Comments on: Why muni investors shouldn’t worry about Jefferson County http://blogs.reuters.com/felix-salmon/2011/12/26/why-muni-investors-shouldnt-worry-about-jefferson-county/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: traduceri daneza http://blogs.reuters.com/felix-salmon/2011/12/26/why-muni-investors-shouldnt-worry-about-jefferson-county/comment-page-1/#comment-53374 Mon, 29 Sep 2014 13:52:52 +0000 http://blogs.reuters.com/felix-salmon/?p=11643#comment-53374 In truth, My partner and i decided not to anticipate something such as ipad device by Apple. . -= Aminul Islamic Sajib’s previous website… Yahoo and google Pr Current: AISajib. com is actually PR3! =-.

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By: LITIGATOR1 http://blogs.reuters.com/felix-salmon/2011/12/26/why-muni-investors-shouldnt-worry-about-jefferson-county/comment-page-1/#comment-34646 Mon, 02 Jan 2012 17:17:01 +0000 http://blogs.reuters.com/felix-salmon/?p=11643#comment-34646 Kudos to Cate Long for an informative posting. One of the major challanges in the Jeffco Chapter 9 is that the securities at issue are not Bonds, they are Warrants. There appears to be an important question under Alabama law whether a municipality (like Jefferson County) can unilaterally act to raise taxes in order to satisfy these Warrants (assuming Jefferson County even wanted to voluntarily do so)without State approval.

We are currently investigating possible legal claims against certain parties involved with the underwriting of these Warrants.

TURNER LAW OFFICES, LLC
hturner@tloffices.com

Notice: The purpose of this posting is to identify select issues that may be of interest to readers. Under Georgia’s Code of Professional Responsibility, portions of this communication may constitute attorney advertising. This posting should not be construed as legal advice or opinion, and is not a substitute for the advice of retained counsel.

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By: FPecar4525 http://blogs.reuters.com/felix-salmon/2011/12/26/why-muni-investors-shouldnt-worry-about-jefferson-county/comment-page-1/#comment-34516 Wed, 28 Dec 2011 16:26:05 +0000 http://blogs.reuters.com/felix-salmon/?p=11643#comment-34516 Read Cate Long in today Reuther’s for clarity:

http://blogs.reuters.com/muniland/2011/1 2/27/how-jefferson-county-trips-up-natio nal-reporters/

How Jefferson County trips up national reporters
By Cate Long

Dec 27, 2011 17:42 EST

The New York Times really needs to improve the quality of its reporting on the municipal bond market. Mary Williams Walsh makes such a terrible hash of the situation in Jefferson County, Alabama, that she is bound to set off another muniland hysteria in the mold of Meredith Whitney.

In the opening paragraphs, Walsh contends that general obligation bonds (GO) issued by state and local governments and with the pledge of their “full faith and credit” may not be as creditworthy as always assumed. About half of the $3.7 trillion municipal bond market is general obligation bonds. She dramatically states that investors who own GO bonds might be in for a “surprise:”

People who own what is considered the safest type of municipal bond may be in for a surprise.

This safe debt, called a general-obligation bond, is said to be the next strongest thing to Treasuries because it is backed by a “full faith and credit” pledge. That means the government that issued it will pay it on time, no matter what.

But now Jefferson County, Ala., has stopped paying such debt, breaking with convention and setting up a fundamental test of what full faith and credit truly means.

What goes unmentioned is that the halted debt repayment is happening in the context of an insolvent county in bankruptcy. More importantly, general obligations bonds can be very high-quality from a strong issuer with top credit ratings, or they could be very low-quality from a near-insolvent municipality with the lowest possible credit ratings. The type of the bond is no assurance of ability to repay bondholders.

The point of a municipality seeking bankruptcy court protection is to halt the legal actions of creditors, including GO bondholders. This gives debtors time and a safe space to reorganize their finances. It’s not in any way “breaking with convention” to halt paying GO bondholders in bankruptcy.

The U.S. Federal Court system’s bankruptcy guide (page 49) describes Chapter 9 municipal bankruptcy:

The purpose of chapter 9 is to provide a financially-distressed municipality protection from its creditors while it develops and negotiates a plan for adjusting its debts. Reorganization of the debts of a municipality is typically accomplished either by extending debt maturities, reducing the amount of principal or interest, or refinancing the debt by obtaining a new loan.

There is substantial case law, some of which dates to the 1980s, about GO bondholders being repaid less than their full claims in municipal bankruptcy (see footnote below). Investors are aware that municipal debt may have risk if the issuer is weak. That is why we have credit ratings to signal the risk of specific bonds.

After waving this false flag, Walsh finally gets around to explaining in the 19th paragraph that most of the debt of Jefferson County is not general obligation bonds anyway. In fact only 5 percent of the approximately $4 billion of Jefferson County debt is GO debt; the other 95 percent is revenue debt, which has claim only to the revenues of the entity the debt was issued for (say, a hospital, school or sewer project).

2010 ended with Meredith Whitney making claims about the enormous default likelihood in the municipal market. Municipal market professionals spent all of 2011 refuting Whitney’s unfounded claims. I really hope we don’t have to spend 2012 refuting more of the same nonsense.

Footnote: Jones Day: An Overview of Chapter 9 of the Bankruptcy Code: Municipal Debt Adjustments, 23 August 2010

Similarly, in the context of unsecured debt obligations (such as general obligation bonds), significant impairment is possible. See, e.g., In re City of Columbus Falls, Montana, Special Improvement District No. 25, 26, 28, 143 B.R. 750 (D. Mont. 1992) (approving plan that provided for less than full payment of general obligation bonds, holding that municipal debtor is empowered to impair prepetition general obligation bonds as long as other requirements of chapter 9 were met); In re Sanitary & Improvement Dist. #7, 98 B.R. 970 (Bankr. D. Neb. 1989) (explaining that general obligation bonds are general unsecured claims, subject to impairment); In re City of Camp Wood, Texas, Case No. 05-54480 (Bankr. W. D. Tex. June 13, 2007) (approving plan of adjustment that impaired prepetition general obligation bond debt through (a) a principal reduction, funded through a sale of assets; (b) a new 20-year amortization schedule; and (c) a new interest rate of 5 percent). Moreover, impairment is a possibility, even if the municipality has the ability to pay the obligation in full, through additional taxation or other measures. See Sanitary & Improvement Dist. #7, 98 B.R. at 974 (explaining that “[i]f a municipality were required to pay prepetition bondholders the full amount of their claim with interest … and the [debtor] had no ability to impair the bondholder claims over objection, the whole purpose of Chapter 9 would be of little value.”).

Cate Long writes about the retail fixed income markets including municipal bonds. Her primary interest is creating tools and systems to help retail investors understand bond markets. She has worked for a number of years with industry standards organizations, regulators and Congress to help craft a more transparent and fair framework for investors to participate in the fixed income markets. She is a guest contributor to Reuters.com.

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By: thisdave http://blogs.reuters.com/felix-salmon/2011/12/26/why-muni-investors-shouldnt-worry-about-jefferson-county/comment-page-1/#comment-34499 Tue, 27 Dec 2011 18:40:45 +0000 http://blogs.reuters.com/felix-salmon/?p=11643#comment-34499 Yes, local politics and politicians have been primary movers in the problems there from the start. And it’s worth noting that many Birminghamians believe these troubles would never had happened had the EPA not told them to stop dumping raw sewage into area waterways.

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By: dWj http://blogs.reuters.com/felix-salmon/2011/12/26/why-muni-investors-shouldnt-worry-about-jefferson-county/comment-page-1/#comment-34482 Mon, 26 Dec 2011 23:03:22 +0000 http://blogs.reuters.com/felix-salmon/?p=11643#comment-34482 Anyone who’s been paying attention to Jefferson County has spent two years surprised that they hadn’t defaulted yet. Asking (primarily high-income) bond holders to do a little bit of due diligence doesn’t seem too much.

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By: mlnberger http://blogs.reuters.com/felix-salmon/2011/12/26/why-muni-investors-shouldnt-worry-about-jefferson-county/comment-page-1/#comment-34477 Mon, 26 Dec 2011 14:23:43 +0000 http://blogs.reuters.com/felix-salmon/?p=11643#comment-34477 Reading your “speech” from 2009 suggests to me you think Meredith Whitney could right (there could be untold billions of defaults), except of course when she is wrong (all last year)? My read of Bond Girl is that Ms. Whitney is unequivocally wrong, wrong, wrong — but you seem to suggest that Whitney could be right, hypothesizing that a mere trickle of defaults could at some point become a flood. You also seem to hedge your warning that Jefferson County is indeed a default but not a really significant default, so that you disagree with neither Whitney nor Bond Girl.

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By: realist50 http://blogs.reuters.com/felix-salmon/2011/12/26/why-muni-investors-shouldnt-worry-about-jefferson-county/comment-page-1/#comment-34475 Mon, 26 Dec 2011 06:57:34 +0000 http://blogs.reuters.com/felix-salmon/?p=11643#comment-34475 Points out some great reasons why municipal bond holders should be senior to other payments – otherwise default can look too attractive in the short-run, particularly for a politician focused just on the next election, and the spillover effect impairs capital-raising by other government entities – right before expressing doubt that bondholders should be senior to other payments.

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By: maynardGkeynes http://blogs.reuters.com/felix-salmon/2011/12/26/why-muni-investors-shouldnt-worry-about-jefferson-county/comment-page-1/#comment-34474 Mon, 26 Dec 2011 02:23:56 +0000 http://blogs.reuters.com/felix-salmon/?p=11643#comment-34474 It seems to me that the important point here is not the Enron issue. It’s that this is a GO from a county. Even a non-corrupt county’s GO is risky, because the the tax base is relatively small. OTOH, a GO from California, Va or Md may be even safer than a T-Bill. Large states have vast tax bases. Plus, when they run into trouble, they can’t print money the way the Fed can, which means they can’t de facto default via inflation. GO by itself doesn’t mean much. Which entity’s full faith and credit is pledged to protect the GO most certainly does.

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