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The Muni Lowdown - Municipal Musings with Dora Lee
On the latest episode of the Debtwire Municipals Muni Lowdown podcast, Managing Editor Paul Greaves and Reporter Kunal Kamal speak with Dora Lee, Director of Research at Belle Haven Investments about the outlook for the municipal market.
Dora starts the podcast with an overview of Belle Haven’s investment strategy during this current period of uncertainty in the municipal market.
The discussion shifts to Dora examining the likelihood of the capping or elimination of the muni tax exemption.
Dora then segues into ongoing federal policy shifts and the potential consequences.
Dora provides her thoughts on whether bond pricing is fully capturing burgeoning risks such as cybersecurity and climate change.
The podcast closes with Dora providing her views on the adequacy of disclosure by municipal issuers.
NYC’s Bond Investors Calm Wall Street Anxiety Over Mamdani Rise
NYC’s Bond Investors Calm Wall Street Anxiety Over Mamdani Rise
By Martin Z Braun and Sri Taylor
New York City mayoral hopeful Zohran Mamdani has rattled Wall Street with his plans to raise taxes on the rich, freeze rents and boost spending to pay for free childcare and education at the city’s public universities.
Still, bond investors are tempering concerns for now. That’s because many of Mamdani’s core polices — like hiking levies on corporations, providing free bus service and borrowing an additional $70 billion for affordable housing — are outside of his direct jurisdiction, requiring approval from state or local leaders that have a range of ideologies.
“While he has big plans, the practical realities of governance, legal constraints, market reactions, and political opposition are likely to temper the extent to which his agenda can be realized and, therefore, limit the fallout such full realization would have on credit quality,” said Richard Schwam, a municipal credit analyst at AllianceBernstein Holding LP, which holds New York City bonds.
There’s also the general election in November where Mamdani, who is poised to win the Democratic nomination for mayor, will have to beat Republican and Independent candidates, including current mayor Eric Adams.
Those hurdles are limiting investors’ concern that Mamdani’s agenda will materially impact the city’s credit quality. Plans for aggressive new debt or drastic fiscal changes could spark concern over ratings downgrades or higher borrowing costs.
The risk premium on New York City’s debt barely budged following the election results. Spreads on the city’s general obligation bonds maturing in 10 years widened by 2 basis points Wednesday, according to data compiled by Bloomberg. The city, which spends about $7.7 billion annually for debt service, had about $104 billion of outstanding debt as of June 30, 2024.
Not all markets were as placid. Shares of companies linked to real estate in the city fell on the same day as analysts fear Mamdani’s agenda could stifle corporate investment and hiring, reducing demand for office leasing. Meanwhile, a rent-freeze may force property owners to put off maintenance, hastening disrepair.
Budget Picture
New York City and state are facing billions of dollars in federal spending cuts for programs like Medicaid, housing vouchers and food stamps, and their ability to keep funding those programs at current levels, much less spend more, will be challenging. The city also has to comply with a state law mandating smaller class sizes, which may require spending an additional $1.9 billion for teachers and billions more for new class rooms.
“The ideas of things like free city buses and lower cost housing are not free from a credit perspective because they have to be paid for,” said Dan Solender, head of municipals at Lord Abbett & Co.
New York State Comptroller Thomas DiNapoli has warned that the state’s high taxes may already be pushing wealthy residents out of the city, providing little wiggle room for the state to raise more revenue during an economic slowdown.
“While people and businesses do not flock to NYC because it is a tax haven, there could be a point where the tax burden is too much, resulting in businesses leaving and city revenues declining,” said Howard Cure, director of municipal bond research at Evercore Wealth Management.
To be sure, New York City is becoming increasingly unaffordable for many residents and Mamdani’s social-media driven campaign centered on reducing that burden. His website, branded with flashy signage, articulates a simple mission: “Zohran Mamdani is running for Mayor to lower the cost of living for working class New Yorkers.”
The message energized the electorate, particularly young people. Mamdani could harness that enthusiasm to put pressure on lawmakers.
When former progressive Democratic Mayor Bill de Blasio took office in 2014, he proposed raising taxes on the rich to fund pre-kindergarten for four-year-olds. Former Governor Andrew Cuomo, who conceded the Democratic primary to Mamdani, successfully resisted a tax increase, but the state legislature agreed to fund the program without raising taxes.
“Investors should take comfort in the myriad of fiscal controls that are embedded into law to enforce fiscal discipline upon the city,” said Dora Lee, director of research at Belle Haven Investments.
— With assistance from Amanda Albright
Read original article:
https://www.bloomberg.com/news/articles/2025-06-26/nyc-s-bond-investors-calm-wall-street-anxiety-over-mamdani-rise?sref=dlv6Ue8o
The Largest Money Managers 2025
The Largest Money Managers 2025
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https://www.pionline.com/largest-money-managers/2025-full-list
US Public Transit Systems See Ratings Hit as Fiscal Woes Mount
US Public Transit Systems See Ratings Hit as Fiscal Woes Mount
By Sri Taylor
US mass-transit agencies are struggling with weak ridership numbers and dwindling pandemic aid, putting pressure on their credit ratings.
The San Francisco Bay Area Rapid Transit District lost its Aaa rating from Moody's due to a projected budget deficit of up to $400 million in the upcoming fiscal years.
Transit authorities in major US cities face a fiscal shortfall of up to $6 billion, and may consider service cuts, fare hikes, or layoffs if they can't secure long-term funding.
US mass-transit agencies are already grappling with weak ridership numbers and evaporating pandemic aid. Now, their credit ratings are under pressure.
The San Francisco Bay Area Rapid Transit District was the latest to take a hit when it lost its Aaa rating from Moody’s Ratings last week. The system’s operations depend heavily on fares, and the dip in daily usage — which has not recovered to pre-pandemic levels — has ballooned its projected budget deficit to as much as $400 million in the upcoming fiscal years.
Moody’s downgrade to Aa1 was spurred by that outlook, as well as the lack of “a new, sustainable revenue source or significant expenditure reductions,” analysts led by Madeline Atkins wrote on June 5. BART has $3.1 billion of debt outstanding, approximately $2.3 billion of which is general obligation debt, Atkins said.
Transit authorities in major US cities collectively face a fiscal shortfall of as much as $6 billion. Service cuts, fare hikes or layoffs could be considered as soon as July 1 — the start of the next fiscal year — if agencies can’t secure enough long-term funding. Also, lower credit ratings generally portend higher borrowing costs when an issuer seeks to tap the bond market. Investors typically require higher yields to hold debt after a downgrade.
BART Chief Financial Officer Joseph Beach said in a June 5 letter that he expects the rating change to have minimal impact on its future bond sales.
Moody’s revised its outlook on the Chicago Transit’s Authority’s debt to negative earlier this year, saying it doesn’t expect that the system will close its $539 million operating deficit with spending cuts and fare increases alone. Kroll Bond Rating Agency also cut its outlook on CTA’s debt to negative from stable in April. And Fitch put the Washington Metropolitan Area Transit Authority — the system that shuttles riders around the nation’s capital — on rating watch negative after doing the same for Washington, DC a few days earlier in March.
More downgrades could be on the way, according to Dora Lee, director of research at Belle Haven Investments. Financial pressures are mounting for systems such as the Southeastern Pennsylvania Transportation Authority (SEPTA) — a Philadelphia mass-transit hub that is facing a $213 million deficit in fiscal 2026 — and the Massachusetts Bay Transportation Authority, which runs the cash-strapped system in Boston.
More than trains
S&P Global Ratings revised the outlook to negative from stable on bonds for the Maryland Transportation Authority, which operates the Francis Scott Key Bridge in Baltimore. The roughly $1.7 billion cost of rebuilding the vital artery following its collapse coupled with a potential ease in federal support could lead to financial issues, and potentially, a downgrade.
The revision came as “project cost escalations and uncertain timing of future federal reimbursements weaken the authority’s ability to sustain financial metrics at levels comparable with those of peers,” said S&P analyst Andrew Stafford. There’s a one-in-three chance of a rating cut if risks materialize and funds worsen, he added.
Transit officials are trying to figure out budget solutions. SEPTA officials will hold a board meeting later this month to discuss what’s at stake. Leaders of Chicago’s three transit systems will meet throughout June after state legislators failed to pass a key transit package.
“Stakeholders weren’t willing to increase funding when they were flush with record revenue growth in the past couple of years knowing that this fiscal cliff was coming,” said Lee, of Belle Haven. “How likely will they be to step in and support these systems when they’re facing budget shortfalls and uncertain federal aid?”
Read original article:
https://www.bloomberg.com/news/articles/2025-06-10/us-public-transit-systems-see-ratings-hit-as-fiscal-woes-mount?utm_source=website&utm_medium=share&utm_campaign=copy
LA Utility's First Bond Sale Since Wildfires
LA Utility's First Bond Sale Since Wildfires
The Los Angeles Department of Water and Power is returning to the municipal bond market with a $1 billion offering, roughly three months after shelving a sale in the immediate wake of historic wildfires that began burning in Southern California on Jan 7. Belle Haven Investments Partner Director of Research Dora Lee has more on the story. (Source: Bloomberg)
Watch the full clip here: LA Utility's First Bond Sale Since Wildfires
LA Utility Returns to Muni Market for First Time Since Wildfires
LA Utility Returns to Muni Market for First Time Since Wildfires
The Los Angeles Department of Water and Power is returning to the municipal bond market with a $1 billion offering, roughly three months after shelving a sale in the immediate wake of historic wildfires that began burning in Southern California on Jan 7.
The power system revenue bonds are set to price for retail investors on April 30, a day before institutional buyers. The department will use proceeds from the sale to ramp up its capital investment program and refinance some outstanding debt.
The issue is shaping up to be a major test of how muni investors view climate risk. The utility’s bonds used to trade better than AAA credits, though the wildfires raised the prospect it will be facing higher costs. The utility will likely need to increase infrastructure spending and it could owe billions in damages as the cause of the flames is still unknown. The department can’t rely on the safety net that investor-owned utilities have through California’s wildfire insurance fund, which would mean higher rates for customers and credit strains for bondholders.
“I’m eager to see whether climate risk gets priced in,” said Tom Doe, founder and president of Municipal Market Analytics, an independent research firm. He said that the muni market tends to shake off climate risk, typically considering the likelihood of default instead. “Even with the recent volatility, we’ve had demand for California bonds because there’s such great demand from high net-worth investors.”
A spokesperson for the Los Angeles Department of Water and Power declined to comment on the upcoming bond sale.
Following the wildfires, prices on power system bonds sold by the utility dropped, and their spreads widened, signaling investors were unloading the securities. Spreads have since tightened but the average gap between benchmark securities and LADWP debt due in 2045 is 137 basis points, up from as little as 95 basis points in December. The spread on an LADWP bond due in 2033 widened to an average of 87 basis points on Friday, compared to -18 on Jan. 2.
The fires also exposed vulnerabilities in LADWP infrastructure and opened up the utility to litigation stemming from its response to the disaster. LADWP faces at least a dozen lawsuits filed related to the Palisades Fire. Legal experts are suggesting the municipal utility may be held accountable under a legal argument called inverse condemnation, which could pave the way for property owners to collect damages from the utility for leaving fire crews without enough water.
S&P Global Ratings lowered its rating on municipal bonds sold by LADWP two notches to A from AA- in January, and warned that more downgrades may be ahead once litigation is complete. Fitch Ratings also downgraded LADWP’s water system revenue bonds to AA- from AA, citing increased liability risk tied to wildfires and limited financial headroom to absorb additional costs.
The utility has a bevy of capital needs tied to a 2022 blueprint aimed at transitioning its power portfolio toward renewable energy, strengthening grid resilience, and adapting to climate-related threats.
“There hasn’t been any ‘turning point’ for climate risk in terms of significant price concessions so far,” said Dora Lee, director of research for Belle Haven Investments. “Not just for LADWP but for other climate prone areas as well. You see places devastated by hurricanes repeatedly that come to market with little change if anything.”
Lee says a web of safety nets have supported climate prone credits during recovery, warding off price concessions.
The new bonds are rated Aa2 by Moody’s Ratings and AA- by Fitch, according to bond documents. Both ratings carry negative outlooks, signaling the possibility of future downgrades.
The negative outlook reflects Fitch’s “view that wildfire credit pressures remain, including the potential for a rating downgrade if LADWP equipment is found to have ignited the Palisades wildfire or if LADWP’s protocols are found to have been a contributing factor,” analysts wrote in a April report.
Read original article:
https://www.bloomberg.com/news/articles/2025-04-29/la-utility-returns-to-muni-market-for-first-time-since-wildfires?sref=dlv6Ue8o
Belle Haven Investments Named PSN Top Guns "Manager of the Decade" FIVE Times
Brightline West's $2.5 billion bond pricing 'too attractive to ignore'
Brightline West's $2.5 billion bond pricing 'too attractive to ignore'
Brightline West, the Las Vegas- Los Angeles bullet train, hit the market Thursday with $2.5 billion of unrated private activity bonds that sported nearly double-digit yields in what's likely to be the largest high-yield municipal bond borrowing of the year.
The deal was structured with a single $2 billion CUSIP, a relatively rare structure in the municipal market that investors said would enhance its liquidity. More than $3.4 billion orders came in for the $2.5 billion deal, with 75 accounts participating, according to two buyside sources.
"To compare this deal with other opportunities in the high-yield market, you're getting more liquid trading bonds, an excellent yield and good sponsorship with a very good economic premise behind it," said Jim Lyman, senior vice president at Belle Haven Investments, which participated in the deal.
All the bonds featured 9.5% coupons, were priced at a discount and are callable at premium, noted a high-yield portfolio manager who asked to remain anonymous. "They made it too attractive to ignore," the manager said, calling the yields and structure "eye-popping."
"It gives you coupon, yield performance, a lien on an exciting project, liquidity, it's lowish on the duration front, and government support and support from the equity sponsor," the manager said. "Those are lot of bells and whistles."
The $2 billion California tranche was bumped four basis points between preliminary and final pricing, according to traders.
DesertXpress Enterprises LLC, which does business as Brightline West and is owned by Fortress Investment Group, aims to own and operate the nation's first privately-owned, all-electric high-speed train. The most recent timeline has it running by December 2028, a date that misses the original target of opening in time for the Los Angeles Olympics.
The $2.5 billion borrowing marks the first step toward full financing of the $12.4 billion train. The team now has 180 days to secure a $6 billion bank facility, which will be senior to the A s and which may include a $1.5 billion tax-exempt tranche, as well as additional equity. If the company fails to secure the additional funds, there will be a mandatory bond redemption at 101, according to an investor presentation accompanying preliminary bond documents.
The sponsor has a total of $4.5 billion of private activity bond allocation, including $2.5 billion that expires at the end of March and $2 billion that will expire at the end of December.
Morgan Stanley, the lead underwriter on all of Brightline West and Brightline Florida financings, was senior manager on a team with eight co-managers. The bank declined comment and Brightline West did not return a request for comment.
In remarkably good timing for the borrowing, the Trump administration singled out the project for praise Thursday as the administration announced it may rescind $4 billion of federal grants for the California high-speed rail line .
"The slow progress by [California High Speed Rail Authority] contrasts with the impressive work of Brightline West to build a high-speed rail system," the U.S. Department of Transportation said in the press release announcing the California probe.
Some investors had been concerned about uncertainties around the Trump administration's approach to federal transportation grants. Brightline West secured a $3 billion federal grant from the iden administration in late 2024 that's the same Federal Railroad Administration grant as the one now the White House may now terminate for California.
The financing team talked with investors and updated bond documents, which note that the Trump administration has already released its first reimbursement of $14 million.
The bond documents mentions under its "risk factors" that the A grant "may not be available to the company and the receipt and use of such grant funds are subject to various conditions and uncertainties."
"Of the $3 billion grant, approximately $2.67 billion has been obligated in the 2022-2025 federal fiscal years and approximately $326 million has been appropriated by Congress under the Infrastructure Investment and Jobs Act as part of an 'advance appropriation' that becomes available for obligation in federal fiscal year 2026," the updated bond documents said.
Lyman said the firm was following the administration's signals closely.
"The California high speed rail train has been mentioned in very negative ways by Trump during this campaign and we were always concerned they would think about all the rail deals in the same way," Lyman said. "As we started to dig deeper, we felt there was clear differentiation between the projects," he said.
"One of the big concerns in the marketplace among all investors was the federal grants being rescinded and there were conversations about the management team about it and we went in depth about how those grants were already funded technically in prior-year Congressional funding agreements, so to rescind it is to break a contract," he added.
Prior to the deal pricing, Jeff Devine, a municipal research analyst at W& Investment Management, said the firm was unlikely to participate.
W& usually participates in "more traditional structures," and some of the deals that have those products aren't "appealing" to the firm, especially with where it is with its separately managed account business, Devine said.
W& took a "hard look" at the Brightline Florida passenger train financing deal from last year and ended up passing on it based on uncertainties around ridership projections and the underlying economics. He added that the backing of Fortress Investment Group was a positive.
Brightline West plans to begin construction early this year. After construction is complete, the company may seek investment-grade ratings for all the outstanding tax-exempt bonds, similar to last year's Brightline Florida deal.
"They want this deal to be the cheapest deal they ever bring to the market for this name," said the high-yield portfolio manager. "Each subsequent deal they'd like to bring at a lower yield and then eventually get a really good refinancing activity and credit rating at the right point in time."
Read original article:
https://www.bondbuyer.com/news/brightline-west-sells-2-5-billion-of-unrated-bonds-at-prices-too-attractive-to-ignore