a note to clients dated Monday.
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“In theory, it’s great to use excess money you have to lower your recurring expenditures,” said Lisa Washburn, a managing director at research firm Municipal Market Analytics. “Since it’s one-time money, you want to make one-time investments.”
Currently, there are no plans to defease debt with cash, said California Deputy Treasurer Tim Schaefer by email.
A January report from Municipal Market Analytics (MMA) found that in 2021, first-time municipal bond defaults for borrowers associated with senior living hit a record high. These accounted for just over half of first-time municipal bond defaults overall.
Senior living entities frequently access financing through tax-exempt municipal bonds. In these transactions a municipal entity issues bonds and then lends the proceeds to a senior living borrower. The bond documents typically provide the indenture trustee with rights against the borrower in the issuer’s loan.
Investors are watching to see if Puerto Rico leaders stick to sound fiscal policies once the oversight board is disbanded. The panel is set to expire after four consecutive years of balanced budgets and when the commonwealth regains access credit markets.
“There’s a lot of uncertainty about where Puerto Rico policies will go,” said Matt Fabian, a partner at research firm Municipal Market Analytics. “Will we return to the early 2000s of how Puerto Rico ran itself in or will Puerto Rico actually run itself similar to how other states run themselves?”
The muni market’s current dynamics – scarce supply, low rates, tight spreads and a stable credit landscape – means issuers are enjoying one of the strongest markets in modern history.
So said Matt Fabian, a partner at Municipal Market Analytics, speaking Thursday at the Government Finance Officers Association’s MiniMuni conference.
Municipal bond defaults are climbing in 2021 — and the senior housing sector is at the top of the pile, according to an Oct. 6 analysis from market research firm Municipal Market Analytics.
For the full year of 2021, the firm has so far recorded 47 first-time payment defaults, representing about $2.4 billion in credit. More than half (27) of the defaults were linked to senior housing communities, which is listed as a “risky” sector for credit along with hospitals, student housing, jails and higher education.
Municipal bond defaults have been on a steady climb since 2018, and look set to continue that trend in 2021, a worrisome sign given that credit conditions are likely to only worsen from here, according to an analysis published October 6.
There have been 47 defaults so far this calendar year, according to that analysis, a weekly summary of default trends from muni-market stalwarts Municipal Market Analytics, and recent history suggests the fourth quarter will see at least 13 more, putting the annual at 60. That would be the highest yearly total, other than 2020, since 2016.
It’s important to note that none of the defaults discussed here impact bonds issued by state and local governments and secured by tax revenues. Bonds issued by Puerto Rico, which is in the midst of a major restructuring process, are also excluded.
Senior living facilities are by far the biggest offender, with 27 defaults so far in 2021, followed by charter schools. Nearly all the defaults of the past few years fall into what MMA terms a “risky” sector, also including jails, student housing, and parking.
One of the biggest drivers of the surge of defaults in 2020 was the “industrial development bond” category, a sector also sometimes called “industrial revenue bonds.” That category was elevated in 2018 and 2019 as well, reflecting two high-profile issuers, FirstEnergy and PG&E, MMA notes.
U.S. municipalities are increasingly issuing bonds to pay down their accumulated pension obligations, a step akin to “gambling,” according to an analysis out Monday.
The report, from muni bond market stalwart Municipal Market Analytics, notes that nearly 80 state and local governments have issued such bonds so far in 2021, the most on record back to 2000. The amount issued so far, $10.5 billion, is dwarfed by the roughly $16 billion issued in 2003.
Manipulating financial information that is reported during bond sales is a violation of the Securities Act, as VOSD reported back in November 2018, before the SEC’s investigation started.
Regulators would want to know, “Is it a mistake or was it intentional?” Matt Fabian, a bond markets researcher at Municipal Market Analytics, told VOSD at the time. “Even if it is a relatively small misrepresentation of information, regulators take that very seriously.”
SEC investigators ultimately found Michel misled investors as well as a credit rating agency.
Many issuers are drawn by the arbitrage opportunity and the bonds “probably look pretty attractive” said Lisa Washburn, a managing director at research firm Municipal Market Analytics. The risks they carry, however, mean they’re “not a sure thing.”
State and local governments have borrowed about $10 billion for pension funding this year through the end of August, more than in any of the previous 15 full calendar years, according to an analysis of Bloomberg data by Municipal Market Analytics. The number of individual municipalities borrowing for pensions soared to 72 from a 15-year average of 25.
“It’s just amazing, the power of the (muni-bond) tax exemption and the avoidance of taxes. It’s an unbelievable force in America,” said Thomas Doe, president of Municipal Market Analytics, a Massachusetts-based provider of muni-bond market data.
“Look at the migration to Florida, Texas, and Arizona,” Doe said. “You may be able to live there for a short period of time, but it’s not going to be a 20-year experience.” He calls it denial: “It won’t happen while I’m living there.” “I can’t believe there will be a day when water won’t come out of the tap.”
But a more fundamental reason may be at work, which is that most of the nation’s 90,126 units of government -- the tally in the Census of Governments 2017 data -- don’t seem to like debt.
That may explain why they pay some of it off every year and why 31% of it will mature or be called by the end of 2026, according to a study by Municipal Market Analytics.
The yield in question—known as yield to worst—is the lowest rate the investor can expect to earn short of a default."
"Still, investors can’t get enough of the bonds," the article said, noting the high interest in munis. "Prices have surged even though outstanding muni debt has swelled by more than $100 billion in the year ended March 31, according to Federal Reserve data. Cities and states could probably sell an additional $89 billion in bonds without meaningfully driving down prices, according to an analysis of lending capacity by Municipal Market Analytics."