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What Does Trump Dump of Paris Agreement Mean For Green Bonds and Municipal Market?


Green Bonds were featured as a panel topic during the 2017 National Federation of Municipal Analysts Conference, recently hosted in Washington, D.C.

Ted Damutz is Vice President / Senior Credit Officer at Moody's Investors Service served as moderator. The Panel featured: Cooper Martin, Program Director for the Sustainable Cities Institute at the National League of Cities; Dan Hartman, Managing Director in PFM's Washington DC area office and co-head of the firm's national utilities group; and Guy Van Syckle who has helped Hannon Armstrong fund over $3 billion dollars in energy efficiency, wind, and solar projects since 2012. A couple of big takeaways from the NFMA panel included the relatively small number of municipal bonds that are designated as "green" and the lack of any pricing appreciation (i.e. savings) for being green in the municipal bond market.

William Sokol, Product Manager for VanEck Vectors Green Bond ETF (GRNB) recently responded to questions about the Trump Dump. The VanEck Vectors Green Bonds ETF is the first U.S.-listed fixed income ETF to provide targeted exposure to the fast-growing green bonds market. GRNB was launched on March 3, 2017, and seeks to track the performance and yield characteristics of the S&P Green Bond Select Index (SPGRNSLT), part of a suite of green indices introduced by S&P. Mr. Sokol says, "Regardless of the future of the Paris Agreement, the green bonds market continues to have significant growth potential."



Cyber Conversations

Hans Holmer spoke at Smith's State and Local Government Conference in early March.  He has over 30 years of experience in cyber security, human intelligence, and counterintelligence in the United States and overseas. Mr. Holmer has a special interest in technology risk assessment and mitigation. He is an army veteran who maintains active TS/SCI clearance with full-scope polygraph. He is able to translate IT security challenges for non-technical decision makers to ensure timely execution of risk mitigation, resulting in speedy vulnerability resolution.

 Mr. Holmer recently said, "When people talk about cyber security they generally discuss the Confidentiality of data, but nothing in the real world is that simple.  First of all, the object of cyber security is either data or a process.  A process might be the software and hardware that runs an elevator.  Data can be e-mails, databases, documents and many other things. Some things are both."

Data and processes have three fundamental security properties: Confidentiality, Integrity and Availability.  "Most people uses the mnemonic "CIA" to remember them," Mr. Holmer said.  "I don't know what mnemonic is used in China but I doubt it is "CIA."



Trump Speech on Withdrawal from Paris Climate Accord


I am fighting every day for the great people of this country. Therefore, in order to fulfill my solemn duty to protect America and it's citizens, the U.S. will withdraw from the Paris climate accord. (Applause) Thank you. But begin negotiations to re-enter either the Paris accord or an entirely new transaction on terms that are fair to the U.S., its business, its workers, its people, its taxpayers.

So we are getting out. But we will start to negotiate and we will see if we can make a deal that's fair. And if we can, that's great. And if we can't, that's fine.

The Paris climate accord is simply the latest example of Washington entering an agreement that disadvantages the U.S., leaving American workers who I love and taxpayers to absorb the cost in terms of lost jobs and lower wages and vastly diminished economic production. Thus, as of today, the U.S. will cease all implementation of the non-binding Paris accord and the draconian and financial economic burdens the agreement imposes on our country.

This includes ending the implementation of the Nationally Determined Contribution and, very importantly, the Green Climate Fund, which is costing the U.S. a vast fortune.







5 Years  Ago

10 Years Ago

15 Years Ago

20 Years Ago

By order of the California Supreme Court decision issued on December 29, 2011, all of California's 400 Rede­velopment Districts were dissolved, according to a report by John Hallacy, Municipal Strategist at BofA Merrill Lynch. He provided the background research that helped investors understand the headlines. On June 28, 2011, the Governor of California approved two bills, AB 26 and AB 27, which amended the California Community Redevelopment Law regulating the activities of redevelopment agencies. AB 26 was the "dissolu­tion" bill, which set November 1 as the date to dissolve all redevelopment agencies. The second, AB 27, the "reinstatement" bill, allowed cities to keep their agencies in place by committing to substantial "community remittances" to be paid to the State. Mr. Hallacy said, "The state must reaf­firm its fidelity to the municipal bond market. We are confident that California's highest public finance of­ficials, will continue to exercise close oversight over the administration of the ROPS to ensure that the transition from the RDA era succeeds with minimal disturbance."

Richard Larkin, desk analyst at J.B. Hanauer & Co., observed, "I see that S&P's new rating criteria has upped their volume decline assumptions for tobacco bonds. Old criteria ( 2003-2006) in order to get a ‘BBB', the bonds needed to meet an annual volume decline stress test of only -2.5% per year after year 4…..while S&P's new criteria says the tobacco bonds have to meet long term annual volume declines of 3.0% to get ‘BBB'. Doesn't sound like much, but in structured finance, that's a pretty big assumption increase. "

Mr. Larkin explained that all of the prior tobacco issues to date still meet S&P's higher test (most bonds had breakeven rates of -4.0% annual declines). He should feel gratified that S&P is finally coming around to the reality of higher than anticipated shipment declines since 1997.


In thinking about the implications of the Enron scandal, municipal analysts may wonder: Where should a rating agency draw the line between a municipal finance transaction that is off balance sheet, but on credit? Clearly, the tax/financial preparers (i.e. accountants) do not have the same agenda as the municipal analysts.  "As a result of our surveillance of existing ratings at Moody's, we changed our methodology a year ago," John Nelson explained. "We now refer to these types of transactions as 'non-recourse' rather than 'off-balance sheet'.

The success of Moody's in developing criteria to rate these complex credits has spurred increased competition in the ratings business. SMITH's notes investors can quickly determine the rating's durability by asking three questions. 1) Does the college/hospital own the land? 2) Does the college or hospital participate in the net revenues generated by the facility after debt service payments? 3) Does ownership of the facility 'revert' back to the college or hospital at the end of the bond deal? If the answer to the aforementioned questions is "yes", then investors would do well to ignore the 'non core' arguments being offered by some bankers and rating agencies.


Why Healthcare Conduits Avoid CCRC Discussions. When an executive director of a large State Medical Facilities Finance Authority was asked about the swift exit of major healthcare conduit issuers/hospital executives from the room prior to a panel discussion about long-term care, he said "I don't think any of us want to be associated with any of them [long-term care]. We are interested in trying to work on this growing sector," he added. "But, we have developers getting involved with these deals. They want to take money out of these projects through the bond deals."

To wit, Smith's added, "They not only want to take money out at the beginning of the bond deal, they want to receive money over the life of the project, and when the bonds mature/refund."

"Exactly," said the executive director. "The deals we've seen don't have any resemblance to our health care financings."

Smith's suggested, "But, if you walked around the corner to the housing finance authority, I bet they would recognize the underlying cashflow schemes."


June 12, 2017, Vol. XXV, Issue 9  Municipal Edition


The Global Economic Doctor

May 30, 2017, Vol. 2, Issue 9



The New Landscape


President Trump's May 2017 trip to Europe and the Middle East clarified that the U.S. has returned to a disengagement mentality that descended on Washington in the wake of the First World War — a shift away from Europe's destructive conflicts, revolutionary upheaval and economic problems. He is leading America back to business and with a more arm's length relationship with the world. Indeed, it was President Calvin Coolidge, who assumed the presidency following Warren Harding's sudden death in 1923, who stated, "The chief business of the American people is business."  In many regards, this appears to be the case with how President Trump sees the world. It is worthwhile noting, the 1920s were a time of prosperity for the United States.

On the European leg of his trip President Trump indicated that the era of a unified West, inspired by grand Transatlantic experiments in policy coordination, is over. It is a time of going back to the power and interests of the nation-state. After all, the costs of U.S. engagement have been high, while many countries in Europe have failed to live up to their commitment to maintain strong military establishments. This was repeatedly evident in American engagement in a number of areas of European strategic interests, such as Serbia, Libya and Mali. At the same time, some of Europe's largest economies have run up sizable trade surpluses with the U.S.







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