Muni sweeps: Going once… going twice…

April 21, 2011


Kentucky sells assets on eBay

The Lexington Herald Leader reports that Kentucky Governor Steve Beshear has put up two aged planes from the states fleet of 15 for sale on eBay.

We laud the governor for rationalizing states assets but think his press conference is a little over the top considering the size of the state’s estimated budget shortfall for 2012 is $780 million.

Lexington Herald Leader says the Smart Government Initiative of the Office of Procurement Services estimates that $7.2 million has been saved through contract renegotiations and rebidding.

The cuts that are impressive were when the Governor, Lt. Governor, cabinet secretaries and senior staff took 10 percent pay cuts in 2009 and 2010. Now that is real leadership.

The planes, and a big assortment of pocket knives,  may be viewed at the Division of Surplus Property’s eBay store.

The shrinking muni bond deal

The WSJ wrote a great article about the shrinking size of muni bond deals.  From Austerity Chills the Ardor for Muni Debt:

A cutback in debt would be a change from the trend of the past decade, when states gradually increased their debt. The median state debt as a percentage of personal income rose to 2.5% in 2010 from 2.2% in 2000, a 14% increase, according to Moody’s Investors Service.

Lately, when state and local governments have borrowed, they have borrowed less.

The median municipal-bond deal in the first quarter was $5 million, the lowest since 1999, according to figures analyzed by market data provider Ipreo for The Wall Street Journal. In 10 of the past 11 years, the median first-quarter deal was $6 million to $8 million, the data show.

And the shrinking muni bond market

Muni bond issuance is off significantly at $47 billion in Q1 versus $104 billion in Q1 2010. (SIFMA excel file)

The online service of Chinese news agency Xinhua reported back on March 23 the comments of Citigroup senior municipal strategist George Friedlander about the reduced issuance level for 2011. He outlined the major themes well:

First of all, some bonds that would have been sold during the first quarter of 2011 rushed to market before the expiration of the Build America Bond program on Dec. 31 2010.

Secondly, 30 new governors were elected, and many states have not yet started to plan the new projects. “Protracted budget battles” have delayed financing in the top six issuance states, namely California, New York, Texas, Illinois, Florida and Pennsylvania. A number of other states that might have entered the market are now in the midst of “even more heated debates” concerning the government/employee relationship.

And one other important reason was that some governments have a very limited capacity to pledge taxes or revenue to pay debt service right now.

Liquidity drains away

Reuters reports:

Withdrawals from municipal bond funds grew to their highest levels in two months in the week ended April 13, while overall cash flows into U.S.-domiciled mutual funds slid more than 40 percent, data from the Investment Company Institute showed on Wednesday.

For the week, investors pulled a net $1.2 billion from the long-suffering muni bond sector, bringing the 23-week streak of outflows to $43.2 billion.

The sector, with $2.9 trillion in assets, is weighed down by investor concerns over the deteriorating credit quality of the country’s state and local municipalities.

The Big Apple’s GO Bonds

Have a look at the bonds New York City has outstanding, which are backed by the city’s full faith and credit. Big Apple bonds!

One request to NYC Comptroller John Liu and his staff: Could you kindly put up the CUSIP numbers of the bonds so we could easily look them up on EMMA?

US Treasury could suspend slug sales

The US Treasury is devising plans to manage through a crisis if the debt ceiling is not raised. From Reuters:

The Treasury could conserve borrowing headroom by suspending sales of State and Local Government Series securities — known as “slugs” — which are special low-interest Treasury securities offered to state and local governments to temporarily invest proceeds from municipal bond sales.

Slugs, which count against the debt limit, were last halted in September 2007 to avoid hitting the ceiling then. So far in fiscal 2011, which began on October 1, the Treasury has sold $47.4 billion in slugs to muni bond issuers.

With interest rates on US Treasuries so low would this really be a loss to states and municipalities? Not sure.

Little sweeps

IpreoIpreo Muni Deal Calendar (w/o April 25, 2011)

Reuters:  S&P gives negative outlook to refunded muni debt

Rockefeller Institute:  State revenue report

Bond Buyer: GOP Seeks to Slow Reg Reforms

BloombergInvestors Bound for Shock If Rising Rates Sink Bonds, Cohen Says

Financial Times: Muni bond risks grow after S&P’s DeKalb cut

Birmingham NewsAlabama pension bill for state and public schools employees could become law next week

Bond Buyer:  S&P Changes Jefferson to Negative From Developing

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