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Schools Add Insurance to Soothe Fretful Buyers
By Amanda Albright and Parker Purifoy
Municipal-bond investors still have concerns about the future of higher education even as schools in the U.S. look to a more normal-looking academic year thanks to Covid-19 vaccinations.
In the roughly $340 billion corner of the muni market that comprises the debt of universities, community college districts and student-housing borrowers, there’s been a surge in issuance that’s insured by outside companies. Such sales are on track for their busiest year since the 2008 financial crisis, a period when bond insurers’ footprint in municipal finance was fading but still much bigger than today.
The issuers’ move to add this protection, which insulates buyers from the risk of payment defaults, shows that borrowers anticipate that it will boost demand and lower debt-service costs. The upshot is that in the eyes of investors, the pandemic has only magnified a divide that was growing even before the outbreak triggered enrollment declines and credit-rating downgrades for some schools.
“The pandemic has just accelerated the bifurcation” between schools with strong name recognition and those that have less of an academic track record or established niche, said Dora Lee, director of research at Belle Haven Investments. “I don’t think these problems will go away when the pandemic is over.”
S&P Global Ratings said in a June report on private colleges that it expects the pandemic’s repercussions to be spread across multiple fiscal years for most institutions, saying it had a negative outlook on about 30% of private colleges and universities it rated as of June 15. In the spring semester of this year, undergraduate enrollment at U.S. colleges fell 4.9% from a year earlier, according to the National Student Clearinghouse Research Center.
With those strains still evident, investors are keen to have some extra protection. Last quarter was the busiest for insured higher-education bond offerings since 2008, with about $1.4 billion sold, data compiled by Bloomberg show. For all of 2021, such issuance has tallied around $2.1 billion, close to surpassing sales in 2020, when the insurance industry saw a boom given pandemic-related credit concerns.
When Wichita State University in Kansas sold about $65 million of debt via auction this month, the winning bidder — Bank of America — agreed to pay the cost of insuring longer-dated maturities, according to a school spokesperson.
And in May, Montgomery County Community College in Pennsylvania determined it would be cheaper to sell bonds using insurance, amounting to savings of about $230,000 on a $42 million sale, according to a spokesperson. The school has an underlying credit rating of A1 by Moody’s, while Assured Guaranty Ltd.’s bond-insurance arm has a financial strength rating of AA from S&P.
The demand is good news for insurers Build America Mutual and Assured Guaranty. About 8% of new state and local-debt issuance has been insured in 2021, on pace for the most since 2009, Bloomberg data show.
“This sector is not out of the woods,” said Alexander Vaisman, who leads Build America’s higher-education practice. “Covid-19 was incredibly disruptive and we’re probably going to see the ramifications of that trickle through over the next few years.”
In the first half of 2021, Build America saw a nearly 120% increase in new higher-education deals, based on the par amount, compared with the same period of 2020, according to the company. The company continues to see “healthy” activity from higher ed, with insured deals tending to be for new projects, he said.
Muni Investors Are Still Fretting About the Future of Higher Ed
Muni Investors Are Still Fretting About the Future of Higher Ed
By Amanda Albright and Parker Purifoy
July 21, 2021, 1:00 PM EDT
Municipal-bond investors still have concerns about the future of higher education even as schools in the U.S. look to a more normal-looking academic year thanks to Covid-19 vaccinations.
In the roughly $340 billion corner of the muni market that comprises the debt of universities, community college districts and student-housing borrowers, there’s been a surge in issuance that’s insured by outside companies. Such sales are on track for their busiest year since the 2008 financial crisis, a period when bond insurers’ footprint in municipal finance was fading but still much bigger than today.
The issuers’ move to add this protection, which insulates buyers from the risk of payment defaults, shows the borrowers anticipate that it will boost demand and lower debt-service costs. The upshot is that in the eyes of investors, the pandemic has only magnified a divide that was growing even before the outbreak triggered enrollment declines and credit-rating downgrades for some schools.
“The pandemic has just accelerated the bifurcation” between schools with strong name recognition and those that have less of an academic track record or established niche, said Dora Lee, director of research at Belle Haven Investments. “I don’t think these problems will go away when the pandemic is over.”
S&P Global Ratings said in a June report on private colleges that it expects the pandemic’s repercussions to be spread across multiple fiscal years for most institutions, saying it had a negative outlook on about 30% of private colleges and universities it rated as of June 15. In the spring semester of this year, undergraduate enrollment at U.S. colleges fell 4.9% from a year earlier, according to the National Student Clearinghouse Research Center.
With those strains still evident, investors are keen to have some extra protection. Last quarter was the busiest for insured higher-education bond offerings since 2008, with about $1.4 billion sold, data compiled by Bloomberg show. For all of 2021, such issuance has tallied around $2.1 billion, close to surpassing sales in 2020, when the insurance industry saw a boom given pandemic-related credit concerns.
When Wichita State University in Kansas sold about $65 million of debt via auction this month, the winning bidder -- Bank of America Corp. -- agreed to pay the cost of insuring longer-dated maturities, according to a school spokesperson.
And in May, Montgomery County Community College in Pennsylvania determined it would be cheaper to sell bonds using insurance, amounting to savings of about $230,000 on a $42 million sale, according to a spokesperson. The school has an underlying credit rating of A1 by Moody’s Investors Service, while Assured Guaranty Ltd.’s bond-insurance arm has a financial strength rating of AA from S&P.
Boost for Insurers
The demand is good news for insurers Build America Mutual and Assured Guaranty. About 8% of new state and local-debt issuance has been insured in 2021, on pace for the most since 2009, Bloomberg data show.
“This sector is not out of the woods,” said Alexander Vaisman, who leads Build America’s higher-education practice. “Covid-19 was incredibly disruptive and we’re probably going to see the ramifications of that trickle through over the next few years.”
In the first half of 2021, Build America saw a nearly 120% increase in new higher-education deals, based on the par amount, compared with the same period of 2020, according to the company. The company continues to see “healthy” activity from higher ed, with insured deals tending to be for new projects, he said.
Assured Guaranty is also seeing a strong pipeline of higher-ed deals, Jason Kissane, a managing director, said via email. That comes even as yields remain low by historical stands, which might typically crimp demand for insurance as borrowers conclude that they can sell debt cheaply without it.
In Kissane’s view, the uptick is a result of investor concerns related to the pandemic and potential credit-rating changes.
“The reality is that the sector is seeing many changes due to student demand trends, changing demographics and overall cost pressures apart from the Covid impact,” he said.
— With assistance by Natalia Lenkiewicz
Read original article:
https://www.bloomberg.com/news/articles/2021-07-21/muni-investors-are-still-fretting-about-the-future-of-higher-ed?sref=dlv6Ue8o
‘Food fight’ in the municipal-bond market as demand devours all supply
‘Food fight’ in the municipal-bond market as demand devours all supply
Published: June 10, 2021 at 3:32 p.m. ET
By Andrea Riquier
‘Money just keeps pouring in’
The U.S. municipal bond market is known for being many things: staid, stuffy, well-suited to capital preservation, if not growthy opportunity. But now, lopsided metrics of supply and demand, with no relief in sight, suggest it might be outright shrinking.
Investors have poured record amounts of money into muni funds, even as a series of events have conspired to keep state and local government entities from issuing enough debt to satisfy investors. Some corners of the market are so tight that funds are turning money away, noted Brian Steeves, portfolio manager for Rye Brook, New York-based Belle Haven Investments.
“It’s a food fight,” Steeves told MarketWatch.
To be sure, some of the current skew is due to normal seasonal market patterns, said Cooper Howard, director of fixed income strategy for Charles Schwab. Muni bonds pay their coupons, or mature, leaving lots of cash looking for a home.
So far this year, issuance has been relatively stable. Through May, state and local governments had issued about $188 billion of bonds, according to data from the Municipal Securities Rulemaking Board, compared to $152 billion during the same period in 2019.
But many analysts question whether that will continue.
“Bankers and buyers may both see less activity than needed, the influx of Federal cash and surging state and local revenues cut borrowers’ needs for working capital,” wrote analysts at Municipal Market Analytics in a June 7 note. “State and local governments, which are not yet showing a strong rebound in hiring, are also likely a few quarters away from restarting traditional new money infrastructure plans in earnest.”
That backdrop is, in part, what’s helped turbo-charge demand.
As previously reported, weekly money flows into muni funds have smashed weekly records multiple times this year.
“The American Rescue Plan went a long way to help ease credit concerns,” Schwab’s Howard said in an interview. Ongoing economic re-openings and state and local budgets coming in less-bad than many had feared also helps, as do investor concerns that their income taxes might rise at some point.
For now, those macro tailwinds are boosting demand beyond what might normally seem reasonable. A closely-watched metric, the ratio of 10-year muni yields to those of comparable U.S. Treasurys TMUBMUSD10Y, 1.460%, is about 60%, well below the more normal level of 80%, and suggesting investors are paying quite a bit more for muni bonds than sovereigns.
“Investors are simply ignoring how rich munis are right now and money keeps pouring in,” Steeves said.
That means that in one section of the market, for high-yield munis, “there’s just not enough deals.” That was the conundrum facing the Invesco High Yield Municipal Fund, which announced in May that it would close to new investors.
Large funds are now essentially forced to buy any deal that comes out, Steeves said, leaving portfolio managers with little opportunity to distinguish themselves from competitors, and resulting in zero price discovery in that portion of the market.
Perhaps even more unsettling is the notion that things might get worse from here. With the possibility of even more money earmarked for infrastructure spending coming from Washington, local governments are likely to wait and see whether they can hold off on issuing more debt.
What’s more, while “municipal bond” is often assumed to be synonymous with “tax-exempt,” issuers are increasingly turning to taxable bonds instead. Investors are starved for any kind of paper, and there are fewer rules and regulations around taxable issuances. Taxable debt made up 30% of muni issuance last year, Howard said, up from 10% historically.
“The muni market is shrinking,” Steeves said.
Read original article:
https://www.marketwatch.com/story/food-fight-in-the-municipal-bond-market-as-demand-devours-all-supply-11623353532?mod=andrea-riquier
Hospitals Recover From Pandemic
Hospitals Recover From Pandemic
By Shruti Date Singh
Hospitals are benefiting as Covid-19 vaccination rates build and coronavirus cases decline, bringing patients back for discretionary and elective procedures that fuel profits.
The Bloomberg Barclays hospital index has returned 1.36% this year, the best performance among major municipal revenue bond sectors, including those such as transportation that are enjoying the benefits of the broader economic reopening of business and leisure activities across the U.S. Additionally, the Bloomberg Barclays high-yield hospital index last week reached a record.
“Hospitals have performed during the pandemic better than most investors had expected,” said Eric Friedland, director of municipal research for Lord Abbett & Co., which has $34 billion in muni assets. “Elective surgeries have recovered significantly and recently reported metrics demonstrate that financial performance is stabilizing.”
The health care industry has gotten some reprieve this year after the pandemic slashed revenue and elevated costs. The seven-day average of new Covid-19 cases as of May 22 reached the lowest in almost a year while hospital admissions have dropped significantly from a peak in January, according to the U.S. Centers for Disease Control and Prevention. Hospital margin, volume and revenue gains year-to-date and year over year through April show a “stark contrast to early pandemic losses” even though challenges linger, according to a report emailed Monday by health care consultancy Kaufman Hall.
“As yields have fallen from the pandemic highs, buyers are looking for bonds with more spread, making hospital credits a likely candidate,” said Kim Olsan, senior vice president for municipal trading at FHN Financial. “The scenario for many hospitals is flipped now — fewer serious COVID patients and a return to elective surgeries and other services.”
In April 2021, hospitals nationwide saw volumes increase. Adjusted discharges were up 5.9% year to date while adjusted patient days rose 10%, according to Kaufman Hall. Gross operating revenue not including federal stimulus is up 16.7% year to date, according to the firm. The report cautioned to keep the progress in perspective compared to the record low performance in the first two months of 2020.
Better revenue and federal aid have improved the credit of most actively-traded muni health care issuers and a lower supply of bonds has “continued to tighten hospital spreads,” Olsan said. Hospital bond issuance for the first 20 weeks of this year has reached $5.07 billion, the lowest for comparable periods since 2014.
“As the various COVID surges have waned over the past year, we have seen patients utilizing hospital services more normally, which should bode well for revenues moving forward after this recent surge,” said Ryan Ciavarelli, vice president and senior research analyst for Belle Haven Investments, which holds $14.5 billion in muni assets, “but we are closely monitoring this aspect of the sector for any variance versus our expectations.”
—with assistance from Nic Querolo and Natalia Lenkiewicz
N.Y. MTA Gives New Bondholders Haven From Subway Ridership Drop
N.Y. MTA Gives New Bondholders Haven From Subway Ridership Drop
By Michelle Kaske
April 19, 2021, 12:26 PM EDT
By one estimate, one-fifth of those who used to ride the New York Metropolitan Transportation Authority’s subways, buses and commuter trains everyday are unlikely to come back even after the pandemic as remote work catches on.
Yet that won’t be a major risk for the buyers of $1.3 billion of bonds the MTA is selling this week.
The long-term debt will be the agency’s first ever that’s repaid with the revenue it receives from a payroll tax imposed on employers in New York City and surrounding counties. That insulates investors from a potential decline in toll and fare receipts, giving the new bonds credit ratings that are as much as six steps higher than the agency’s debt backed by the revenue it receives from riders.
Others in the $3.9 trillion municipal-bond market have used a similar tactic to drive down their borrowing costs by providing extra security for investors. Chicago, whose credit rating was cut to junk by Moody’s Investors Service, steered a share of its sales-tax revenue directly to its bonds to insulate them from the city’s budget. Puerto Rico did the same.
In the MTA’s case, the step follows a steep drop in ridership since the pandemic struck, which has cast uncertainty over the financial outlook of the nation’s biggest public transit agency.
“It’s going to be a better pricing mechanism for the MTA versus issuing through their more traditional fare-box receipts,” said Howard Cure, director of municipal bond research at Evercore Wealth Management, which oversees $10.2 billion of assets, including MTA debt.
The MTA was among the hardest hit government agencies by the pandemic, which abruptly slashed its revenue as New York City became an early epicenter of the outbreak. Yields on the agency’s debt soared. An MTA bond maturing in 2045 traded in early May 2020 as high as 4.98%, 298 basis points more than top-rated municipals, according to data compiled by Bloomberg.
The bonds went on to rally, however, after the agency received an influx of federal funding that cushioned the hit, with President Joe Biden’s rescue plan boosting the total to about $14.5 billion. That 2045 bond traded Friday at an average yield of 2.3%, or 82 basis points above benchmark tax-exempts, Bloomberg data show.
The new payroll-tax bonds are expected to sell at lower yields than the farebox debt. A bond maturing in 2051 may price at a yield of 1.9%, according to the sale’s preliminary pricing wire dated Monday. That’s 34 basis points more than top-rated municipals, according to Bloomberg Barclays indexes.
MTA’s farebox collections shrunk by 62% last year, coming in at $2.39 billion in 2020 compared with $6.36 billion in 2019, according to bond documents. Subway ridership is about one-third what it was before the pandemic.
But the payroll tax has been far more resilient. The MTA in 2020 received $1.56 billion of revenue from it -- the same amount as in 2019 -- and $161 million more than a revised forecast, according to the bond sale’s offering documents.
The MTA’s Triborough Bridge and Tunnel Authority will sell the bonds, which will refinance the agency’s transportation revenue debt. The payroll bonds carry AA+ credit ratings and negative outlooks from S&P Global Ratings and Fitch Ratings. That’s six steps higher than S&P’s BBB+ grade and five levels above Fitch’s A- rating on MTA’s transportation revenue bonds, which are backed by fares and tolls.
The transaction will likely benefit from high demand in the overall tax-exempt market as investors continue to pour money into municipal-bond funds, said Matt Dalton, chief executive officer of Belle Haven Investments, which manages $14.5 billion of state and local debt, including MTA securities.
“Everything is so much tighter than if you look historically on a relative value between one credit and another,” Dalton said. “Everything’s crunched together because of the lack of availability of choices out there.”
Read original article:
https://www.bloomberg.com/news/articles/2021-04-19/n-y-mta-gives-new-bondholders-haven-from-subway-ridership-drop?sref=dlv6Ue8o
Puerto Rico Bonds Rally on Debt Deal With Assured Guaranty, MBIA
Puerto Rico Bonds Rally on Debt Deal With Assured Guaranty, MBIA
By Michelle Kaske
Puerto Rico bonds rallied after the island and two bond insurance companies announced a tentative restructuring deal, marking another step toward pulling the territory out of a nearly four-year-long bankruptcy. Puerto Rico’s financial oversight board, Assured Guaranty Ltd. and MBIA Inc.’s National Public Finance Guarantee Corp. reached an agreement in principal over how to restructure debt sold to finance highways and convention centers, the board announced Monday night.
That potential accord is a positive development for a separate deal to restructure $18.8 billion of general-obligation bonds and Public Buildings Authority debt because the bond insurers’ involvement in that accord depends on a restructuring plan for the highway and convention center securities. Puerto Rico general obligations maturing in 2039 traded Tuesday at an average price of 82.3 cents on the dollar, up from 79.05 cents on Monday, according to data compiled by Bloomberg. Highway agency bonds rallied too, with one due in 2026 surging to 42.9 cents on the dollar from 31.7 cents when it last traded in March.
The potential agreement gets Puerto Rico closer to resolving its bankruptcy, which increases the value of the bonds. The overall market is seeing demand from cash flowing
into municipal mutual funds as well, said Matt Dalton, chief executive officer of Belle Haven Investments, which oversees $14.5 billion of state and city debt, including insured Puerto
Rico securities.
“Getting agreements in place and moving forward always helps price,” Dalton said. “There’s another grab fest for anything available for sale. It might be getting caught up in
that as an added benefit to the settlement.”
Even commonwealth debt that’s already been restructured is gaining in value. A taxable Government Development Bank Debt Recovery Authority bond maturing in 2040 traded Tuesday at an average price of 86.2 cents on the dollar, up from 84.2 cents on Monday.
--With assistance from Danielle Moran.
Puerto Rico Bondholders Cheer Deal Paving Way to End Bankruptcy
Puerto Rico Bondholders Cheer Deal Paving Way to End Bankruptcy
Puerto Rico’s nearly four-year bankruptcy took a step forward as it reached a tentative deal with creditors to reduce the $18.8 billion of debt backed by the central government, giving hope the island could exit its insolvency in 2021 after natural disasters, political turmoil and the coronavirus stalled the process.
While the pact would lower Puerto Rico’s debt to $7.4 billion and brings together competing bondholder groups and bond insurers holding more than 60% of its debt, it will need court approval. Governor Pedro Pierluisi doesn’t support the plan as he and the island’s legislature oppose any cuts to public employee pensions, which a federally-appointed oversight board is seeking.
Still, the agreement moves forward the largest municipal bankruptcy in history and drove up the price of the island’s bonds. The oversight board aims to receive court approval of the plan in the fall and conclude Puerto Rico’s bankruptcy by the end of 2021. That would help enable the commonwealth to grow its economy and increase jobs on the island.
“There was a lot of concern about if they could get a deal with so much uncertainty and the economic outlook, so it definitely gives much more optimism,” Daniel Solender, head of municipal securities at Lord Abbett & Co., said about the debt deal. “No one is going to be happy here, but there has to be a compromise to get this done after so many years.”
The deal gives bondholders a $7 billion cash payment and $7.4 billion of new general-obligation bonds through a debt exchange. Investors would also receive a so-called contingent-value instrument that would pay off if sales taxes surpass projections.
The oversight board plans to file a debt restructuring plan to the court by March 8. That will include the board’s proposal to cut pensions by as much as 8.5%, with those receiving less than $1,500 a month exempt from such reductions. The changes would help fix a broke pension system that must pay retirees solely from the commonwealth’s operating budget as the system is unfunded and owes an estimated $55 billion to future and current retirees.
“This is part bondholder negotiation and part politics, you have to mesh both of them into the final plan,” said Dora Lee, director of research at Belle Haven Investments.
Even with the risk of the court rejecting the debt deal or island lawmakers holding up a plan, prices on Puerto Rico securities jumped after the oversight board released details of the accord Tuesday.
General obligations with an 8% coupon traded Tuesday at an average 77.5 cents on the dollar, up from 74.7 cents on Monday, according to data compiled by Bloomberg. That’s higher than the 67.7 cents on the dollar that bondholders would receive for that security in the debt plan.
Since the bondholder payouts include different components of cash, new bonds and potential future sales-tax revenue, investors may be calculating each part of the compensation package differently, which may be boosting prices, Solender said.
They’re also looking at how Puerto Rico’s restructured sales-tax bonds, called Cofinas, have jumped in price since the commonwealth issued the debt in February 2019 as part of its bankruptcy. A sales-tax bond maturing in 2058 traded at 110.7 cents on the dollar Tuesday, up from 97.4 cents when the securities were first issued in February 2019, Bloomberg data show.
“It’s hard not to factor in that experience of Cofina to the outlook for these bonds too,” Solender said about the prospect for Puerto Rico’s restructured general obligations. “So it’s definitely part of the equation in terms of determining what the existing bonds are worth.”
Read original article:
https://www.bloomberg.com/news/articles/2021-02-24/puerto-rico-bondholders-cheer-deal-paving-way-to-end-bankruptcy?sref=dlv6Ue8o
Belle Haven Investments Awarded Top Guns Manager of the Decade Designations by Informa Financial Intelligence
RYE BROOK, N.Y., Feb. 19, 2021 /PRNewswire/ -- Belle Haven Investments has been awarded with three PSN Top Guns Manager of the Decade distinctions by Informa Financial Intelligence's PSN manager database, North America's longest running database of investment managers. This is the second consecutive year that Taxable PLUS has been awarded Manager of the Decade in both the Core Fixed Income and US Fixed Income Universes. Taxable Ladder PLUS was awarded Manager of the Decade in the Core Fixed Income Universe this year for the first time.
"We are very honored to see two of our strategies gain Manager of the Decade across three of the fixed income universes this year," said Matt Dalton, CEO & CIO of Belle Haven Investments. "We will continue to stick to our disciplined approach that has allowed for this success over the years."
Through a combination of Informa Financial Intelligence's proprietary performance screens, PSN Top Guns ranks products in six proprietary categories in over 50 universes. This is a well-respected quarterly ranking and is widely used by institutional asset managers and investors. Informa Financial Intelligence is part of Informa plc, a leading provider of critical decision-making solutions and custom services to financial institutions.
Belle Haven Investments' Taxable PLUS and Taxable Ladder PLUS strategies were named Top Gun Manager of the Decade ratings, meaning these strategies had an r-squared of 0.80 or greater relative to the style benchmark for the latest 10-year period. Moreover, the strategy's returns were greater than the style benchmark for the latest 10-year period and also standard deviation less than the style benchmark for the latest ten-year period. At this point, the top ten performers for the latest 10-year period become the PSN Top Guns Manager of the Decade.
Belle Haven Investments' Taxable PLUS and Taxable Ladder PLUS are actively managed separate account strategies that invest in taxable municipal bonds, corporate bonds, agencies and treasuries.
"Congratulations to Belle Haven Investments for being recognized as a PSN Top Gun," said Ryan Nauman, Market Strategist at Informa Financial Intelligence's Zephyr. "This highly esteemed designation allows us to recognize success, excellence and performance of leading investment managers each quarter."
The complete list of PSN Top Guns and an overview of the methodology can be located on https://psn.fi.informais.com/
For more details on the methodology behind the PSN Top Guns Rankings or to purchase PSN Top Guns Reports, contact Margaret Tobiasen at Margaret.tobiasen@informa.com
About BELLE HAVEN INVESTMENTS
Belle Haven Investments is an independent money manager specializing in separately managed taxable and tax-exempt portfolios. Belle Haven has been managing portfolios since 2002. The firm is uniquely committed to serving Consultants and Advisors along with the Institutions, Foundations, Family Offices and High Net Worth individuals whom they represent. The team's expertise and focus in one asset class has resulted in award-winning strategies. Belle Haven is a Registered Investment Advisor with the Securities Exchange Commission (SEC).
For more information, please visit www.bellehaven.com
About Informa Financial Intelligence's Zephyr
Financial Intelligence, part of the Informa Intelligence Division of Informa plc, is a leading provider of products and services helping financial institutions around the world cut through the noise and take decisive action. Informa Financial Intelligence's solutions provide unparalleled insight into market opportunity, competitive performance and customer segment behavioral patterns and performance through specialized industry research, intelligence, and insight. IFI's Zephyr portfolio supports asset allocation, investment analysis, portfolio construction, and client communications that combine to help advisors and portfolio managers retain and grow client relationships. For more information about IFI, visit https://financialintelligence.informa.com. For more information about Zephyr's PSN Separately Managed Accounts data, visit https://financialintelligence.informa.com/products-and-services/data-analysis-and-tools/psn-sma.
Muni-Bond Downgrades Top Upgrades for First Time Since 2014
Muni-Bond Downgrades Top Upgrades for First Time Since 2014
Municipal-bond rating downgrades exceeded upgrades last year for the first time since 2014, according to Moody’s Investors Service.
There were 309 downgrades compared with 296 upgrades in 2020, Moody’s said in an emailed report. The cuts affected $215.2 billion, or about 84% of the total debt affected by rating changes last year. About $42.1 billion of debt saw higher ratings, according to the report.
New York State, New York City and their related entities accounted for the largest share of the rating cuts by dollar amount, with nearly $100 billion of downgrades combined, according to Moody’s.
Borrowers that depend on tourism and commuters also suffered. New York’s Metropolitan Transportation Authority had its rating cut twice and still has a negative outlook. Hawaii, which is rated Aa2 with a stable outlook, had nearly $8 billion in debt downgraded.
“Unlike the last economic cycle with a recession, where you saw the downgrades happen later than the initial economic shock, the fact that the downgrades are happening now shows how much more proactive rating agencies have gotten,” said Dora Lee, director of research for Belle Haven Investments.
While investors should be mindful of risks taken with various credits, “these downgrades aren’t indicative of a widespread wave of default for the investment-grade space,” she said.
Many municipal governments are facing budget shortfalls because of rising costs and falling revenue amid the pandemic. President Joe Biden’s proposed relief package includes $350 billion of emergency aid to states and local governments, but Republicans have outlined a stimulus package that omits that.
Federal relief could mitigate some downgrades in the future, but not necessarily prevent them, according to Belle Haven’s Lee.
“These are governments under a lot of stress, and will be under stress for multiple years,” she said.
Read original article:
https://www.bloomberg.com/news/articles/2021-02-01/muni-bond-downgrades-top-upgrades-for-first-time-since-2014?sref=dlv6Ue8o
Georgia Senate Elections Expected to Be Big Win for Straphangers
New Yorkers had a lot riding on the two U.S. Senate races in Georgia - their commutes.
With the two Democrats declaring victory - and Senator Charles Schumer claiming control of the U.S. Senate - transit advocates say the MTA can bank on receiving more federal funding to help plug the staggering deficits it is suffering because of the pandemic.
"Many of us advocates have spoken with him and his staff over the last year through the pandemic and it has been a massive priority for his office and his counterparts," said Lauren Bailey, director of climate policy at the Tri-State Transportation Campaign.
MTA Chairman Pat Foye called Schumer a champion of mass transit, adding, in a statement that, "having him as leader of the chamber would be a benefit to the millions and millions of people in New York and across the country who rely on mass transportation.”
Last year The MTA asked for $16 billion in federal aid to cover the revenue losses, additional expenses and extra debt caused by the pandemic, threatening punishing layoffs and service reductions without the money.
It also put most of its infrastructure spending on hold.
The MTA received $4 billion in the first round of federal aid and it is expecting $4 billion from the package approved at the end of last year.
"It is quickly becoming very clear that the system does need additional help as the pandemic drags on,” said Dora Lee, research director at Belle Haven Investments, which owns MTA bonds.
She said that Democratic control of government will give the transit agency some breathing room.
"Stability means predictability, so the MTA can more carefully plan their long-term capital projects, which it's in dire need of, and also for future fare increases," she said.
To Gov. Cuomo, infrastructure projects, like the construction of a new rail tunnel under the Hudson River, will move forward.
"We had all sorts of great projects around the state that should have been going forward. Second Avenue Subway was funded by every administration, in Manhattan," he said. "The Gateway tunnels, the president didn't fund them just out of political pique."
Still, the change in Washington can only go so far. the MTA still faces some uncertainty.
"The MTA is expecting ridership to recover maybe not to pre-pandemic levels for quite sometime and how the MTA reacts to that will be critical to their long term credit quality and their financial health," said Michael Rinaldi, senior director at Fitch Ratings.
Read original article:
https://www.ny1.com/nyc/all-boroughs/transit/2021/01/06/mta-riders-can-benefit-from-georgia-s-senate-elections
Illinois and MTA Bonds Rally on Bet That Democrats Win Senate
Illinois and MTA Bonds Rally on Bet That Democrats Win Senate
Municipal-bonds investors are buying up debt from New York’s Metropolitan Transportation Authority and Illinois, but they have Georgia on their minds.
Some bonds sold by the MTA, the largest U.S. mass-transit system, and Illinois are trading up in price Wednesday as Democrats’ chances of taking back the U.S. Senate increased after Tuesday’s runoff elections in Georgia. Illinois and the MTA are two well-known, financially-stressed governments that would benefit if Democrats control both chambers of Congress as they are more likely to aid states and municipalities, said Matt Dalton, chief executive officer of Belle Haven Investments, which oversees $14 billion of municipal debt.
“MTA is probably the most visible entity out there right now that’s in need of cash,” Dalton said. “A lot of the focus within our industry is ‘OK, MTA is probably going to benefit on the back of the Blue Wave.’ So that’s going to be the real power behind seeing MTA spreads tighten.”
Illinois, the lowest-rated state, and the MTA are the only two borrowers that tapped the Federal Reserve’s emergency lending program, which ended on Dec. 31, as low interest rates in the $3.9 trillion municipal-bond market kept the Fed program attractive only to the most fiscally-challenged.
MTA debt maturing in 2031 traded Wednesday at an average price of 121.1 cents on the dollar, up from an average 112 cents during the prior three months, according to data compiled by Bloomberg.
An Illinois bond maturing in 2030 traded at an average price of 128.3 cents on the dollar, up from 124.8 cents at the end of 2020, Bloomberg data show.
The MTA’s near-term finances got a boost last month as Congress approved $4 billion of additional federal aid to help close the agency’s 2021 budget deficit as ridership has plummeted. That infusion of cash allows the MTA to avoid drastic service cuts and laying off thousands of employees.
Even with the federal help, the MTA faces an $8 billion budget deficit through 2024. The MTA was seeking $12 billion of federal aid as ridership may not return to pre-pandemic levels until 2024.
While federal stimulus won’t help Illinois’ long underfunded pension systems, it could help with other losses connected to the pandemic that are contributing to back-to-back budget gaps.
Illinois is facing a $3.9 billion deficit in fiscal 2021 and has only $1.85 million in its rainy day fund. It borrowed $1.2 billion in June from the Federal Reserve Municipal Liquidity Facility to close a gap in fiscal 2020 and then another $2 billion in December for fiscal 2021.
“Illinois has more to gain from potential stimulus out of Congress and more ground to make up,” said Daniel Solender, director of the municipal bond group for Lord, Abbett & Co., which owns Illinois debt as part of $31 billion in muni assets under management. “The reason it has more to gain is the state and local funding is potentially a direct source of funding for them.”
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https://www.bloomberg.com/news/articles/2021-01-06/illinois-and-mta-bonds-rally-on-bet-that-democrats-win-senate?sref=dlv6Ue8o