Puerto Rico Electric Power Authority bond parties that oppose the Oversight Board’s proposed debt deal filed suits challenging part of the deal, asked for compensation for Puerto Rico central government’s actions since March 2022 and proposed an alternate bond deal.
The parties filed the suits this weekend in the U.S. District Court for Puerto Rico and filed an informative motion Friday in the bankruptcy telling U.S. District Judge Laura Taylor Swain about their bond deal offer.
GoldenTree Asset Management and Syncora Guarantee sued Puerto Rico’s central government for actions taken since March 2022 to interfere with PREPA’s ability to pay bondholders. The court has yet to appoint a judge in that case.
The bond parties allege the commonwealth government has manipulated PREPA’s fiscal plans and budgets to deprive the bondholders of their claim on the authority’s revenues and depress the value of the bonds.
The board rejected former Oversight Board member Justin Peterson’s suggestion to use commonwealth financial surpluses for PREPA because the commonwealth didn’t owe the authority money.
Moody’s Investors Service (MCO) revised its rating outlook for the Aaa-rated District of Columbia to negative Monday, matching its Friday action on the United States government.
At the same time, the rating agency affirmed the Aaa issuer ratings and stable outlooks of Florida, Maryland and Virginia.
The actions follow Friday’s outlook revision on the United States to negative from stable by Moody’s while it affirmed the U.S. sovereign rating at Aaa.
Moody’s said the main reason for the negative outlook on the United States was its assessment that “the downside risks to the U.S.’ fiscal strength have increased and may no longer be fully offset by the sovereign’s unique credit strengths.
“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects that the U.S.’ fiscal deficits will remain very large, significantly weakening debt affordability,” the rating agency said. “Continued political polarization within U.S. Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability.”
Author(s): Chip Barnett
Publication Date: 13 Nov 2023
Publication Site: Fidelity Fixed Income – Bond Buyer
As the timeline for implementing the Financial Data Transparency Act grows shorter, the Securities and Exchange Commission is teaming up with other federal regulators in an attempt to allay fears about implementation.
“There’s no new disclosure requirements, standards or timelines, it’s just about structured data,” said Dave Sanchez, director of the SEC’s Office of Municipal Securities.
The comments came during a panel discussion produced by XBRL US on Thursday. The FDTA was passed last year as a remedy for providing more transparency to the financial markets by introducing machine-readable formats into the Municipal Securities Rulemaking Board’s EMMA system, which tracks the muni market.
The SEC is in charge of developing the standards for how the data will be submitted to the MSRB. The upcoming deadlines include publishing proposed rules by June 2024, which will kick off the public comment period. Determining the standards is set for December 2024, with specific rulemaking to be in place by 2026.
Author(s): Scott Sowers
Publication Date: 10 Nov 2023
Publication Site: Bond Buyer at Fidelity Fixed Income
Last week’s Fitch Ratings upgrade of Chicago offers dual benefits for Mayor Lori Lightfoot’s administration as it pursues passage of a proposed 2023 budget and preps a general obligation issue.
Fitch’s Friday upgrade to BBB from BBB-minus, the city’s first from Fitch in 12 years, and the potential for more good rating news could help sell the City Council on supplemental pension contributions and other pieces of the budget plan viewed favorably by analysts.
The Fitch action and an overall rosier view of the city’s fiscal condition should also broaden the investor appeal of an upcoming $757 million general obligation issue in a more fickle and tumultuous market than prevailed in the city’s last GO offering in late 2021.
Market participants are revising their supply projections downward as rising interest rates have stymied refunding and taxable volumes and overall market volatility has held some issuers to the sidelines.
The pace of issuance so far in 2022 makes it less likely the market will hit previous records seen in 2020 and 2021.
BofA Securities was the latest shop to revise expectations downward because of the dearth of refundings, with strategists Yingchen Li and Ian Rogow forecasting total volume in 2022 to be $50 billion less than the $550 billion assumption they made at the end of 2021.
Municipals took a backseat as the Federal Open Market Committee announced its decision to implement a three-quarter point rate hike while U.S. Treasuries rallied into late afternoon following the news. Equities rallied.
The move, prompted partly by hotter-than-expected inflation data Friday, is the largest rate hike since 1994.
?Investors appear encouraged that the FOMC is willing to take forceful action to try and get inflation under control,” Wilmington Trust Chief Economist Luke Tilley said.
By front loading rate hikes, he said, the FOMC will have ?more optionality as the year unfolds,? and will be able to accelerate hikes if inflation persists, ?but if any cracks appear in the economic recovery they?ll have the option to slow down while still having rates below their estimate of neutral.?
Triple-A muni yields were cut a basis point or were little changed while UST yields fell up to 23 basis points on the short end.
The unfunded liabilities of Illinois? suburban and downstate public safety pensions rose to $13 billion in the last year of compiled results reported to the state, continuing a 29-year climb that underscores the deep strains on local government budgets.
The unfunded tab for the 295 firefighter funds and 352 police funds outside of Chicago grew to $13 billion in fiscal 2019 from $12.3 billion in 2018 and $11.5 billion in 2017. Police accounted for $7.5 billion of the total and firefighters for $5.5 billion, according to a new report from the state legislature?s Commission on Government Forecasting and Accountability.
The rising tab could help the Illinois Municipal League?s case in arguing for lawmakers during their 2022 session to loosen funding requirements.
The League wants a re-amortization of the funding schedule that would extend the target date for achieving 90% funding beyond fiscal 2040, and lower the funding target to 80% from 90%. While both would ease the burdens on governments market participants have warned they are Band-Aid fixes that don?t solve the underlying funding strains.
Chicago Public Schools’ $872 million of junk-rated paper met with a more fickle high-yield audience this week, underscoring the district?s vulnerability to market volatility even as it inches closer to investment grade status.
At attractive spreads that offered a healthy yield kick with many maturities offering 4% coupons, the bonds were 2.2 times oversubscribed, CPS said in a statement. More than 40 institutional investors placed orders including some in excess of $150 million each.
The district will pay a true interest cost of 3.51% that ranks among the lowest paid by the Chicago Board of Education over the last two decades. The sale provides $500 million of new money for capital projects and the remainder refunds 2011 bonds.
The Chicago Park District pension funding overhaul approved by lawmakers moves the fund off a path to insolvency to a full funding target in 35 years, with bonding authority.
State lawmakers approved the statutory changes laid out in House Bill 0417 on Memorial Day before adjourning their spring session and Gov. J.B. Pritzker is expected to sign it. It puts the district?s contributions on a ramp to an actuarially based payment, shifting from a formula based on a multiplier of employee contributions. The statutory multiplier formula is blamed for the city and state?s underfunded pension quagmires.
“There are number of things here that are really, really good,? Sen. Robert Martwick, D-Chicago, told fellow lawmakers during a recent Senate Pension Committee hearing. Martwick is a co-sponsor of the legislation and also heads the committee.
?This is a measure that puts the district on to a path to full funding over the course of 35 years,” he said. “It is responsible. There is no opposition to it. This is exactly more of what we should be doing.”
The district will ramp up to an actuarially based contribution beginning this year when 25% of the actuarially determined contribution is owed, then half in 2022, and three-quarters in 2023 before full funding is required in 2024. To help keep the fund from sliding backwards during the ramp period the district will deposit an upfront $40 million supplemental contribution.
The 35-year clock will start last December 31 to reach the 100% funded target by 2055.
Kentucky has taken action to shore up its pension system, but it?s going to take time to reverse the adverse effects of past funding shortfalls, according to S&P Global Ratings.
Kentucky has one of the poorest funded pension systems among all U.S. states, with an aggregate funded ratio of 44% as of fiscal 2019, S&P said. The state?s general obligations are rated A by S&P with a stable outlook.
The state?s Public Pensions Authority is responsible for the Kentucky Employees Retirement System (KERS) and State Police Retirement System (SPRS) while counties and cities are responsible for the County Employees Retirement System (CERS). The Teachers Retirement System is a seperate system with its own board.
The funded ratios for the systems are 14.01% for the KERS non-hazardous and 55.18% for the KERS hazardous, 58.27% for the TRS, 28.02% for the SPRS and 47.81% for CERS non-hazardous and 44.11% for the CERS hazardous.
Subway safety in New York took on a new meaning when the Metropolitan Transportation Authority acknowleged a cyber intrusion, which set off loud alarm bells about the rising threat of system hacks.
The MTA is one of the largest municipal issuers and reports linked China’s government to the episode.
Despite MTA officials? assurances of quick troubleshooting and no evidence of compromise to its operational systems, employee or customer information, this marked the latest chilling cybersecurity event for public finance.
Illinois will dip into its growing pot of tax revenues to pay off the remaining $2.175 billion of outstanding debt borrowed through the Federal Reserve?s Municipal Liquidity Facility to manage last year?s COVID-19 tax blows.
The Treasury Department?s interim guidance, released May 10, barring debt repayment as an eligible use of American Rescue Plan dollars threw a wrench ? at least temporarily ? into Chicago’s and Illinois? plans to pay down debt issued last year. Illinois borrowed through the MLF and Chicago issued notes ahead of a planned scoop-and-toss borrowing to stave off deep cuts and layoffs as tax revenues plummeted. Both planned to pay off the debt with ARP funds.
Both planned to lobby the Treasury Department for a guidance change during a 60-day comment period, but Illinois was under the gun to make repayment plans ahead of a May 31 deadline to pass a fiscal 2022 budget. The state is receiving $8.1 billion from the ARP.