Marking another sign of the state's financial recovery, the one-notch upgrade to "AA-" from "A+" gives California GO debt the highest rating from S&P since 2000 - when the dot-com bust hammered the state's economy.
California's new budget, "marks another step forward in the state's journey toward improved fiscal sustainability," said the agency's report.
California now outranks Illinois and New Jersey and is tied with Michigan and Pennsylvania.
"October 1 was an academic exercise," says a pension-law expert. "[Thursday] was a reality check." The lawyer is referring to a bankruptcy judge yesterday approving Stockton, CA's reorganization plan which leaves untouched its pension obligations. On Oct. 1 that same judge had ruled Stockton could cut its payments to Calpers as it emerged from bankruptcy.
Ultimately, city managers - already faced with a hard time retaining municipal workers - decided slashing pension benefits would force an even quicker rush to the exits.
Losers when the ruling was issued, government pension plans and organized government labor groups are pleased, but advocates for pension reform say the reorganization plan is a mistake as it allows the city to exit bankruptcy without dealing with the pension obligations which helped put it there in the first place.
Detroit has taken a major step towards exiting bankruptcy protection after agreeing to a deal with with its largest holdout creditor, Financial Guaranty Insurance Company, which is owed $1B.
Under the settlement, Financial Guaranty will have the rights to develop a hotel, retail and condominium complex on the site of the Joe Louis Arena, the soon-to-be-vacant home the Detroit Red Wings hockey team.
The dispute between Detroit and Financial Guaranty had threatened other important deals that the city had forged with thousands of creditors.
U.S. municipal bond funds had some of the biggest outflows since January, after investors pulled out $790M in the week ended July 9. $691M of the outflows was in the high-yield sector, being withdrawn due to default concerns of Puerto Rican debt.
Adding to the worries is Puerto Rico's newest law which allows for public corporations to restructure their debt. The new law pushed ratings agencies last week to downgrade the commonwealth's bonds even lower within junk territory.
Barclays High Yield Municipal Bond Index, up more than 9.5% in mid-June, was up less than 5.5% this past Wednesday.
As detailed in a recent regulatory filing, Invesco Powershares will update the names and underlying indexes for 3 of its 4 municipal bond ETFs on July 8th.
The PowerShares Insured California Municipal Bond Portfolio (PWZ) will be renamed to the PowerShares California AMT-Free Municipal Bond Portfolio and will start tracking the BofA Merrill Lynch California Long-Term Core Plus Municipal Securities Index.
The PowerShares Insured National Municipal Bond Portfolio (PZA) will be renamed to the PowerShares National AMT-Free Municipal Bond Portfolio and will start tracking the BofA Merrill Lynch National Long-Term Core Plus Municipal Securities Index.
The PowerShares Insured New York Municipal Bond Portfolio (PZT) will be renamed to the PowerShares New York AMT-Free Municipal Bond Portfolio and will start tracking the BofA Merrill Lynch New York Long-Term Core Plus Municipal Securities Index.
Issuers have scheduled $11.7B of long-term sales over the next month - the busiest pace in three months - and it's a good thing as investors are about to get the most cash ($104B) in two years from June through August from debt payments, according to JPMorgan's Peter DeGroot.
The funds received will exceed issuance by about $23B over those months, according to DeGroot, helping to extend munis' best first half rally since 2009.
Municipal-bond prices have soared so far in 2014, compared to the same time one year ago. 2013 was the markets worst year in almost two decades, after registering losses nationwide - ranging from Detroit's municipal bankruptcy-protection filing to pension costs in Illinois.
The revival of the $3.7T municipal-bond market comes as bond buyers attempt to find higher investment returns amid dropping U.S. interest rates.
Investors have also poured $3.1B into municipal-bond mutual funds this year, compared with $2.9Bn over the same period in 2013.
Municipal bonds have returned 5.8% in 2014, reflecting interest payments and price appreciation.
Yields on municipal debt fell to 2.3% this past Wednesday, which was their lowest in almost a year. Yields fall when prices rise.
2013 produced the slowest annual rate of municipal debt growth in 20 years, says Moody's, which expects the trend to continue this year. The trend "reflects a new conservative attitude toward debt among the states," says analyst Kimberly Lyons.
The slow pace of borrowing led to a decline in net-tax support debt (NTSD) per capita to $1,054 from $1,074 in 2012.
In other news, municipal bond funds posted their third straight week of big inflows, adding $664M in the week ended on Wednesday (previous weeks saw $616M and $943M of inflows).
“A lot of the opportunities have been washed away in the last month and a half,” says BNY Mellon fixed income director John Flahive. “There really isn’t much out there.”
The muni market is ahead 6.2% YTD, its strongest start since 2009, and benchmark 10-year muni yields have dipped to 2.29%. At work is the general rally in fixed income coupled with a decline in issuance.
The fund has about $961M in assets vs. an original target size of $1B, and has beaten 83% of peers over the past five years.
Stockton is due in court today for a four-day hearing today in which the bankrupt Californian city will attempt to win approval for a plan to pay creditor Franklin Resources (BEN) just 1% of the $35M that the company is owed.
Detroit has filed the latest version of its debt-reduction proposal after it forged a deal with representatives of tens of thousands of retired city workers.
Detroit has agreed to ease healthcare and pension cuts, although retirees will still only receive 10-13% of what they would have originally been given for healthcare.
The deal "puts the city that much closer to emerging from bankruptcy solvent, more credit worthy and better able to provide basic services to its nearly 700,000 residents," said Emergency Manager Kevin Orr.
The agreement adds to those that Detroit has formulated with several banks, bond insurers and other retiree groups, boosting the chances of the city receiving approval from its creditors for its restructuring plan. However, some bond insurers and unions still haven't come to an agreement with Detroit.
A vote on the debt restructure could start next month.
A two-week streak of outflows is broken as investors put a net $273M into municipal bond funds and ETFs last week, according to Lipper data. The funds have seen inflows for 7 of the past 9 weeks, but they've been small and choppy, averaging just $21.9M over the last month.
RBC's Chris Mauro notes the typical late March/early April seasonal tax-time weakness is passing, and this week's inflows - like previous - have been nearly entirely concentrated in high-yield muni funds, with recorded their 14th consecutive week of net gains in assets.
The agreement with Assured Guaranty (AGO +2.2%), Ambac (AMBC +1.2%), and National Public Finance (MBI +1.8%) is an important one as - in what would have been a precedent-setting move - Detroit had asked a court to treat its general-obligation debt as unsecured and allow a recovery of just a few cents on the dollar, while treating debt owed to pensions
Instead, $287.5M of $388M of debt in question will be reinstated at par, and the remaining paper will be assigned to establishing an income stabilization fund for the city's "most vulnerable retirees."
An agreement between Detroit and bond insurers Assured Guaranty (AGO), Ambac (AMBC), and National Public Finance Guaranty (MBI) would be a critical step as the city winds its way through Chapter 9 bankruptcy. Detroit emergency manager Kevin Orr has deemed about $410M of previously sacrosanct general-obligation debt as unsecured, a decision bond insurers - who would be on the hook for millions if the paper sees just the 15% recovery Orr has proposed - are howling about.
"Time is growing shorter," said Michigan Governor Rick Snyder in an interview today. "A lot of work is going on in the mediation process, with great urgency ... [the] best case" is for parties to reach a settlement. A deal, says the Journal, could be struck as early as tomorrow.