Smith's Research & Gradings
Muni Bond Market Mourns the Loss of Ed Merrigan
Edward Charles Merrigan, 68, died on May 9 after a determined and aggressive battle against lymphoma. He wrote his obituary which we have faithfully reprinted. He was supported in his fight by a large circle of family, friends and colleagues who will miss his spirit, jokes, laughter and kindness.
He is survived by his beloved wife of 40 years, Elizabeth Cain, his daughters Eileen Merrigan (Michael Mraz), Deirdre Merrigan (Darren Sanders), Maureen Merrigan, and grandsons Daniel Edward Mraz and Kian Merrigan Mraz. He savored every minute spent with family, tearing up at the happy sounds of his grandsons' laughter.
Eddie completed two tours of duty in Vietnam with the Army. He received the Combat Infantry Badge, the Bronze Star and multiple Army Commendation Awards. He considered every day after Vietnam a gift. After the Army, Eddie had a long career in health care financial analysis during which he came to see the role of mentoring young talent as one of his most important contributions. He championed women's global education through his years of dedicated board work at The Ursuline School of New Rochelle.
Our Reluctant Warrior will be deeply missed by the many generations of family and friends that loved "Uncle Eddie". He had a childlike joy for the world and cared deeply for all the people around him. He reminded us all to "make the memories" and we will continue to cherish his memory for the years to come.
Arrangements by McGrath's Funeral Home of Bronxville. Visitation Monday 5/13, 2PM – 4PM and 7PM – 9PM. Prayers and Military Service Tuesday 5/14 10AM – 11AM
In lieu of flowers the family suggests donations to The Ursuline School of New Rochelle for a scholarship fund to be established in his memory.
Multi-Family MRB Volume Soars
On a certain level, bonds never went away from the multi-family housing sector, because when tax-exempt bonds are used, tax credits come along with it. "Even when the market got a little bit topsy-turvy, we were still getting about 30% to 40% of total development cost from the sale of tax credits," according to Richard Froehlich, New York Housing Development Corp.
"Obviously during the financial crisis, the value of what people were willing to pay for the tax credit, went down quite a bit, but over time it has come back. And so, multi-family bonds have actively continued. It worked best for preservation. Because existing affordable housing is not quite as expensive to preserve, and the value of tax credits that came with exempt bonds were so important. This is what allowed it to work."
What is new in multi-family housing? Mr. Froehlich is starting to see a lot of money from government to do new construction. "New construction is really expensive and especially when you're targeting low-income people," he added.
To be clear, this not a tax credit problem. Remember, there's two kinds of tax credits: the 4% and the 9%.
Heads Explode Over Court's Special Revenue Decision
The High Grade Municipal Bond Market has a problem: Special Revenue Bonds.
More specifically, the United States Court of Appeals for the First Circuit recently heard a case brought by Assured Guaranty and National Public Finance Guarantee against the Financial Control Board of Puerto Rico regarding the Puerto Rico Highways and Transportation Authority. The First Circuit concluded on March 26 that Sections 928(a) and 922 (d) permit, but do not require, continued payment during the pending of the bankruptcy proceedings.
The National Federation of Municipal Analysts (NFMA) hosted a webinar to discuss the decision. Ballard Spahr of Philadelphia wrote an amicus brief on behalf of the NFMA.
Prior to the circuit decision, municipal analysts believed the special revenue bonds had a gross lien on the revenues derived from four highways in Puerto Rico, as well as special excise taxes on diesel, gasoline, crude oil along with a special excise tax on the motor licensing fees.
The bond trustee, Bank of New York Mellon, continued to make payments to the PHRTA bondholders through June 20, 2017. That's when the Puerto Rico Fiscal Agency and Financial Advisory Authority instructed BNYM to cease payments on the basis it violated PHRTA's ability to exercise control over PRHTA's property in violation of the automatic stay under Title III.
Municipal Bond Analyst Survey, 2019 (click link for full survey)
— by Tom Kozlik
Introduction: Smith's Research & Gradings is proud to publish the results of the 5th Annual Municipal Bond Analyst Survey done by Tom Kozlik. He was elected to Smith's All-Star Municipal Analysts Team as the No.1 All-Star Generalist in 2018.
This year's survey was sent to more than 800 analysts, many of whom were culled from the ranks of the National Federation of Municipal Analysts, as well as portfolio managers/traders who have worked as analysts. No rating agency analysts were included in the polling. Some firms do not permit their analysts to participate in surveys.
Smith's Research & Gradings champions the role of municipal research in the investment process and lauds the independent thinking that is the hallmark of our industry.
Key Survey Findings
● The Importance of Pensions is Falling as Other Issues Become More Significant to Municipal Bond Analysts
● The level of fiscal preparedness (by issuers) for the next recession (55% or 86 of 155 analysts surveyed) is the second most concerning issue according to municipal bond analysts. This is notable because this topic was not even included in our 2018 survey.
● Public pensions (85% or 132 of 155 analysts surveyed) remains the number one issue/trend facing the municipal bond market according to the 155 analysts who participated in the 2019 survey.
● The impact of U.S. demographic shifts (50%) is gaining traction with analysts. Last year only (21%) of those surveyed thought demographics moved the needle. In other words, analysts are coming around to understand what Bill Strauss and Neil Howe wrote about in their 1991 book "Generations."
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PennDOT announced that five teams have submitted statements of qualification for the department's Rapid Bridge Replacement Project, a Public Private Partnership (P3) aimed at reducing the state's number of structurally deficient bridges.
Through the project, at least 500 bridges of similar design would be replaced under one contract. Cost savings are anticipated since the same basic design and construction standards will be used for multiple bridges.
Not-for-profit hospitals that find ways to disclose more of their business strategies, financial performance, and future capital plans will likely be rewarded with better market reception from investors and a favorable reputation for accountability with key constituents, says Moody's Investors Service in a new report.
"In financially challenging times such as these, adhering to consistent transparency practices can build credibility and position the organization for improved capital costs and market access in the future," said Moody's Senior Vice President Lisa Goldstein, author of the report. "It can also build greater confidence with key constituents, including investors, lenders, rating agencies, regulators, suppliers, patients, employers, and physicians."
The Seminole Tribe of Florida disclosed the Internal Revenue Service has launched an examination into the tax-exempt status of the bonds.
A copy of the letter from the IRS, dated April 27, 2004, was attached to the notification. Carl Scott is the revenue agent assigned to the examination. The letter is signed by Charles Anderson, manager, field operations, in the Tax-Exempt and Government Entities Division of the U.S. Treasury IRS.
The examination will focus on: $290,600,000 Capital Trust Agency Revenue Bonds (Seminole Tribe of Florida Convention and Resort Hotel Facilities) Series 2002A; $25,000,000 Series 2002B; $29,400,000 Series 2002C.
Mr. Anderson wrote, "Specifically, we are concerned that the loan of proceeds of the Bonds to the Seminole Tribe of Florida may cause the Bonds to be private activity bonds which are not qualified bonds for purposes of section 103 of the Code."
The deal to send the New England Patriots to Hartford, Connecticut, may be dead, but the business of building stadiums is better than ever. Of the 120 sport franchises in the U.S. and Canada in the four major sport leagues -- NBA, NFL, MBL, and NHL-- 49 are seeking new facilities or have new facilities under construction, according to a special report published by Fitch IBCA. The evolving and complex economics of professional sports and league expansion has produced a significant number of new stadium and arena financings throughout the U.S. and Canada. Furthermore, 41 teams are playing in the 33 new stadiums and arenas that have been built since 1990.
This boom in new stadium and arena construction has had a huge price tag. Fitch IBCA's research found that facility construction costs in the four major leagues is estimated at a whopping $6 billion since 1990. This staggering sum is expected to be matched -- another $6 billion -- in sports facility construction over the next several years.
May 13, 2019, Vol. XXVII, Issue 8 Municipal Edition
The Global Economic Doctor
Rising Sovereign Risk…at Least for Now
May 16, 2019
Summary: The world of sovereign credits has seen risk climb higher over the past couple of weeks, and one of the economic impacts is on U.S. corporations. Not the little ones — the big U.S. corporations that get a large share of their profits from overseas. Overall about 44% of S&P 500 firms’ sales come from foreign markets. Consequently, additional risk to U.S. corporate earnings will come if the China-U.S. trade war slows China enough to produce weaker growth in the Asian economy, with a knock-on effect to other overseas markets, U.S. multinationals and other U.S. trade partners (like Europe, Japan and Brazil). It’s something to watch as the Trump Team gets pushed along with new tariffs and the pushback from China.
Adding to the sovereign risk is an upping of tensions in the Persian Gulf between Iran and the U.S. Given the Iranians have control of the largest dry dock in the region, it doesn’t make a lot of sense for them to blow up a freighter in the Straits. More likely some poor unhappy person from, say, Pakistan, plants a bomb below the deck rather than an Iranian Guard.
And, of course, we are in the run-up to the May 23rd European Union parliamentary elections. The trade issue is the most weighty as it hangs heavy over the Chinese and American economies as well as the rest of the world (which includes the EU). Although we believe that a China-U.S. trade deal will be worked out in the months ahead, ongoing friction between the two countries is likely to continue. A number of economic issues pertaining to technology and copyright laws will be difficult to bridge, while geopolitical tensions will continue over such issues as the South China Sea, Taiwan, and Beijing’s penetration of Africa and the Western Hemisphere (most recently underscored by events in Venezuela). We also note the potential for sovereign ratings pressures to re-emerge in Europe if trade protectionism rises further and growth cools in key economies, like Germany, Italy and France.
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