WHAT WE OFFER
Smith's Conference series provide unique forums for investors and issuers to discuss matters of mutual interest. They include, Smith's Affordable Housing Finance Conference, High Yield Municipal Bond Conference, State and Local Government Finance Conference, and Community-Based Healthcare Conference.
Smith's has become a bellwether research company, often predicting significant trends and spotlighting controversial subjects sometimes months before they come to light elsewhere. SMITH’s provides independent research and third-party analysis for institutional investors.
SMITH’s Grading scale provides a comprehensive and unified credit comparison that is consistently applied for all securities — from supranational organizations and sovereign risk gradings to sub-sovereign municipal entities and corporate credit analytics. It’s a principled and proven approach to credit analysis expressed on Smith’s universal scale.
Smith's Research & Gradings has the news and information you need to know as you continue your search for value in the municipal markets. Smith's is the premier source of independent credit evaluation within the municipal credit market.
Smith's is published every other week
Tax Reform Passes Senate
The Senate has passed a nearly $1.5 trillion Republican tax bill that's historic in scope and an urgent political priority for President Donald Trump and the GOP.
The vote was 51-49, largely along party lines. Not a single Democrat voted in favor of the legislation, which was crafted behind closed doors by Senate Republican leaders. Tennessee Sen. Bob Corker, who calls the growing debt a national security threat, joined Democrats in opposing the bill.
The bill lays the bulk of its tax cuts on businesses and higher-earning individuals and gives more modest breaks to others. It would bring the first major overhaul of the U.S. tax system in three decades. The measure must be reconciled with a version the House passed last month.
Both the House and Senate versions would eliminate advance refundings for municipal bonds. The U.S. House of Representatives version, unlike the Senate version, included the elimination of tax-exemption for the municipal market's private activity bonds (PABs). The full AMT elimination was partially rolled back in the Senate version (as a concession to Senator Collins of Maine).
Higher Education in the Crosshairs
Historically, the Higher Education sector has seen few defaults, but recently, the sector has seen more stress and more defaults. That's according to a panel of experts speaking at Smith's recent High Yield Municipal Bond Conference. The panel featured Brian Connery,Vice President, Municipal Analytics at Morgan Stanley; William Nolan, Senior Managing Director at FTI Consulting; Marc Savaria, Senior Investment Analyst at Eaton Vance Investment Managers; and Miyoko Sato, Member at Mintz Levin.
Brian Connery sees two important trends that are impacting the higher education sector: massive debt caused by student loans and quickly depreciating technology. As universities fight to attract and retain students, they are spending lots of money on amenities such as luxury dorm rooms, technology and recreational facilities — rather than hiring more professors or reducing costs.
Student loans have grown from about $0.25 trillion in 2003 to $1.3 trillion in 2017. Student loan debt dwarfs every other debt sector in terms of growth and delinquencies have grown ten-fold. Mr. Connery is concerned that students have taken out massive debt that's non-dischargable in bankruptcy. "They don't really know what they're getting themselves into. This debt has helped define a generation of these kids who are crippled for 20 or 30 years," he said.
2006: Puerto Rico's Pension Problems
In 2006, Smith's 2nd Annual Pension and OPEB Conference featured Jorge Irizarry, president of Puerto Rico's Government Development Bank (GDB). Mr. Irizarry spoke at length about the problems facing Puerto Rico's pensions. "Nothing can be done about Puerto Rico's pension problems because the rating agencies are ignoring it. The GDB has commissioned studies to determine the size of the problem. Once we have the answer, we can take steps to address the matter," he said.
Mr. Irizarry explained Puerto Rico's pension obligations were likely to grow very quickly over the coming years. He described how three public sector plans represent the vast majority of the pension liability. What's more, the plans are significantly underfunded and he could not see any way forward to correct the problem.
Indeed. Moody's and S&P continued to rate Puerto Rico's debt in the Double-A category until 2013, when they downgraded the debt to BBB ratings in the span of six months.
In contrast, Smith's Puerto Rico Grade was put on alert for downgrade in 1996 when the U.S. government announced it was repealing Section 902 of the tax code, which provided companies with a subsidy for manufacturing in Puerto Rico.
S&P Drops Bomb On National Guarantee — Downgrade Shuts Down New Business
In early June, MBIA Inc. announced its response to a Research Update from Standard & Poor's Global Ratings, in which it placed the ratings of the Company and National Public Finance Guarantee Corporation (National) on CreditWatch Negative.
Bill Fallon, MBIA's Chief Operating Officer and National's Chief Executive Officer said, "We are disappointed by S&P's announcement and do not believe that a rating downgrade of National is warranted. National's financial strength is evidenced by $1.7 billion of excess capital above our estimate of S&P's AAA requirement. National has also, in a relatively short period of time, significantly increased its new business activity... This market acceptance has been growing despite an environment where S&P's rating on National has been one notch lower than its competitors. "
Last week, Mr. Fallon released a statement that said: Following S&P's downgrade of National's rating and with no clear path for the restoration of National's ratings to a level that would allow it to compete effectively, we have decided to abandon our efforts to actively write new business at this time.
SRG Puts Opiods on Credit
Should Opioids be included as a credit consideration?
Yes. Smith's Research & Gradings has decided the time has come to answer the question and put the epidemic of opioid use on "credit".
Stamford-based Purdue Pharma, the maker of pain-killer OxyContin, is the target of an increasing number of states, counties and cities suing the pharmaceutical firm, alleging it is partly to blame for the nation’s opioid epidemic.
So far, Washington D.C., Pennsylvania, Massachusetts, Vermont, Illinois, Texas, Georgia, Connecticut, South Dakota, Rhode Island, Alabama, Virginia, Wisconsin, Tennessee, Colorado, Indiana, Delaware, Iowa, North Carolina, Oklahoma, New York, and California have announced their participation publicly.
Like the tobacco case, which resulted in a $206 billion settlement, the opioid lawsuits seek recovery for state spending of Medicaid dollars on the addiction crisis and funds for education and recovery campaigns.
Smith's Cyber Gradings: US Seaports Vulnerable to Attacks
Smith's annual review of U.S. Seaports, as a critical infrastructure asset, has underscored vulnerabilities to cyber attacks as well as the intrusion of foreign operators/contractors.
The recent NotPetYa global cyberattack struck a number of companies around the world. Shipping operator Maersk, the owner of the world’s biggest container shipping company has revealed that the June cyberattack will wipe out up to $300 million in profits in Q3 2017. “Business volumes were negatively affected for a couple of weeks in July, and, as a consequence, our third quarter results will be impacted,” stated Maersk CEO Soren Skou in a statement.
In July, the shipping giant admitted that NotPetYa had affected operations in a number of ports around the world leading to a large backlog of shipments. At the time, the company did not quantify the impact of the losses, or put a figure on the cost on operations.
Hurricane Maria Wallops Puerto Rico
Puerto Rico was hit by Hurricane Maria last week. It landed as a category 5 storm along the Southeast coast of the island a little after 6 AM local time on Wednesday.
Sources on the island reported for as long as power and communication lines survived, but by Noon most of the island was eerily silent and without power.
"It is a humanitarian crisis," a Wall Street analyst said," but it may bring an economic boom to the regions once the rebuilding begins."
PROMESA, the federal control board overseeing Puerto Rico's finances, authorized up to $1 billion in local funds to be used for hurricane response, but Gov. Ricardo Rossello said he would ask for more.
"We're going to request waivers and other mechanisms so Puerto Rico can respond to this crisis," he said. "Puerto Rico will practically collect no taxes in the next month."
Federal aid began moving into Puerto Rico on Saturday. Local officials praised the Trump administration's response but called for the emergency loosening of rules associated with the Jones Act, which is long blamed for condemning the U.S. territory to second-class status.
A LITTLE ABOUT US
SMITH’s Research & Gradings is a financial credit grading company that conducts research and creates unique credit reports using its own proprietary grading system.
SMITH’s Research & Gradings provides research and disseminates credit gradings on securities sold both on a new issue basis as well as in the secondary markets.
SMITH’s Research & Gradings mission is to provide real-time intelligence that provides greater accuracy and predictability to decision-makers.
SMITH’s Research & Gradings written manifesto stated its raison d’être was to provide independent, principles-based credit analytics.
Over the past 24 years, SMITH’s Research & Gradings has constantly improved and enhanced its credit analytics to better serve investors.
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Smith's Research & Gradings, has become a bellwether research company, often predicting significant trends and spotlighting controversial subjects sometimes months before they come to light elsewhere. Smith’s provides independent research and third-party analysis for institutional investors. Smith's analysis is an indispensable part of Wall Street and the world's capital markets.
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