Comments on: The Poway deal gets fishier

By: realist50

realist50 — Thu, 27 Sep 2012 03:55:23 +0000

I agree with MrRFox, and I don’t know why a state legislature would/should allow any local or municipal government to issue long-term, zero coupon bonds. The temptation is too great for politicians to promise something today while pushing payment into the distant future.

The taxpayers of this school district several decades out – a group whose overlap with people currently living there I would expect to be limited – will be saddled with the full cost of building and expanding schools today, including both principal and accrued interest. As an extra “bonus” for these future taxpayers, by then the buildings built today ought to be in need of replacement or major renovation, so they will get to pay for that also.

By: Ghoghogol

Ghoghogol — Thu, 27 Sep 2012 02:17:45 +0000

Check out emma.msrb.org and search under Poway Unified.

Issues you want are Cap Apprec Tranche A & B, Cap Apprec Elec 08, and School Facilities Improvement District No. 2007-1.

Confusion arises because the original principal differs from the final accreted value amount.

The underwriter paid an original premium on the original principal. Some of the original premium was used to pay issuance costs but most was for something called the Bond Advancement Program, which is explained in some School Board Resolution from 2008 and not in the offering dcuments.

When the underwriter sells these to the public, as with all CABS, they are sold at a discount, but the discount is to the final accreted value (principal plus compounded interest payments). Some of the discounts are as great as 6% of par for the Series B 2051, but they range from 60% to 6% of par. Each issue has a maturity schedule that outlines the accretion rates on the various maturities

By: loudnotes

loudnotes — Wed, 26 Sep 2012 20:30:38 +0000

You’re right on, but your bond pricing data is not so great. The 2042 issue you mentioned was partially called at 103, but Bloomberg shows it bid at 86 today. The other zero coupon bonds are well below 100 from the beginning.

By: MrRFox

MrRFox — Wed, 26 Sep 2012 15:50:56 +0000

You’re right, FS – this Poway thing is unethical, but not IMO because of the rate or the amount. It’s the duration and the deferred-interest methodology that is corrupting.

The district is collecting cash now – and spending it. Future generations get stuck with the bill for both the principal and all the deferred interest. How do we morally justify doing this to them?

When we die our personal heirs can’t be compelled to assume our debts beyond the value of our estates – except when it comes to government debt. There, ‘the sins of the fathers’ truly are visited on the sons and daughters – not to mention the grandchildren.

IMO, this is yet another shameful example of Boomer self-indulgence. There is no way out of this debt-trap we have set except for sustained inflation to erode the real value of these obligations. So sad. Who the hell would buy one of these things anyway?