Assured Guaranty : As Hartford Mulls Bankruptcy, Bond Insurer Offers to Help Postpone Payments -- Update

By Heather Gillers 

Hartford's biggest bond insurer said it had offered to help the city postpone payments on as much as $300 million in outstanding debt, in a move designed to help prevent a bankruptcy filing for Connecticut's capital.

The insurer, Assured Guaranty Ltd., made the announcement before a Monday conference call between Hartford and its bondholders.

During the call Hartford Mayor Luke Bronin said postponement of the city's debt would be inadequate without other fixes such as more revenue from the state, according to a statement released by the city after the call.

"I appreciate Assured's willingness to have constructive discussions," the mayor said, according to the statement, but "this administration is not interested in pushing off this challenge for another mayor or another generation to fix."

Under Assured Guaranty's proposal, debt payments due in the next 15 years would instead be spread out over the next 30 years without bankruptcy or default. The city would issue new longer-dated bonds and use the proceeds to make the near-term debt payments.

Assured Guaranty and another insurer, Build America Mutual, would insure the new bonds, said an Assured Guaranty spokesman.

Assured Guaranty backs 57% of Hartford's roughly $550 million in outstanding general obligation debt and would be on the hook for any shortfall in payments should the city enter bankruptcy. Build America Mutual backs $103 million in Hartford debt. About $163 million in Hartford bonds are held by U.S. mutual funds.

Hartford is in the middle of a fiscal emergency because of a weak tax base and a budget deficit of nearly $50 million. It also has one of the lowest credit ratings in the nation. Making matters worse, Connecticut lawmakers have been unable to reach agreement on a state budget more than two months into the fiscal year, leaving Hartford short of state funding.

http://www.4-traders.com/ASSURED-GUARANTY-LTD-11565/news/Assured-Guaranty-As-Hartford-Mulls-Bankruptcy-Bond-Insurer-Offers-to-Help-Postpone-Payments-Up-25173814/

Is Connecticut to Blame for Hartford's Looming Bankruptcy?

by Liz Farmer | September 20, 2017

The state's way of governing may be causing some of its capital city's financial problems.

As Connecticut lawmakers debate the best way to close a $3.5 billion shortfall over the next two years, its capital city is having a fiscal crisis of its own, and it highlights how the state's parochial way of governing hurts big cities.

Connecticut has long been touted for its wealthy suburbs. The state has one of the highest median incomes in the country. But the departure in recent years of businesses such as Aetna and General Electric to New York City and Boston, respectively, have sent a signal that times are changing: Connecticut doesn't have the vibrant city life that many companies are looking for these days.

The state's small-town mindset was recently on full display when Gov. Dannel Malloy appealed to Amazon to locate its second headquarters there. In his pitch, the governor didn't cite Hartford or New Haven -- two of the state's biggest cities -- as a selling point, but rather the state's proximity to Boston and New York City.

That snub was acutely felt by Hartford, which is now on the precipice of bankruptcy. "I think one of the reasons Connecticut has been slower to recover from the Great Recession is that we long ago missed the boat and failed to recognize the role that cities play in economic development today," says Hartford Mayor Luke Bronin. "If we want to position Connecticut to be competitive, we need to position our cities to be competitive."

http://www.governing.com/topics/finance/gov-connecticut-hartford-bankruptcy.html

So. What's a credit downgrade to your state government mean, anyway?

By Charles Thompson

cthompson@pennlive.com

In some ways, the great Pennsylvania budget battle of 2017-18 has been the year of the credit downgrade.

Almost from the beginning of Gov. Tom Wolf's budget unveiling last winter, we've been treated to regular predictions of a credit-downgrade, as a state, if we did this thing, or did not do that thing.

And that, we've been warned, would be the worst of all things.

Now it's happened. On Wednesday, S&P Global Ratings formally lowered its rating for Pennsylvania's future general obligation bonds to A+ (It's great for school; not so much for impressing Wall Street.)

The sun still shone.

So what should we really make of this news? PennLive is here to help:

1. To your most pressing question, this does not take us out of the running for Amazon's HQ2.

It has been a real worry around the Capitol this week.

"This is not a good story for Pennsylvania. It's not a good story when we're trying to recruit businesses and industries to Pennsylvania as a good place to operate," said Senate Majority Leader Jake Corman, R-Centre County.

But according to Princeton, N.J.-based site selection expert John Boyd, the downgrade is not likely a show-stopper.

How do we know this? Chicago.

It has won more than its share of corporate recruitment battles even as the city (homicide rates) and state of Illinois (budget dysfunction that makes Pennsylvania look like the fiscal equivalent of a Swiss watch) were eviscerated in the media.

http://www.pennlive.com/politics/index.ssf/2017/09/so_whats_a_credit_downgrade_to.html

Pennsylvania on edge of missing payments in budget stalemate

by MARC LEVY, Associated Press

HARRISBURG, Pa. (AP) — The state government appeared on the edge, for the first known time, of missing a payment as a result of not having enough cash on hand amid a feud over how to patch a $2.2 billion budget gap.

Gov. Tom Wolf's office has not revealed how the Democrat will manage through a cash crunch that he has said will leave his administration unable to pay every bill on time, three months into the fiscal year. Beginning Friday, the state's main bank account was projected to go below zero.

Wolf's administration has warned the eight insurers that administer benefits for 2.2 million Medicaid enrollees that they may not receive their monthly payments of about $800 million on time. That would force insurers to borrow money to make timely payments to hospitals, physicians and pharmacies that are required by federal law, they say.

The state previously has gone through extended budget stalemates in which a governor had limited authority to spend and, as a result, put off payments, such as in 2015. The state also has, by law, postponed large, scheduled payments, by a matter of weeks, as a one-time maneuver to help wipe out a projected deficit, such as in 2014.

But Friday was expected to be the first known time that Pennsylvania state government has missed a payment as a result of not having enough cash, state officials said. Wolf has authority to spend, under a nearly $32 billion budget bill lawmakers overwhelmingly passed June 30.

http://local21news.com/news/local/pennsylvania-on-edge-of-missing-payments-in-budget-stalemate

Muni bonds' tax break looks safe for now

The president and Treasury secretary have expressed support for keeping tax breaks in place on municipal bonds

Donald J. Trump and Treasury Secretary Steven Mnuchin have expressed support for maintaining the tax break on municipal bonds. The market takes them at their word.

As the Republican president embarks on a push for tax cuts, top-rated state and local government bonds due in five years are yielding just 65 percent of comparable Treasuries, holding near a more than seven-year low, according to data compiled by Bloomberg. That shows that investors are still placing a high value on the tax exemption. If they expected the tax break to be eliminated -- or chipped away at -- municipal yields would rise closer to Treasuries to compensate for that risk.

"We're not pricing in any scenario for the tax exemption to go away or be limited," said Matt Fabian, a partner at Municipal Market Analytics. "The statements out of the administration have been favorable."

Last week, Mnuchin told the Wall Street Journal that the preferential tax treatment is a subsidy for local governments, not wealthy bondholders. That echoed the arguments of state treasurers and city finance officers, who argue that it allows them to borrow cheaply for public works given that investors are willing to accept lower yields because they don't have to pay taxes on the interest they receive.

The Treasury Secretary and top White House economic adviser Gary Cohn left the tax-exemption out of a briefing on the broad outlines of the administration's tax plan in April. And Trump expressed support to U.S. mayors in a meeting before his inauguration.

Other factors have worked to hold up prices in the municipal market recently, too. The amount of new bond sales has dropped 15 percent this year, even though money has continued to flow into the market.

http://www.investmentnews.com/article/20170913/FREE/170919970/muni-bonds-tax-break-looks-safe-for-now

Bankrupt Puerto Rico Set for Fresh Hit From Hurricane Irma

Storm nearing cash-strapped U.S. territory of 3.5 million

Puerto Rico, already dealing with a financial disaster, is about to be hit with a natural one.

Hurricane Irma is barreling toward the U.S. territory of 3.5 million residents, raising the prospect of costly damage to a poverty-wracked island that collapsed into a record-setting bankruptcy in May. The storm is expected to pass near or just north of Puerto Rico later Wednesday.

The head of Puerto Rico’s electric company warned some areas could face electricity outages for months. And a devastating blow could accelerate the dramatic population loss that’s driven Puerto Rico’s long economic contraction, said Matt Fabian, a partner with Municipal Market Analytics.

“After 10 years of a recession, the island is not at all prepared for a disaster like Irma,” Fabian said. “And Irma may permanently shrink Puerto Rico and push the island even deeper into poverty.”

https://www.bloomberg.com/news/articles/2017-09-06/bankrupt-puerto-rico-set-for-fresh-hit-from-hurricane-irma

Why Harvey's Not Rattling a Bond-Market Haven: QuickTake Q&A

The record-setting flooding that’s devastating Houston has caused thousands to flee their homes, submerged much of the city and left tens of billions of dollars in damage. It has also cast some uncertainty over the finances of governments in the devastated region that routinely raise money in the U.S. municipal-bond market. In just Texas’s Harris County, the home of Houston, there are about $67 billion of outstanding government bonds, some issued for hospitals, sewer lines, schools and other projects potentially affected by the deluge. So far, however, investors appear relatively confident that an influx of aid will keep those borrowers from going under.

1. Will Harvey cause municipal-bond defaults?

That’s extremely unlikely. Natural disasters haven’t caused a single default by a municipal borrower that was rated by Moody’s Investors Service, according to David Jacobson, the company’s spokesman. Even Hurricane Katrina, which flooded much of New Orleans and triggered a lasting exodus from the city, didn’t force it to renege on bond payments as the state and federal government extended aid to help the region rebuild.

2. How has the bond market reacted?

There’s been very little trading of bonds issued by affected government agencies since Harvey hit, with no significant changes in the prices of those that have changed hands. Such a muted reaction also followed Katrina and Sandy, the superstorm that hammered New York and New Jersey in 2012. The small lots of securities that have traded indicate that it’s individual bondholders who are reacting, not mutual funds and other big investors. Matt Fabian, a managing director at Municipal Market Analytics, said in a note to clients that if there is a significant drop in the price of Houston’s bonds it may be a good time to buy.

https://www.bloomberg.com/news/articles/2017-08-30/why-harvey-s-not-rattling-a-bond-market-haven-quicktake-q-a

The Bloomberg Baystate Business Hour: Bonds and SUVs

Bloomberg Boston Bureau Chief Tom Moroney and Radio News Anchor Anne Mostue are joined by top names from local business and finance to medicine and politics, along with Bloomberg reporters covering the latest stories in and around Boston. Today: National and local market checks and news stories with Pimm Fox. Bloomberg News Reporter Keith Naughton on his story about milllennials buying big - SUVs and suburban homes. 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. Aaron Jodka, director of research at Collier’s International, on how many financial and law firms are changing layouts, reducing space and asking people to work from home.
Note: Mr. Doe speaks at the time 20 min. time mark

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

By Samantha Marcus

smarcus@njadvancemedia.com,

NJ Advance Media for NJ.com

TRENTON --Gov. Chris Christie's administration pitched the transfer of proceeds from lottery ticket sales into government worker pensions as a windfall, but a Wall Street ratings house says it won't cure the worst-funded pension system in the country overnight.

Moody's Investors Service's report follows the July adoption of a plan to shift roughly $1 billion a year from the sale of lottery tickets from state coffers to the dangerously underfunded public pension system.

The rating agency's assessment on Tuesday that the transfer "does not alter the burden of pensions on the state's credit profile" stands in stark contrast to the unqualified hype from state officials.

Christie's administration offered it as a foolproof way to immediately improve the health of the ailing pension funds -- one that "positively addresses the chief fiscal burden on the state, mitigating the fears of bond holders, rating agencies and public employees, by significantly reducing the unfunded liability of the retirement system," Treasurer Ford Scudder said in May.

The administration says pledging the lottery enterprise as an asset of the pension fund for the next three decades reduces the $49 billion in unfunded liabilities by about $13 billion. 

http://www.nj.com/politics/index.ssf/2017/08/lottery-pension_plan_doesnt_ease_njs_pension_pain.html

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

Chicago Public Schools released a $5.75 billion budget Friday that relies on $269 million in money from unnamed “local sources.”

City and school district officials refused to provide details on the local source, saying there are many options for where the money can come from. 

CPS CEO Forrest Claypool acknowledged that the budget is full of uncertainty and called it more of a framework than a spending plan. Claypool noted the school district was compelled by state law to release a plan.

The Chicago Board of Education is set to consider the plan on Aug. 28 — two days before a state law requires CPS to release its annual budget. 

The school district is expecting about 8,000 fewer students and has budgeted for 420 fewer teacher positions and 144 fewer school support staff jobs. Yet the operational budget is $300 million more than last year, with a lot of the additional expected revenue going toward teacher pensions and debt payments. 

CPS’ budget also counts on a $300 million increase in revenue from the state, which is currently locked in a stalemate that threatens the distribution of the vast majority of education money to all districts in Illinois, including CPS. 

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“We are not in the position to talk about local options until Springfield has lived up to its responsibility to fund schools and appropriated funds for schools,” Claypool told reporters Friday.

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.”

https://www.wbez.org/shows/wbez-news/cps-proposes-budget-with-269-million-from-unnamed-local-sources/45009b39-e2ad-402c-b968-66badbd4b26c

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

The Metropolitan Water District of Southern California, a powerful regional agency that provides water to 19 million people, paid nearly $88 million to exit interest-rate swap deals, and still has a $71.5 million liability on the books. Such payouts and the liability that remains show Metropolitan got the raw end of the deals and lost. 

By Ashly McGlone.

The agency that supplies water to most of Southern California has paid tens of millions of dollars since 2008 to exit risky and complex financial deals it made before the Great Recession hit.

The Metropolitan Water District of Southern California entered two dozen interest-rate swap deals, which, in a convoluted way, aimed to stabilize debt interest rates, but amount to bets on the way interest rates will go. If interest rates move one direction, the swap becomes an asset. If they move the other direction, it becomes a liability.

Metropolitan, a powerful Los Angeles-based agency that provides water to 19 million people across Southern California, paid nearly $88 million to exit interest-rate swap deals, and still has a $71.5 million swap liability on the books, records obtained through the California Public Records Act show.

Such payouts and the liability that remains show Metropolitan got the raw end of the deals and lost. Neither would have existed if interest rates had gone up, instead of down.

As part of a review of local public agencies that did swaps, Metropolitan’s swaps stood out because leaders there invested more heavily in them than the rest – tying nearly $2 billion in debt to swap contracts – and paid a heftier price for doing so when it wanted out of the losing deals.

Government officials’ appetite and tolerance for such risk-taking with public money has waned in recent years, but much of the damage was already done.

Since the Great Recession, swaps have cost public and private entities billions of dollars to exit. Unlike most traditional government debt, swap contracts typically cannot be renegotiated or refinanced. To get out, the losing side must pay the winning side the fair market value of the swap contract, which can be steep if terminated decades before it expires.

http://www.publicceo.com/2017/08/metropolitan-water-district-has-paid-almost-88m-to-get-out-of-risky-swap-deals/

U.S. Muni Bond Sales Fall

U.S. states, cities, school districts and other borrowers in the $3.8 trillion municipal bond market are selling less debt this year, with issuance dropping 13.1 percent to $210.7 billion through July 31 versus the same period last year.

The drop has been driven by plummeting refunding volumes, which dominated the issuance calendar last year. Refinancings are down 25 percent by par amount, while new money issuance is up by 7.3 percent, Thomson Reuters data show.

Chicago School Bonds Rally Despite Governor's Veto Threat

• Lawmakers starting special session on school funding Wednesday

• Rauner wants to remove what he calls Chicago ‘bailout’

Chicago school bonds are rallying even asIllinois Governor Bruce Rauner repeatedly threatens to veto state aid for the cash-strapped district.

The average price of federally tax-exempt 

Chicago Board of Education general-obligation bonds due in 2046 was 100.33 cents on the dollar on Wednesday, yielding 6.95 percent, compared to 92.427 cents on the dollar to yield 7.65 percent when the bonds sold on July 10, according to data compiled by Bloomberg.

Lawmakers overrode Rauner’s veto of a budget package, including an income-tax hike, to enact Illinois’s first spending plan in more than two years on July 6. Tucked into the legislation is a requirement that Illinois use an evidence-based funding model to distribute money to schools. A measure that does just that -- Senate Bill 1 -- also includes more than $200 million to help Chicago’s schools pay pension bills.

House’s $2B no-new-taxes revenue plan could be thorny

HARRISBURG (AP) — The question of where to find $2 billion will dominate the upcoming weekend session of the Pennsylvania House of Representatives as Democratic Gov. Tom Wolf and the Republican-controlled Legislature stumble through a three-week stalemate.
House Speaker Mike Turzai, R-Allegheny, wants House members to support a no-new-taxes plan to balance a $32 billion spending package, most of which Wolf let become law last week.
Turzai’s plan would authorize the state to borrow about $1.5 billion and siphon hundreds of millions of more dollars from off-budget programs to patch up state finances shredded by Pennsylvania’s biggest shortfall since the recession.
It is not clear whether it will pass the House or, for that matter, the Senate. Wolf has acceded to some level of borrowing, if it comes with a $700 million to $800 million tax package he views as necessary to avoid a downgrade to a credit rating battered by Pennsylvania’s long-term deficit.

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

Explaining the folly of his plan to shuffle N.J. Lottery proceed into the state pension fund is no

Most peoples’ image of New Jersey Gov. Chris Christie these days is the Star-Ledger photo of him sunning himself on an empty public beach that he’d closed because of a budget dispute with the state legislature.

That arrogance is a hard act to match. But Christie’s getting there, by claiming to have greatly improved New Jersey’s financial condition by giving the proceeds from the Jersey Lottery to the state’s hard-pressed pension funds for 30 years.

Christie said the lottery deal, part of the state budget passed on July 4, will “provide an immediate reduction in the state’s long-term retiree obligations by $13.5 billion” and has increased the pension plans’ funding ratio to 59 percent from 45 percent.

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

What would happen if Congress eliminated a popular federal tax break used to build sports stadiums?

A bipartisan group of House and Senate lawmakers want Congress to take a second look at recently reintroduced legislation that would eliminate the tax exemption for municipal bonds used to finance construction of professional sports stadiums. The issue has been a hot topic of late, with Nevada embarking on a $1.9 billion stadium in Las Vegas for the National Football League’s Raiders—funded in part with the largest public subsidy for a stadium in the league’s history.

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

Illinois may soon become the first state on record to have its bond rating cut to junk. Behind that financial trouble is an intractable political impasse and drama that’s been building for more than two years as Republican Governor Bruce Rauner and the Democrat-led legislature battle over how to close the state’s chronic budget deficits. Illinois over the past fiscal year spent over $6 billion more than it brought in, and public universities are reeling from the loss of state aid. S&P Global Ratings warned that the loss of its investment-grade rating is likely unless action came around the start of the new budget cycle on July 1.

Municipal Debt Lures Yield-Hungry Investors in Second Quarter

For evidence of investors' appetite for municipal debt, look no further than New Jersey.

That is where delays have plagued the planned megamall American Dream for more than a decade. Nevertheless, investors last month flooded into unrated public authority bonds designed to revive the 2.9 million-square-foot project.

The $1.1 billion offering, which promised returns of as much as 6.86%, is a sign of how hungry investors are for new municipal debt despite mounting fiscal problems in some cities and states around the country.

Buyers have snapped up nearly $88 billion in new public bonds this year through Friday, up 8% from the same period last year, according to Thomson Reuters. That happened as annual borrowing by local governments rose to a seven-year high.

It also comes as ratings firms have downgraded Illinois and Hartford, Conn., to the brink of junk status, and the troubled U.S. territory of Puerto Rico was placed under court protection as a way of sorting through its mountain of liabilities.

"The market is able to take these individual events in stride," said John Miller, co-head of global fixed income at Nuveen Asset Management.

Illinois Is in Deep Trouble: What Investors Need to Know

Illinois is locked in a political stalemate, and in danger of becoming the first U.S. state to have its debt downgraded to junk status. S&P Global Inc. threatened to take that action if Gov. Bruce Rauner and Democratic Speaker of the House Michael Madigan can't agree on a package of spending and taxes by the start of the next fiscal year on Saturday. Below is a breakdown of what this unprecedented event would mean for everyone from individual investors to large Wall Street money managers.

Who owns Illinois's debt?

Much of Illinois's $25 billion in outstanding general obligation debt is held by individual investors seeking a stable source of income, according to analysts' estimates. But Wall Street is also exposed via mutual funds, hedge funds and insurers that purchased the state's bonds. Money management giant Vanguard Group has $1.2 billion spread across seven mutual funds. It is the biggest holder among all mutual fund firms that had a total of $4.5 billion in Illinois bonds, according to the most recent figures from research firm Morningstar.

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

CHARLOTTE AMALIE, V.I. — The United States Virgin Islands is best known for its powdery beaches and turquoise bays, a constant draw for the tourists who frequent this tiny American territory.

Yet away from the beaches the mood is ominous, as government officials scramble to stave off the same kind of fiscal collapse that has already engulfed its neighbor Puerto Rico.

The public debts of the Virgin Islands are much smaller than those of Puerto Rico, which effectively declared bankruptcy in May. But so is its population, and therefore its ability to pay. This tropical territory of roughly 100,000 people owes some $6.5 billion to pensioners and creditors.

Now, a combination of factors — insufficient tax revenue, a weak pension system, the loss of a major employer and a new reluctance in the markets to lend the Virgin Islands any more money — has made it almost impossible for the government to meet its obligations. In January, the Virgin Islands found itself unable to borrow and nearly out of funds for basic government operations.

The sudden cash crunch was a warning sign that the financial troubles that brought Puerto Rico to its knees could soon spread. All of America’s far-flung territories, among them American Samoa, Guam and the Northern Mariana Islands, appear vulnerable.

“I don’t think you can say it’s a crisis, but they have challenges — high debt, weak economies and unfunded pensions,” said Jim Millstein, whose firm, Millstein & Company, advised Puerto Rico on its economic affairs and debt restructuring until this year and has reviewed the situation in Guam and the Virgin Islands. He called the combination of challenges in the territories “a recipe for trouble in the future.”