Dec. 25, 2013, 5:14 AM
- Detroit has reached an agreement with two banks to pay them $165M to terminate interest-rate swaps instead of the $230M that the city was originally supposed to have paid.
- With the deal, Detroit has made savings of $128M, or 43% of the $293M it owed vs 25% savings under the previous arrangement. The banks are BofA and UBS.
- The accord now needs the approval of the bankruptcy court.
- ETFs: MUB, PZA, MUNI, TFI, ITM, MLN, XMPT, SHM, SUB, PRB, SMB, PVI, SMMU, VRD, GMMB, RVNU
Dec. 24, 2013, 4:46 AM
- S&P has upgraded Philadelphia for the third time in two years, increasing the city's general-obligation debt rating by two notches to A+ following three years of surpluses. The outlook is stable.
- S&P cited a state oversight board called the Pennsylvania Intergovernmental Cooperation Authority as a major reason for Philadelphia's "strong budget performance."
- The city's situation appears to stand in marked contrast to that of Chicago, which has huge pension obligations, and bankrupt Detroit.
- ETFs: MUB, PZA, MUNI, TFI, ITM, MLN, XMPT, SHM, SUB, PRB, SMB, PVI, SMMU, VRD, GMMB, RVNU
Dec. 17, 2013, 12:55 PM
- The combination of credit issues and rising interest rates have municipal closed-end funds selling at near-record discounts (10%+) to net asset values, says Doug Kass, and at near-record pretax-equivalent yields vs. taxable bonds. Those conditions, says Kass, constitute a margin of safety and he's an owner of: NMA, NAD, ETX, BKN.
- Related ETFs: MUB, HYD, BAB, PZA, MUNI, TFI, ITM, MLN, HYMB, CMF, BABZ, BABS, XMPT, SHM, SUB, PRB, SMB, PZT, NYF, CXA, PWZ, PVI, SMMU, MUAF, INY, MUAD, MUAG, MUAE, VRD, MUAC, GMMB, RVNU
Dec. 11, 2013, 4:56 AM
- States' revenues are projected to increase 0.8% in FY 2014 - which began in October - sharply down from a 5.7% rise in FY 2013, the National Association of State Budget Officers says.
- Major reasons for the slowdown include tax cuts and a one-time surge in revenue last year following a change in federal laws.
- Spending is poised to rise 3.6% vs 4.3% a year earlier, with both increases below the historical average growth rate of 5.6%.
- The level of "rainy day funds" for emergency spending will decline to $56.7B in states that have passed their budgets from $67B. Hiring is not expected to increase. (PR)
- Muni ETFs: MUB, HYD, PZA, MUNI, TFI, ITM, MLN, HYMB, XMPT, SHM, SUB, PRB, SMB, PVI, SMMU, VRD, GMMB, RVNU
Dec. 4, 2013, 2:52 AM
- Illinois' Senate and House have approved a revamp of the state's retirement system, one of the most underfunded in the country with a gap of almost $100B.
- The plan is designed to fully fund Illinois' five pension systems by 2044 by saving an estimated $160B over 30 years. Workers and retirees face cuts, the retirement age for younger staff will rise, and the state will increase its payments by $60-70B.
- Unions are strongly opposed to the proposals and intend to go to court to stop them from being enacted. One argument is that the overhaul violates the state constitution by lowering pension benefits.
- Still, the Illinois revamp could provide a template for municipalities that are grappling with similar problems. Chicago, which has a pension shortfall of $19.5B, has been watching the situation with interest. (Previous)
- ETFs: MUB, HYD, BAB, PZA, MUNI, TFI, ITM, MLN, HYMB, BABZ, XMPT, BABS, SHM, SUB, PRB, SMB, PVI, SMMU, MUAF, MUAE, MUAD, MUAG, VRD, MUAC, GMMB, RVNU
Dec. 3, 2013, 3:16 PM
- Municipals are "a credit market with a rates problem," says Morgan Stanley's Michael Zezas, seeing a base case (60% probability) of total returns of -1.7% to -4.1% in 2014. The bulk of the negative returns should come early, he says, thanks to the 10-year Treasury yield rising to 3.45%.
- The bull case - in which the economy slows and the 10-year yield slides to 2.3% - has munis returning between 3.5% and 6%. The bear case - growth jumps and the 10-year rises above 4% - sees losses of 6.2% to 10%.
- When to jump in? When "loss cushions outpace expected rate increases," he says, and when "market duration has extended."
- Muni ETFs: MUB, HYD, BAB, PZA, MUNI, TFI, ITM, HYMB, MLN, CMF, BABZ, XMPT, BABS, SHM, SUB, PRB, PZT, SMB, NYF, CXA, PWZ, PVI, SMMU, MUAF, INY, MUAD, MUAG, MUAE, VRD, MUAC, GMMB, RVNU
Dec. 3, 2013, 11:50 AM
- Rejecting calls to dismiss the case, a Detroit judge finds the city acted in good faith when it filed for Chapter 9 bankruptcy. The city, he rules, could not have negotiated in good faith with its creditors without the filing. Pensions are unsecured creditors, says the judge, and thus not protected from potential cuts.
- Assured Guaranty (AGO +0.4%), Ambac (AMBC -1.1%), and MBIA (MBI -0.1%) have all fallen about 1% since the ruling.
- The unions and pension funds are likely to appeal the decision.
- “It is indeed a momentous day,” says the judge, Steven Rhodes. “We have here a judicial finding that this once proud city cannot pay its debts. At the same time, it has an opportunity for a fresh start. I hope that everybody associated with the city will recognize that opportunity.”
- Municipal bond ETFs: MUB, HYD, BAB, PZA, MUNI, TFI, ITM, HYMB, MLN, CMF, BABZ, BABS, XMPT, SHM, SUB, PRB, PZT, SMB, NYF, CXA, PWZ, PVI, SMMU, MUAF, INY, MUAD, MUAG, MUAE, VRD, MUAC, GMMB, RVNU
Dec. 3, 2013, 3:14 AM
- U.S. Bankruptcy Judge Steven Rhodes is due to decide today on whether Detroit is eligible for bankruptcy protection.
- Should Rhodes approve Detroit's request, the city would be protected from lawsuits in several courts, including over a plan to cut retiree benefits. It would also prevent creditors from suing to seize assets after Detroit defaulted on loan payments.
- Meanwhile, Illinois' House and Senate are set to vote on a proposed overhaul of the state's retirement system, one of the most underfunded in the country with a gap of almost $100B.
- The measures would save an estimated $160B over 30 years with cuts for workers and retirees but would fully fund the state's five pension systems by 2044. However, unions are deeply opposed to the legislation and its passage is not certain.
- ETFs: MUB, HYD, BAB, PZA, MUNI, TFI, ITM, HYMB, MLN, BABZ, BABS, XMPT, SHM, SUB, PRB, SMB, PVI, SMMU, MUAF, MUAG, MUAE, MUAD, MUAC, VRD, GMMB, RVNU
Nov. 28, 2013, 4:59 AM
- After two years, Illinois' legislative leaders have finally reached a deal to overhaul the state's retirement system, one of the most underfunded in the country with a gap of almost $100B.
- However, details of the plan weren't provided.
- The proposal must win approval from the House and Senate in votes that are due to take place on Tuesday; however, authorization is by no means assured, especially with unions expected to provide vehement opposition.
- Chicago, which has a pension shortfall of $19.5B, is watching the situation with interest.
- ETFs: MUB, HYD, BAB, PZA, MUNI, TFI, ITM, MLN, HYMB, BABZ, BABS, XMPT, SHM, SUB, PRB, SMB, SMMU, PVI, VRD, GMMB, RVNU
Nov. 26, 2013, 3:31 AM
- California state Judge Michael Kenny has blocked the California High-Speed Rail Authority from issuing over $8B in bonds to help fund the proposed high-speed rail line from San Francisco to Los Angeles.
- In explaining his action, Kenny said the authority's finance committee hadn't properly disclosed its reasons for authorizing the debt.
- The decision could cause delays and increase the costs of the $68B project, which has been losing public support.
- ETFs: MUB, BAB, PZA, MUNI, TFI, ITM, MLN, CMF, BABZ, BABS, XMPT, SHM, SUB, PRB, SMB, CXA, PWZ, SMMU, PVI, VRD, GMMB, RVNU
Nov. 20, 2013, 3:39 AM
- Jefferson County in Alabama has become the first municipality to successfully tap the bond markets while still in bankruptcy protection, selling $1.8B in sewer warrants.
- However, Jefferson will reportedly have to pay up to 6.85% in interest on the debt, which has a maturity as long as 40 years.
- The county is now due to go to court today to seek authorization to exit bankruptcy by the year-end.
- ETFs: MUB, HYD, PZA, MUNI, TFI, ITM, HYMB, MLN, XMPT, SHM, SUB, PRB, SMB, SMMU, PVI, MUAF, MUAG, MUAE, MUAD, MUAC, VRD, GMMB, RVNU
Nov. 19, 2013, 4:38 AM
- Just over two thirds of metropolitan areas will grow in 2013, a report from IHS Global Insight has forecast.
- However, that means that 119 out of the 363 regions studied will stay the same or decline, said the report, which was prepared for mayors. The figure is worse than the 73 areas that didn't expand last year.
- Of the cities that are doing well, Midland in Texas is expected to perform the best with growth of 7.3%. Odessa, also in Texas, is seen expanding 6.4%.
- Municipal ETFs: MUB, HYD, PZA, MUNI, TFI, ITM, HYMB, MLN, XMPT, SHM, SUB, PRB, SMB, SMMU, PVI, VRD, GMMB, RVNU
Nov. 11, 2013, 9:06 AM
- "The downgrade reflects the lack of meaningful solutions to both the near- and long-term (pension) burden," says Fitch, cutting Chicago's unlimited tax general obligation bonds to A- from AA-, and keeping the outlook Negative. This affects more than $8.5B of debt.
- To review: This general obligation debt is secured by the city's full faith and credit and (theoretically) nearly-unlimited power to tax.
- Fitch notes improvement in the government budget, but that the pension woes overshadow this. There's also the sluggish recovery in the Midwest - "high unemployment persists and property tax base recovery has been elusive."
- Muni ETFs: MUB, HYD, BAB, PZA, MUNI, TFI, ITM, HYMB, MLN, CMF, BABZ, BABS, XMPT, SHM, SUB, PRB, PZT, SMB, NYF, CXA, PWZ, SMMU, PVI, MUAF, INY, MUAD, MUAG, MUAE, VRD, MUAC, GMMB, RVNU
Nov. 11, 2013, 4:36 AM
- The city of Desert Hot Springs in California could file for Chapter 9 after it projected FY revenue of $13.9M, $2.7M less than budgeted.
- The city, whose population is 26,000, will run out of cash on March 31.
- Amy Aguer, the interim director of finance and administration, has urged Desert Hot Springs' council to declare a fiscal emergency, a prerequisite for a Chapter 9 filing. An alternative to bankruptcy protection could be disincorporation.
- Should Desert Hot Springs apply for Chapter 9, it would become the fourth Californian city to do so since June last year, the others being San Bernardino, Stockton and Mammoth Lakes.
- ETFs: MUB, PZA, MUNI, TFI, ITM, MLN, CMF, XMPT, SHM, SUB, PRB, SMB, CXA, PWZ, SMMU, PVI, VRD, GMMB, RVNU
Nov. 8, 2013, 3:20 PM
- Assured Guaranty (AGO +2.7%) and MBIA's (MBI +1.3%) municipal insurance unit National Public Finance Guarantee sue Detroit over using property tax money earmarked to pay general obligation bonds, and ask the judge overseeing the city's bankruptcy petition to force the city to set the cash aside.
- Emergency manager Kevyn Orr has upset municipal bond markets by including more than $400M of GO bonds in Detroit's nearly $12B of "unsecured" debt. The October 1 default triggered most of a $9.37M interest payment due on that paper to have to be made by Assured and National.
- The lawsuit also raises the insurers' concern about the $350M debtor-in-financing deal Detroit reached with Barclays in October. They want the court to prohibit the city from giving any creditor "super-priority status" in which those property tax payments again may be diverted from the GO bonds.
- The next payment due on the bonds - $47.6M - is due on April 1.
- Also keeping an eye on the proceedings is Ambac (AMBC).
- Muni ETFs: MUB, PZA, MUNI, TFI, ITM, MLN, XMPT, SHM, SUB, PRB, SMB, SMMU, PVI, VRD, GMMB, RVNU
Oct. 28, 2013, 3:38 PM
- Municipals (MUB) aren't just trading cheap relative to Treasurys (TLT), but also to corporates (LQD), argues JPMorgan.
- The observation isn't a huge surprise, but the team notes continued light supply of municipals as a supporting factor - there's been an average of $5.6B per week in issuance since rates turned higher in May vs. and average of $7.2B per week from January to April. It turns out the refinance market for local governments has slowed along side that of homeowners.
- JPMorgan doesn't expect a "sustained uptick" through the end of the year, but what about this fall's big drop in rates?
- Muni ETFs: MUB, SUB, MUNI, PVI, PZA, SHM, TFI, VRD, HYD, ITM, MLN, PRB, SMB, GMMB, SMMU, RVNU, NY.
- IG Corporate ETFs: LQD, CBND, CORP, FLTR, FLRN, ITR, LWC, SCPB, VCIT, VCLT, VCSH, IGU, IGS, CSJ, QLTA, QLTB, BSCI, BSCJ, BSCK, BSCL, BSCM.
The objective is high level of current tax-exempt income and higher risk-adjusted returns relative to its benchmark. The ETF typically invests in municipal securities and will invest, under normal market conditions, primarily in tax-exempt general obligation, revenue and private activity bonds and notes, which are issued by or on behalf of states, territories or possessions of the U.S. and the District of Columbia and their political subdivisions, agencies and instrumentalities.
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