Municipal Bond Market Continues to Face Risks

Looking ahead, some analysts even predicted that the muni market could suffer from downgrades. Prices across most of the market remain at or near pre-pandemic highs even as borrowers’ finances have grown weaker, the Wall Street Journal reports. Moody’s Investors Service already lowered its outlook to negative on all muni sectors except for housing-finance agencies and water, sewer, and public power.

“It’s amazing that we’ve sustained six months of being shut down to some degree with very minimal rating actions,” Lisa Washburn, a managing director at Municipal Market Analytics, told the WSJ.

https://www.etftrends.com/municipal-bond-market-continues-to-face-risks/

Threat of coronavirus-driven mass evictions weighs on economy, budgets

Though not a common site of evictions, senior housing bears the most risk in terms of default on bond payments.

A record 23 retirement communities have reported first-time payment defaults on municipal bonds in 2020, according to Municipal Market Analytics.

Since 2009, the retirement sector has never before posted more than 22 defaults in a given calendar year, according to MMA. The previous high of 22 came in 2016.

In addition to having the most first-time payment defaults, the sector also has had the most emergency draws (13) on contingent security provisions such as reserve funds and bond insurance to avoid default.

https://eresearch.fidelity.com/eresearch/markets_sectors/news/story.jhtml?storyid=202008311231SM______BNDBUYER_00000174-4155-d64e-a1f6-e1f7d9510001_110.1

Junk-Muni Boom Sets Up Historic Distress For Billions Of Debt

This year, more than 50 municipal-bond issues worth $5 billion have defaulted, the most since 2011, according to Municipal Market Analytics, an independent research firm. Nearly two dozen more have drawn on reserve funds since the start of the year to cover debt payments when revenue fell short, a potential sign of more stress to come, according to data compiled by Bloomberg.

“They’re really just starting,” said Lisa Washburn, chief credit officer at Municipal Market Analytics, which tracks municipal-bond defaults. “It was just more than the deals could handle.”

https://www.fa-mag.com/news/junk-muni-boom-sets-up-historic-distress-for-billions-of-debt-57491.html

Wave of Deficit Borrowing Coming From States Hit by Downturn

While most states began the fiscal year on July 1 with full-year budgets in place, coronavirus infections have accelerated in Florida, Texas, California and Arizona since mid-June, prompting renewed lockdowns and weighing on an economic recovery. Uncertainty over tax collections and spending on government services means states will likely need to meet in special sessions to revise their budgets, according to Municipal Market Analytics.

“The interesting stuff and the non-recurring stuff tends to happen in the mid-year sessions,” said Matt Fabian, a managing director at Municipal Market Analytics on a Thursday webinar.

While borrowing to fund operations is a negative sign to bond-rating analysts and investors, they may be more forgiving with states and local governments facing the biggest fiscal crisis since the Great Depression.

https://www.bnnbloomberg.ca/wave-of-deficit-borrowing-coming-from-states-hit-by-downturn-1.1467118

Muni Market Niche Faces Biggest Test With Sales Taxes Crumbling

Matt Fabian, an analyst for Municipal Market Analytics, said the sales-tax bonds were designed to be insulated from the state and city budgets, with the revenue behind them typically well above what’s needed to cover the debt payments.“But sales tax bonds weren’t built with the pandemic in mind,” Fabian said. “You can’t have sales transactions go down 80% for months without problems.”The risk hasn’t yet had a big effect on the price of the securities, which have rebounded along with the broader market from the March crash triggered by the first wave of shutdowns.

https://www.bloomberg.com/news/articles/2020-07-15/muni-market-corner-faces-biggest-test-with-sales-taxes-crumbling

Junk Munis See Best Run Since 2009 With Pandemic Panic a Memory

While the economic slowdown has left states and cities contending with massive budget shortfalls, the market is factoring in little risk, driving yields back to the lowest in more than six decades. That’s in part because governments have broad latitude to raise taxes and cut spending, minimizing the odds of default.

But there are signs of mounting distress in the riskiest corner of the municipal market, where speculative projects like nursing homes, factories and tourist attractions are often financed. This year, at least 104 borrowers have skipped debt payments, violated financial clauses in their contracts or drawn on emergency funds to cover what they owe, the most since 2012, according to Municipal Market Analytics.

Yet the $4 billion of bonds that have defaulted still represent a small fraction of the $3.9 trillion municipal market, underscoring the extent to which it acts as a haven during times of economic stress.

https://www.bnnbloomberg.ca/junk-munis-see-best-run-since-2009-with-pandemic-panic-a-memory-1.1459952

Coronavirus Surge Strains Municipal Bond Market, but Investors Still Pile In

Ten municipal borrowers defaulted for the first time in May and another 10 in June, the highest for those months since 2012, when borrowers were still absorbing hits from the 2008 financial crisis, according to Municipal Market Analytics data.

Many municipal borrowers are being crushed by the massive falloff in the collection of sales, income and hotel taxes, airport fees and other revenues. Even some investment-grade issuers are showing signs of serious strain in their abilities to pay future debts.

https://www.marketscreener.com/BARCLAYS-PLC-9583556/news/Coronavirus-Surge-Strains-Municipal-Bond-Market-but-Investors-Still-Pile-In-30860694/

Municipal Bond Insurance Industry Busier Than Ever After Decade-Long Slump

The insurers’ rising market share has come amid a steady increase in the volume of new bonds being offered, suggesting demand is both “real and distributed,” wrote Matt Fabian and Lisa Washburn of Municipal Market Analytics in a note to clients. MMA says that any new issue penetration above 6% represents a “material change” in investor behavior.

https://www.insurancejournal.com/news/national/2020/06/26/573599.htm

The American Dream Mall Had Retail Problems Before Coronavirus. Now, They’re Worse.

Don Ghermezian, who is overseeing the project for Triple Five, said in April that he had made a strategic shift in the makeup of the complex, from a 55%-45% entertainment to retail split to 70% entertainment, 30% retail mix.

But as analyst Lisa Washburn, managing director at Municipal Market Analytics noted in the Bond Buyer, that shift likely was driven by the challenged retail sector “rather than a demand-supported strategic business decision.”

https://www.forbes.com/sites/joanverdon/2020/06/14/the-american-dream-mall-had-retail-problems-before-coronavirus-now-theyre-worse/#7871d10473e4

Wall Street Risk Analysts Rise in the Muni Bond Market

Defaults have remained relatively rare compared with other markets, though they’ve started to rise. In a note to clients last week, Municipal Market Analytics said at least 29 borrowers became impaired in May, which includes defaults and steps like tapping reserves to avoid them. That’s the most since December 2014, according to MMA.

https://www.bloomberg.com/news/articles/2020-06-09/wall-street-risk-analysts-rise-in-muni-market-waiting-for-hit

Are public pensions doomed because of the coronavirus pandemic? State, local budgets feel pain

Governments will likely rely heavily on “gimmicks” to balance their budgets in the current situation, including short-term borrowing to cover deficits, drawing heavily on reserves, deferring certain costs until the next fiscal year or even extending the fiscal year, predicts Matt Fabian, partner at Municipal Market Analytics, which provides information on the health of municipalities and their debt.

“It worsens the long-term situation” for pensions, Fabian says.

Budget gimmicks are already happening, he says. For example, the state of New Jersey has already extended the end of its fiscal year from June 30 to Sept. 30 after the federal government extended its tax filing deadline to July 15, which affects state income tax receipts, whose revenue helps fund pensions.

https://www.usatoday.com/story/money/2020/06/04/coronavirus-pensions-retirement-covid-19-state-local-budget-markets/5198176002/

Hospitals Burn Through Cash While Congress Weighs Next Stimulus

High-yield hospital bonds have lost 6.4% this year, according to Bloomberg Barclays indexes.

“Of all the sectors in the municipal market, the health-care sector has the most long-term volatility because of the pandemic,” said Matt Fabian, an analyst at Municipal Market Analytics. “The federal government is pouring support into the health care sector and will likely continue to do so.”

https://www.bloomberg.com/news/articles/2020-03-31/hospitals-burn-through-cash-while-congress-weighs-next-stimulus

Fed Expands Emergency Program to Include Muni Funds After Rout

”It’s a major help to high-grade municipals, where liquidity pressures have concentrated on money market funds,” said Matt Fabian, a partner at Municipal Market Analytics, an independent research firm. “The program gives the funds an ability to afford investor redemptions without creating additional pressure on the underlying assets. Of course, liquidity is an issue all along the curve, but giving the front a boost is better than nothing.”

https://www.bloomberg.com/news/articles/2020-03-20/fed-expands-money-mkt-facility-to-include-some-municipal-debt

Sleepy municipal-bond market goes 'dystopian'

In fact, New York municipal bonds of all stripes are getting thumped as investors brace for the full economic impact of Covid-19.

“The word I use is dystopian,” said Matt Fabian, a partner at Municipal Market Analytics, an independent research firm.

Muni bonds are ordinarily among the market’s safest investments, with a default rate of 0.18%, and New York’s bonds are considered best-in-class. The credit ratings for New York City and the state are both one notch below AAA, according to Moody’s, which on Feb. 20 praised the state for taking “proposed strong measures to correct its unfavorable spending trend.”

https://www.crainsnewyork.com/coronavirus/sleepy-municipal-bond-market-goes-dystopian

A Bid to Shame Muni-Disclosure Derelicts Draws Industry’s Fire

Her group is among those that have since weighed in on the proposal by submitting comments to the SEC, which has the final say on the MSRB’s rules. Among them is the National Federation of Municipal Analysts, a bond-analyst group that generally welcomes more information.

Yet the group said the MSRB’s timer could be misleading, inaccurate or error-prone enough to do more harm than good. For example, they said the clock could be triggered by a filing that’s not the audited financial statement, potentially making tardy filers look better than speedy ones. “It will be comparing apples to oranges,” said Lisa Washburn, a Municipal Market Analytics managing director who works with the analysts group.

There’s also the possibility a government that has neglected its duty for years could simply reset the clock when it files documents ahead of a new bond sale, leaving would-be buyers unaware that it has a history of not keeping them up to date about the state of its finances. Moreover, there’s no universal deadline in the disclosure agreements governments sign, so a day count wouldn’t necessarily let an investor know if they’re not living up to their promises.

https://www.bloomberg.com/news/articles/2020-02-18/a-bid-to-shame-muni-disclosure-derelicts-draws-industry-s-fire

Ransomware Attack on Hospital Shows New Risk for Muni-Bond Issuers

“The resolution of the situation will likely cost the hospital via monetary settlements and security hardening, making a financial rebound a bit more difficult than otherwise,” MMA said in its report. “Pleasant Valley highlights cyber risks as, at least so far, primarily a worsener for most municipal credits.”

https://www.bloomberg.com/news/articles/2020-02-05/ransomware-attack-on-hospital-shows-risk-for-muni-bond-issuers

risQ and Intercontinental Exchange Announce Collaboration to Bring Climate Risk Analytics to the Municipal Bond Ecosystem

Commenting on the announcement from his broad and deep perspective on the industry, Tom Doe, CEO of Municipal Market Analytics (MMA) only sees it as a positive for the market. “MMA has prided itself on providing thought leadership to the municipal bond sector for over two decades, and climate risk is increasingly coming to the forefront of our thinking,” said Doe. “risQ and ICE working together is as timely as it is critical.”

ICE Data Services and risQ plan to launch the municipal climate package by the end of the first quarter of 2020.

https://www.businesswire.com/news/home/20200108005592/en/risQ-Intercontinental-Exchange-Announce-Collaboration-Bring-Climate

Puerto Rico’s sputtering economy shows risk of fiscal plan

“There’s no reason to assume that long-term population and economic decline won’t resume,” said Matt Fabian, partner at Municipal Market Analytics. “This doesn’t, on its own, mean Puerto Rico will default again, but it suggests Puerto Rico’s finances and infrastructure will still be fragile when the next shock occurs.”

https://eresearch.fidelity.com/eresearch/markets_sectors/news/story.jhtml?storyid=201912231340SM______BNDBUYER_0000016f-0f57-dbce-a17f-dff7edb60000_110.1

Investors Seeking Yield Weaken Muni-Bond Safeguards

“The only movement this year has been toward lighter covenants,” says Matt Fabian, a partner at Municipal Market Analytics. “Next year is geared for more of the same -- slowly tighter spreads, steadily strong demand.”

https://www.newsmax.com/finance/streettalk/muni-bond-safeguards-weakened-as-investors-scrounge-for-yield/2019/12/20/id/946854/

Wall Street’s Muni-Bond Bankers Brace for a Record Year in 2020

Municipal Market Analytics doesn’t see annual issuance dropping below $400 billion in any of the next five years. Unless there’s an unexpected material rise in interest rates, “there is more upside than down to these numbers, particularly in the out years as more state and local issuers sell bonds for water and transportation projects and to address local economic vulnerabilities from climate change,” said Matt Fabian, a partner at the firm

https://au.investing.com/news/stock-market-news/wall-streets-munibond-bankers-brace-for-a-record-year-in-2020-2010418