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A Common Bond

The 2019 All-Star Municipal Analysts Team recognizes excellence across all sectors of the public finance process, ranging from the largest states to the smallest charter schools, and from global investment banks to local municipal bond houses.  Municipal analysis is practiced at these institutions to protect investors, preserve capital creation through the municipal bond market, and create public goods that support the uninterrupted delivery of  essential services.  Municipal analysis is incorporated into the investment process by gilt-edged rating agencies and commercial banks as well as massive institutional investors, bond insurance companies, and independent hedge funds.

This year's All-Star Analysts program underscores a sea change within the ranks of the community as many well known names are retiring. What is interesting to see are the new names that are rising and receiving recognition. And, along with the new names, come new places.

Our tax-exempt municipal bond market has been defined by the tax-preference its bonds receive under the U.S. Tax Code. But, it is so much more.

When voters go to the polls in 2020, they are going to be faced with a slate of bond proposals and consequential revenue expenditures. The municipal bond market can express the will of the people by funding the creation of public goods which are delivered via essential public purpose providers.

By voting to issue bonds to build public schools and infrastructure projects, the people of a community practice the public virtue of charity. True charity is when a person or persons sacrifice to build something while knowing they will never directly benefit from it. We travel on bridges and through tunnels engineered by our grandparents. We read by lights running on an electric grid wired by our forefathers. We travel on interstate roads paved by our parents. Such projects fly in the face of special interest groups that encourage people to vote in their own economic interest.  To ask "What's in it for me?" is sow the seeds of dissension and harvest political poverty. President John F. Kennedy's wise words still resonate: Ask Not What Your Country Can Do For You, Ask What You Can Do For Your Country.


BlackRock No. 1 Team

BlackRock was the No.1 team in 2019, up one notch from last year.  Jim Schwartz, director of research at BlackRock, continues to find new ways to inspire and promote high quality municipal analysis.

Smith’s All-Star Analysts Program includes a team category, which recognizes the contributions by all members of the analytical group.  It is important to understand that Smith’s All-Star Program does not elect people to First, Second or Third teams – all votes are cast for an analyst to be on the First Team.

Nuveen dropped out of first place and finished No.2 in 2019. But, Nuveen still is a huge analytical power house, to be sure.

Moody’s was elected the No.1 rating during 2019 in Smith’s All-Star Analysts Program. They had major changes in the ranks year-over-year, so it was anyone's guess as to what would happen in 2019. Moody's new team continued the winning tradition with a large cadre of First and Second Team analysts.

A big story in this year's voting was the resurgence of the rating agencies. S&P Global continued to climb in the rankings under the new leadership of Eden Perry, head of public finance ratings.

Fitch's Laura Porter was promoted to head of public finance ratings and her team finished close behind S&P and Fitch. Kudos on the major improvements in the polling.



Lifetime Achievement:  William Smith

William Smith was elected to receive the Lifetime Achievement Award during 2019 voting for Smith's Municipal All-Stars.

Mr. Smith is a partner in the law firm of McDermott Will & Emery LLP.  He is based in the Firm’s Chicago office and the firm has 20+ locations in 8 countries with more than 1,100 lawyers He focuses his practice on resolution of troubled financing transactions.  His experience is particularly extensive in remediation of capital obligations of healthcare obligors and of municipal and tax-exempt finance.

The Lifetime Achievement award seeks to provide recognition for a professional's entire body of work rather than any specific transaction. Mr. Smith's current and recently concluded engagements include: Multiple engagements in Chapter 9 cases of Detroit, Jefferson County, San Bernardino, Stockton, and Vallejo; as well as a Title III case for the Commonwealth of Puerto Rico.  He has  also served as counsel to borrower, bondholder, bond insurer, debtor or trustee in hospital system workouts or Chapter 11 cases, long-term care or congregate community retirement center workouts in numerous states.

Municipal bond investors who have worked with Mr. Smith have found the experience transformative as he climbs from the depths of despair to the plateau productivity. His wise counsel is blended with a dry sense of humor and a sometimes snarky response to unrepentant defaulted bond issuers.




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

According the the National League of Cities' latest annual survey of city finance officers, fiscal conditions are improving as the Great Recession recedes. However, local fiscal health has not yet fully returned to pre-recession levels. While tax revenues continue to improve, increases in service costs, long-term infrastructure needs, employee wages, and pension and health care obligations, along with decreased levels of state and federal aid, continue to constrain the fiscal outlook.

In 2014, 80 percent of city finance officers report that their cities are better able to meet fiscal needs than in 2013. More city finance officers report improved conditions this year than in the history of the survey, which began in 1985. Although this finding reflects improvements in fiscal health, optimism is relative to the broad impact of the recent recession in cities nationwide.

The survey findings confirms Fitch Ratings' expectations about the state of city finances nationally, according to Amy Lasky, a Fitch Managing Director in a recent report.

The House Financial Services Committee, by a large majority, passed a bill that would make it easier for investors to sue the credit rating agencies and make them more accountable.

The legislation, titled the Accountability and Transparency in Rating Agencies Act, passed by a vote of 49 to 14. The full House and Senate must approve the measure for it to become law.

The bill "aims to curb the inappropriate and irresponsible actions of credit rating agencies, which greatly contributed to our current economic problems."

According to Rep. Kanjorski (D-PA), the bill enhances the accountability of Nationally Recognized Statistical Rating Organizations (NRSROs) by clarifying the ability of individuals to sue them.  The rating agencies wouldn't be able to use as a defense against civil anti-fraud actions the fact that the Securities and Exchange Commission or the states don't regulate credit ratings or ratings methodologies.

James Spiotto, partner at Chapman & Cutler, leads one of the top bankruptcy/restructuring practices in the nation.  We asked Mr. Spiotto about the airline industry and the implications for municipal credit quality.

Essentiality of purpose is one of the fundamental credit assumptions associated with municipal revenue bonds. Over the past decade, rating agencies have increasingly emphasized cashflows supporting timely payment of debt service. The problem in the air line sector is the departure from mortgage revenue bond financing structures to doing it on an off balance sheet basis, with an unsecured general corporate pledge. It's how we end up in bankruptcy court with leases without a security interest. I am predicting a move towards mortgage secured obligations and away from unsecured corporate style debt claims in airport financing. Airports who desire not to lose control over their operations will recognize that revenue and mortgage financing does not threaten their control but enhances their ability to obtain financing. 

With less than 100 days until the new millennium, Moody's Investors Service provided investors with an update on Y2K compliance in the health care sector. Moody's wrote,"Since nearly 50% of hospital revenue comes from either of the governmental payers -- Medicare and Medicaid -- one of the biggest issues facing not-for-profit health care providers continues to be the status of the Federal Health Care Finance Administration's (HCFA) readiness for the year 2000."

Regulars may recall HCFA received a  failing grade from Congress when it didn't satisfy the GAO standards of compliance. HCFA has made great strides over the past six months and it is now up to speed. "Despite this update, Moody's still has concerns regarding the impact of outside vendors due to the interdependent nature of billing systems and the many different layers of intermediaries that process and submits claims"


November 25, 2019, Vol. XXVII, Issue 21-22  Municipal Edition









The Global Economic Doctor


Scott B. MacDonald, Ph.D.

November 12, 2019


If everyone is moving forward together, then success takes care of itself.

— Henry Ford


Markets, Risks and the U.S. Economy: Still Moving Along

Summary: There has been considerable concern as to where the U.S. economy is heading. In August and September market pundits were pointing to recession, pushed along by a deepening trade war with China, a pending trade war with Europe and tough times in agriculture and manufacturing. In October sentiment shifted, with investors taking U.S. markets upwards, hitting new records in early November. European and Asian markets have also got an uplift. Although risks abound, the ability of the U.S. and Chinese governments to reach a trade deal has given the market hope and, if consummated, could help pull the global economy towards firmer terrain. The past few months may go down as a “recession scare”, but the real thing remains further out on the horizon.

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