Muni sweeps: Riding the Federal cash flow

April 25, 2011

It’s an important week  for the fixed income markets: Ben Bernanke, the chairman of the Federal Reserve, will hold his first press conference on Wednesday.

Bernanke joins his European Central Bank counterpart Jean Claude Trichet in the practice of fielding questions after the central bank announces its policy stance.

Pundits and bloggers are weighing in with questions and Reuters reporter Kristina Cooke (twitter handle @kristinacooke) is encouraging her followers to tweet her questions for the chairman.

Fixed markets are all about the linkages between the rate on the 10-year Treasury note and other classes of bonds so this is an important event for muniland too. Stay tuned.

Riding the Federal cash flow

Bond Buyer writes today about a large deal coming to market this week for the Broad Institute in Cambridge, Massachusetts. (Shown in photo).

The deal has an exceptional pedigree but primarily relies on federal funds for cash flow. In these times of excessive Federal debt and deficits this is an interesting funding approach.

From the Bond Buyer:

The Massachusetts Development Finance Agency this week will issue $353.4 million of tax-exempt and taxable debt on behalf of the Broad Institute Inc., a biomedical research facility, to help finance a new laboratory and building in Cambridge.

This is the first time the Broad Institute is accessing the capital markets. The institution’s revenues, most of which come from federal National Institutes of Health grants, will pay down the bonds. The institute is a 501(c)(3) nonprofit research corporation.

Standard & Poor’s and Moody’s Investors Service rate the transaction AA-minus and A1, respectively.

I wonder if there are other federally funded municipal deals out there?

Photo source: Anton Grassl

Gun fight in the desert

Nevada leads the nation in the projected shortfall for fiscal year 2012 at 45% or $1.5 billion.

As I’m reading a Las-Vegas Review Journal article about the state budget process I’m struck by how intense the budget fight is in Nevada. It’s about money and structural reforms to workers rights and other state matters. It’s Wisconsin times 10.

From the Las-Vegas Review Journal:

Republicans, at least in the Assembly, have laid out five reforms they want Democrats to support before considering a vote to delay “sunset” or expiration dates on about $650 million in existing taxes.

They include reforms to prevailing wage law, adoption of publicly funded vouchers for parents to pay for private school, cutbacks in collective bargaining rights for public employees, changes to reduce construction defect lawsuits, and changes to the Public Employee Retirement System.

Best reporting on pension shortfalls

Excellent work by Reuters reporters Lisa Lambert and Edith Honan on the wide range of estimates on public pension shortfalls. A must read.

Reuters: Analysis: Pension funds try to get rates right

Joe Nocera mano a mano with Spencer Bachus

Joe Nocera writing in the New York Times:

You would think [House Financial Services Chairman Spencer] Bachus would want these [derivatives] regulations in place as quickly as possible, given the pain his constituents are suffering. Yet, last week, along with a handful of other House Republican bigwigs, he introduced legislation that would do just the opposite: It would delay derivative regulation until January 2013.

I tried to ask this question of Bachus, but I was told he was unavailable. I asked his staff if he believed, after the experience of Jefferson County, that derivatives should be regulated at all. I couldn’t get an answer.

I’ll keep trying. It’s not just an answer his constituents deserve to hear. Given the risks derivatives still pose, it’s something the nation needs to know about Chairman Bachus. If he decides to tell me, I promise to pass it on.

Mini sweeps:

Reuters: Factbox: Top budgetary threats to state, local governments

FavStocks: Have The Ratings Agencies Always Gone Too Hard on Public Debt?

Business Week: Wall Street Pounces on Distressed Muni Deals

New York Times: A Crack in Wall Street’s Defenses

Hartford Business Journal: Municipal bond concerns slow CHEFA’s borrowing

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