August 15th, 2010
Smart Money magazine and the NY Times reported on the NYC American Folk Arts museum that went bankrupt by defaulting on its muni bonds in Mid August 2010.
We wonder is this the tip of the iceberg? It seems likely with charitable donations will stay down due to a continued slow economy and the tax code phasing them out. We are to likely see more problems from cultural arts programs, specifically museums -which by their nature are heavily indebted by fixed costs.
In the SmartMoney article, BondView CEO Robert Kane was tapped for his industry expertise and said regarding the ACA bond ‘s insurance company wrapper “ ACA’s safety net was once a typical feature of the muni bond landscape, but that many bond insurers bet big on subprime mortgage debt at the behest of ratings agencies, and were battered by the collapse of that debt. The bad news is that this bond is defaulted; the good news is it’s insured,” he says. “But the other bad news is that the insurer ACA is like all the others and is having lots of problems. Pretty much all of these insurers have gone belly up, and the insurance that was underlying a lot of these bonds now doesn’t really exist.”
Thomas Doe, chief executive of Municipal Market Advisors, says bond insurance has disappeared since the crash. “If there’s a benefit, he says it’s that investors and advisors pay much closer attention to the underlying risks of a municipal debt, now that there’s effectively no safety net.”
The market thinks the Folk Art Museum bonds are a high-risk bet, even with the ACA guarantee. An Aug. 6 trade recorded by the Municipal Securities Rulemaking Board showed the bond trading at 61.7 cents on the dollar, with a yield of 10.86%.
The yield curve on museum municipal bonds shows that as a group the marketplace assigns more risk to these bonds compared to safe sectors like General Obligations. To see the yield curve on all museum bonds, go to this link from BondView, a free analysis tools for muni bond investors.
Read the full article here.
Good Luck To All
www.BondView.com
Tags: bondview
Posted in municipal bond defaults | No Comments »
August 11th, 2010
Japan’s has begun severing the global vice grip of the 3 major credit raters. Make no mistake, the ”Keystone Cops” ( Moodys, S&P and Fitch) once powerful influence over nations, corporations and individual investors is coming to a major fork in the road.
Japan’s effort to pull the rug out from beneath the credit raters appears to be a result of nations defending their economies. The credit raters are being taken down a few notches as Japan basically kicks them out of te country by enacting their own financial regulations that “are too risky to comply with”. The same thing happened here in the US when the FINREG bill signed into law in July 2010 caused a complete standstill for new bond issuance. The new law regards bond-ratings firms as “experts” and holds them liable for the quality of their ratings (imagine that?) The ratings agencies’ refusal to stand behind their own ratings shut down the $1.4 trillion market for asset-backed securities for the past few days.
The credit raters are their own worst enemy. These Big 3 have lost credibility due to conflicts of interest in how they run their own business, stale ratings, wrong ratings (ie, Lehman has a solid rating months before they imploded. Surely if there opinions/predictions turned out to be accurate they wouldnt be in this mess.
And now the credit raters are fielding their own set of operational problems: lower revenues, nations circling the wagons to break the monopolistic choke hold , hundreds of lawsuits from investors, corporations and sovereign states.
And to add to the lunacy, In August 2010, Moodys discussed downgrading the USA’s debt the same week that S&P assigned Moodys a ” BBB” rating (Now thats funny!) saying their rating reflects litigation risk for Moody’s due to the recently passed financial reform legislation, which could lower the bar for investors to file securities fraud cases against ratings agencies. This is already happening for all credit raters.
Lets just say that the credit rating business is undergoing ground shifting changes that will result in a free and open competitive marketplace for ratings rather than a government sanctioned monopoly.
Good Luck to All
Tags: Bond Ratings, credit raters, Fitch, Moodys, S&P
Posted in Bond Ratings, Fitch, Moodys, Standard & Poors | No Comments »
July 23rd, 2010
The FINREG bill signed into law this week is already creating economic casualties and a complete standstill for new bond issuance.
The problem: The main credit raters, ( Moody’s , S&P and Fitch ) said the new strict FINREG standard creates too much risk for them so they went on strike. The new law regards bond-ratings firms as “experts” and holds them liable for the quality of their ratings (imagine that?) The ratings agencies’ refusal to stand behind their own ratings shut down the $1.4 trillion market for asset-backed securities for the past few days.
Basically the credit raters played chicken against the SEC by withholding permission to use ratings on new bond issues. The problem is that big parts of the bond markets — notably the asset-backed securities — require a rating by law. Late yesterday, the SEC blinked and gave a 6 month delay to the rule.
On the ratings business there are 2 issues to balance: 1) The benefits to the marketplace of a ratings TRI-opoly protected by a government sanctioned liability shield who in return should provide objective, accurate and up to date risk assessment. VERSES 2) A free and open ratings marketplace that holds raters accountable for their expert opinions.
The larger issue is this how the government will deal with the unintended consequences of 2300 pages of Dodd-Frank? How can small business owners know which laws will be not be enforced? Will there be a list? Without a list of which laws will not be enforced, how will small business owners know if it is safe to hire employees?
What do you think?
Tags: credit ratings, municipal bond defaults
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June 18th, 2010
Credit raters judge risk & value and were given special limited liability privileges because investors and markets crave their expert opinions. Ideally they provide an objective baseline for consistent rating when buying stocks, muni bonds and even collectables – like coins (PCGS) or even guitars. But Moodys and S&P abused their positions at precisely the wrong time – when bond investors needed them most.
So now what? Can the marketplace innovate by encouraging bond buyers to conduct their own research or think creatively about outsourcing that job, instead of reflexively relying on S.& P., Moody’s and Fitch? Are investors willing and able to become more knowledgeable about what, what and why they buy & sell? Hopefully yes, since it will make us all better investors.
The bottom line is that the credit rating industry must be deregulated into a blended solution of legacy and non regulated ratings firms. History clearly shows that markets have the intelligence to predict bad news thru market price based rating systems. For example, to see Market Ratings for any muni bond today go to http://www.bondview.com/marketratings a free analysis tools.
Good Luck
Jim Walker
www.BondView.com
Tags: credit ratings, municipal bond defaults
Posted in Bond Ratings, Ratings, Uncategorized, municipal bond defaults | No Comments »
June 16th, 2010
How can investment advisors monitor the 1.5 million cusips from 60,000 different issuers if most bonds ratings are stale or are not rated at all? We need an Bond early warning system to identify defaults before they happen. (BWACS)
Here is the latest bond default….Facilities muni bond issuer Erickson Retirement Communities, was bought by private-equity firm Redwood Capital Investments for $365 million in a 12/09 bankruptcy auction. The muni bondholders were pummeled when paid only $3.5 million of the $95 million total debt associated with Erickson’s Chicago-area Sedgebrook assisted living complex. This according to MMA’s ever prescient Matt Fabian, the top muni research firm that tracks many of the estimated 60,000 municipal bonds on the market. Matt is quoted everywhere in the press these days, including the US Congress grilling of the muni industry. His data shows that there are 23 retirement facilities-related bond issues representing about $673 million worth of debt that have missed payments and defaulted. Another $1.4 billion of retirement bonds are either making payments from reserves or are in technical default, making the sector one of the shakiest in the still relatively sedate muni marketplace. One of the Sedgebrook bonds defaulted in December, and now trades at 14 cents on the dollar, according to MMA data.
There are retirement facilities bonds, that typically are not backed up by the full faith and credit of the state/ local government. To see the actual Sedgebrook bankruptcy filing
Mitchell Savader, CEO of Savader Asset Advisors, a municipal bond-research firm in New York, says the fate of the Sedgebrook bonds doesn’t herald a widespread collapse of the unrated muni sector. However, it should prompt calls to financial advisers for bond portfolio reviews. . “to make sure that advisers and money managers are keeping an eye on their holdings.” Good advice but how can investment advisors monitor the 1.5 million cusips from 60,000 different issuers if most bonds ratings are stale or are not rated at all? We need an Bond early warning system to identify defaults before they happen. (BWACS)
Tags: credit ratings, municipal bond defaults
Posted in Bond Ratings, Uncategorized | No Comments »
June 4th, 2010
Here is a good interview with our favorite radio host, Brain Lehrer from WNYC and Andrew Ross Sorkin, columnist and financial reporter for The New York Times as they discuss the Financial Crisis Inquiry Commission’s focus on ratings agencies in today’s hearings, featuring Warren Buffet.
Tags: credit ratings, Moodys, municipal bond defaults
Posted in Bond Ratings, Ratings | No Comments »
May 21st, 2010
Its fair to say that when rating agencies recalibrated their muni ratings in Q2 2010 to bring them in-line with other debt types, they did not conduct a credit review. Instead they unilaterally upgraded nearly all ratings at a time when all municipalities face serious financial & headline risk. We base our opinion on congressional testimony by Scott McCleskey, former head of compliance at Moody’s from 4/ 2006 to 9/ 2008 who said “in some cases there were bonds which had been outstanding for 10 or 20 years but which had never been looked at since the original rating”
Take a look or listen to “Credit Rating Agencies and the Next Financial Crisis,”hearing information. House Oversight and Government Reform Committee’s hearing . Really fascinating info that examines what role inaccurate credit ratings played in the current financial crisis, and what regulatory changes need to be implemented to prevent a future collapse.
Here is a webcast of that meeting
Good Luck
Tags: Moodys, municipal bond defaults, Scott McCleskey
Posted in Bond Ratings, Moodys, Scott McCleskey | No Comments »
May 17th, 2010
The Las Vegas Monorail Project is dead but long live its muni bonds which while in default, still trade regularly. They are “junk” muni bonds yielding 15%.
Ever wonder what a messy bond default looks like? Well here you go.
1) See the latest prices for Las Vegas Monorail bonds at from bondview, a new free web site for muni bond investors.
2) And here is the actual Bond Default Notice. Its kind of like a Obituary.
3) More news
Posted in Uncategorized | No Comments »
May 14th, 2010
The US Congress and the SEC are currently grilling CEOs of Moodys and S&P about the future of the ratings agency model. One problem is the inherent flaws due to conflicts of interest. Stale data is another.
For example, Harrisburg, PA’s incinerator bonds are in financial default. So why does Moody’s and S&P have those same defaulted bonds rated highly at AA3 and AAA? Sure the bonds are insured but it seems Harrisburg has real problems that dont jive with a top credit rating. Do you think that the next time Harrisburg tries to raise money the marketplace will agree with their wallets that these bonds deserve a AAA rating? Uhhhh No.
History clearly shows that markets have the intelligence to predict bad news thru market price based rating systems. To see Market Ratings for your muni bonds, check out www.bondview.com , a free analysis tools for muni bond investors.
What does a real bond default look like? Here is the default notice
Here is the default notice
Tags: Bond Ratings, Moodys, municipal bond defaults
Posted in Bond Ratings, Moodys, municipal bond defaults | 1 Comment »
May 12th, 2010
A federal court actually allowed an American Indian tribe to get out of a $50 million bond it owed to a private investor, raising concerns among other tribal-casino lenders. The 3,500-member Lac du Flambeau Band of Lake Superior Chippewa Indians, in northern Wisconsin, said $782,000 in monthly bond payments were bleeding it dry so last fall, it stopped making them, arguing that the deal was invalid.
Preposterous you say? A U.S. District Court in Wisconsin last month upheld an earlier ruling that the bond deal, cut in 2008, violated federal Indian casino law.
Defaulting because “the people got fed up” sounds like a line from a comedy routine. For any US based person or entity that defaults on a loan, the collateral posted should be forfeited, certainly at least until the loan is paid back. Thats a founding principle of business. However, the tribe president actually said “…before the bond, we were doing OK. We were able to keep our head above water but the people finally got fed up.”
As far as any potential chilling effect, its not likely. Casino’s are cash machines so investors will just find new and improved loan documents next time. Other Indian casino bondholders beware!
Jim Walker
www.BondView.com
Tags: casino, municipal bond defaults
Posted in Bond Insurance, casino bond defaults | 2 Comments »
