Contact Us



Smith's Research & Gradings


Smith's Cyber Gradings: Municipal Credits Under Attack

Smith's Research & Gradings was among the first to recognize the threat of cyber to critical infrastructure assets.

In 2016, Smith's Cyber Gradings featured Hans Holmer, CISO, at the State and Local Government Finance Conference in downtown Washington, D.C. Mr. Holmer is a career case officer for the Central Intelligence Agency, where he specialized in cyber attacks.

Based on his analysis, SRG has issued a warning that a Cyber Zero-Day (9/11) Attack against America is a very real threat.


The Village of Key Biscayne, Florida, reported a data breach, according to CBS Miami. The announcement comes after officials in Riviera Beach and Lake City reported data breaches earlier in the month.

Key Biscayne officials identified a data security "event", City Manager Andrea Agha told CBS Miami. They are working with outside counsel and third-party forensic experts to analyze the data breach and protect the village's systems against future security incidents.

About the same time as the Key Biscayne attack, Riviera Beach, FL, was meeting to approve an extraordinary vote to pay nearly $600,000 in ransom to hackers who paralyzed the city's computer systems.

Riviera Beach is a small city of about 35,000 people just north of West Palm Beach. The small city was crippled by ransomware attacks that successfully extorted and forced city officials to dig into public coffers to restore their networks.

Lake City, Florida paid out a bitcoin ransom worth $460,000 to hackers who disabled the city's computer systems with sophisticated ransomware last month.

Lake City officials described the incident as a "triple threat," according to ZDnet, and it has since been determined that an employee downloaded an infected document they had received via email. That set off a chain of events involving three separate malware variants sometimes used in concert in cyber attacks. The initial document carried the Emotet trojan, which installed itself and subsequently downloaded another trojan called TrickBot and the Ryuk ransomware. Ryuk then spread throughout city systems, locking them down and demanding a ransom.



PROMESA Sues PREPA: Los Barriles Perdidos

The Special Claims Committee of the Financial Oversight and Management Board for Puerto Rico filed a complaint Sunday (the last day of June and end of fiscal year) against several fuel suppliers and laboratories seeking to recover potentially billions of dollars in fraudulent payments made by the Puerto Rico Electric Power Authority (PREPA),according to Caribbean Business News.

Smith's Research & Gradings has published a series of reports about the decisions by U.S. District Court Judge Jay García Gregory.  The U.S. District Court repeatedly refused to dismiss a lawsuit filed against Vitol Inc. and Vitol S.A., which have been linked to the so-called "oil cartel" in a Racketeer Influenced and Corrupt Organizations Act, or RICO Act, class-action suit brought against the Puerto Rico Electric Power Authority, PREPA employees, several oil suppliers and laboratories.

The U.S. District judge made his ruling involving a complaint brought under the RICO Act that has been amended three times by the plaintiffs, a group of citizens who claimed they paid more than what they should have in electric power rates as a result of a scheme involving the so-called "oil cartel". It was also the third time Vitol has sought a dismissal of the complaint.

Fuel oil purchases are PREPA's single largest expense, the board said in the press release about its legal recourse.  The PROMESA Board alleges that between 2002 and 2015 certain fuel suppliers received "massive overpayments and other improper compensation from PREPA, which is required by contract and environmental regulations to purchase only high-grade fuel oil, which is more expensive and cleaner than low-grade oil."



Philadelphia Hahnemann Hospitals Files Chapter 11

American Academic Health System (AAHS), the parent company of Hahnemann University Hospital and St. Christopher’s Hospital for Children, began curtailing services over the weekend has filed for bankruptcy protection.

The Chapter 11 filing made late Sunday by Hahnemann University Hospital also includes St. Christopher’s Hospital for Children in Philadelphia. Allen Wilen, chief restructuring officer for Philadelphia Academic Health System LLC, says the move will facilitate a restructuring or sale of St. Christopher’s, allowing it to remain in full operation.

An academic medical center with 88 pediatric beds and 1,900 employees, St. Christopher’s supports academic programs at Drexel University College of Medicine, Lewis Katz School of Medicine at Temple University, and Albert Einstein Healthcare Network.

Last Wednesday, Hahnemann announced it was closing in September because of unsustainable financial losses. The Philadelphia Business Journal put Hahnemann's losses at between $3 million and $5 million per month. Hahnemann University Hospital has 496 beds and about 2,500 employees. Drexel University last week went to court in an effort to stop Hahnemann from closing.

Joel Freedman, a California investment banker, bought the two hospitals from Tenet Healthcare Corp. for $170 million in partnership with a Chicago real estate investment firm, Harrison Street Real Estate Capital LLC.

Hahnemann’s pre-tax losses last year totaled $69 million, said Wilen, who is a financial restructuring consultant in the Iselin, NJ, office of EisnerAmper LLP. Total losses, including the profitable St. Christopher’s and money-losing physician practices, were more than $85 million.




Municipal Bond Analyst Survey, 2019  (click link for full survey)

  — by Tom Kozlik








5 Years  Ago

10 Years Ago

15 Years Ago

20 Years Ago

The Orange County Industrial Development Authority offering of $62 million of unrated debt on behalf of a unit of VitAG Corp., to finance the construction of a plant to combine biosolids with sulfuric acid and ammonia to produce fertilizer raised a bit of a stink last week. The federally tax-free securities will finance a plant on a site in Zellwood, Florida, which is near Orlando.

Smith's has documented the offering of sludge pelletization  plant financings over the past two decades. These deals typically mark a peak in high-yield municipal bonds. A plant built in the Northwest defaulted because the heavy rains in the region prevented the "sludge" from drying.

 The latest attempt at financial alchemy turns the human waste into fertilizer and use biosolids to reduce odor. The sludge is mixed with sulfuric acid and anhydrous ammonia to create a liquid fertilizer, which is then turned into granules (aka pelletization).

These Orange County IDA bonds have a coupon of 7.5%, so the market may still have room to run.



Just four months after California's last budget crisis in February, when legislators from both parties came together to solve $36 billion out of the $42 billion budget, California once again faces another $24 billion budget deficit. Governor Schwarzenegger has already used an executive order to reduce the state's payroll. Now he also proposed cutting the three largest areas in California's budgeting, which is education, health care and prisons.

In addition to the economic decline, California's budget crisis was made worse by its volatile tax system which sent revenues dropping by 27 percent in this last year alone. Governor Schwarzenegger added, "And, when adjusted for inflation and population, that means that we now have revenues the same as we had in the late ' 90s, just to make you understand how low our revenues are."







The financial health of the airport sector is not dependent on the financial condition of the domestic airline industry according to Michael Ross.

Contrary to what some investors believe, the correlation between the two is not 1:1. Ten years ago, the average credit rating for the airline sector was in the lower single "A" to upper "BBB" for carriers that had not been through an LBO (such as Continental as TWA). Today, most of the debt ratings for the sector fall in the single "B" to triple "C" range. Conversely, the airport sector has only slipped modestly and on average remains in the solid investment grade rating of single "A" and many of the key credit measures are on the rebound.

Airport bonds offer yield opportunities and possess less inherent risk than comparably rated hospitals. On June 17, 2004 the Air Transportation Stabilization Board turned down United for the second time, saying credit markets have improved for airlines and that a loan guarantee to the company isn't necessary to ensure the viability of the nation's aviation system.H











A panel of leading State Health Care Facilities Authorities (HEFAs) blasted the programs created in Colorado, and more recently Missouri, that would allow hospital systems based in either Missouri or Colorado to borrow tax-exempt money for hospitals in other states.

"I think it's a state's rights issue," according to John Van Gorkom, executive director, Washington Health Care Facilities Authority. "We have cooperated with other State Health Care Facilities Authorities [same indenture deals] in the past. But, I think my board would have major problems with an issuer borrowing tax-exempt money for a hospital in our State," Mr. Van Gorkom said. "I think the U.S. Congress might have a thing or two to say about it."

Thomas Letavis, executive director of Michigan State Hospital Financing Authority, quickly added the multi-state program might be viewed by some hospitals as a means of avoiding local reporting and regulatory requirements.



July 8, 2019, Vol. XXVII, Issue 11  Municipal Edition









The Global Economic Doctor


June 4, 2019


More Stormy Weather...

Summary: It appears that the new normal for markets is going to be volatility driven by the breakdown in U.S.-China trade talks. Huawei’s being blocked from buying U.S. products and China’s threatening to stop the flow of rare earth minerals upon which U.S. industry has become dependent. There is also is the threat of a tariff war between the U.S., Europe and Japan over autos, while the UK’s politics are being rocked by the fight for a new Conservative leader in the wake of Prime Minister May’s resignation. Additionally, there is a growing probability of a dust-up between Italy and the European Union over the southern European country’s widening fiscal deficit and rising public debt. In the meantime, Brazil’s economy contracted by 0.2% in Q4 2018, the first decline since 2016. And then came President’s Trump tweet threatening Mexico with tariffs unless it does more to help stabilize the U.S. southern border. Markets sold off on the news, making the month of May a gruesome reminder that what goes up can come back down: The VIX ended at 18.71; Crude oil ended at $53.36 a barrel; and the 10-year Treasury yield was at 2.14%.

Continue Reading




About Us



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.

©Copyright 2019 Smiths Research & Gradings All Rights Reserved

For more information Contact Us        Privacy Policy

Smith's Research & Gradings

P.O. Box 1195

Great Falls, VA 22066