Save the $100,000 that Meredith Whitney charges for research

June 23, 2011

Just the numbers please

You can save the $100,000 that Meredith Whitney charges for her research. Reuters has the data on municipal bond issuers with the weakest profiles by bond-market standards. Puerto Rico leads the pack as the least credit-worthy issuer.

Issuer      Weekly     Yearly    Outstanding    Unfunded     S&P      Moody's
             Spread*    Average   Tax-supported  Debt Pension  Rating   Rating
Puerto Rico   225       203.7     $40 bln       $24 bln      BBB      A3
Illinois      174       175.5     $24 bln       $62 bln      A+       A1
California     95       106.3     $87 bln       $50 bln      A-       A1
Michigan       80        81.2     $7 bln        $12 bln      AA-      Aa2
Nevada         70        68.0     $2 bln        $2 bln       AA       Aa2
New Jersey     65        54.7     $32 bln       $37 bln      AA-      Aa3
D.C.           60        57.3     $6.4 bln      $0           A+       Aa2
N.Y. City      47        55.7     $61 bln       $76-122 bln  AA       Aa2
Rhode Isl.     47        45.9     $2 bln        $4 bln       AA       Aa2
Ohio           38        31.9     $11 bln       $2.9 bln     AA+      Aa1
 *In basis points for the week ended June 17, 2011, Sources: Municipal
MarketData, Moody's Investors Service, Standard & Poor's Ratings Services,
local government budget reports, official statements

The roots of delusion

Small snippet from an excellent piece in the New York Times on the roots of the unfunded pension mess (emphasis mine):

It was 1999, and the California Public Employees’ Retirement System, or Calpers, the large government agency that manages retirement benefits for more than 1.6 million public workers, retirees and their families, was lobbying the legislature to increase employees’ benefits. Calpers’s plan would lower the retirement age for some workers to 50 years, even as it raised pensions to as much as 90 percent of their salaries.

Lobbyists were arguing that the plan — which would ultimately create the largest pension increase in the state’s history — wouldn’t cost “a dime of additional taxpayer money.”

But Mr. Seeling, the agency’s chief actuary, knew that wasn’t necessarily right. Sitting at his desk, poring over spreadsheets, he saw the truth. Calpers, at the time, was awash in cash and many cities believed that pensions were essentially self-funding if the stock market remained high. But if the market stumbled, he realized, Calpers’s plan could cost taxpayers billions of dollars.

Round three for California

California passed a budget last week, but then State Comptroller Chiang said it was not balanced and Governor Brown vetoed it. Now the Governor will bring a new budget proposal forward. Is Hollywood writing this script?

Bloomberg reports:

California Governor Jerry Brown has drafted a plan to pass a [new] budget through the Legislature that sidesteps Republicans who blocked a previous effort, according to two people with knowledge of the matter.

Brown’s proposal comes as legislators have been forced to forfeit pay for every day they fail to send a balanced budget to the governor past a June 15 deadline. He vetoed a spending plan sent to him by Democrats last week, saying it used legally doubtful maneuvers and one-time fixes.

Smoking bonds rally

Bloomberg reports that parties are close to a tentative agreement to settle a dispute related to tobacco bonds:

Ending a $7.1 billion dispute between states and cigarette makers may prevent future litigation and provide tobacco-backed bonds with more predictable income streams.

The [municipal] bonds rallied yesterday after reports that tobacco companies tentatively agreed to settle a disagreement dating to 2003. The fight stemmed partly from company claims that market- share erosion reduced the amounts they’re required to pay 46 states under a 1998 agreement tied to medical-related expenses.

“If there’s a settlement, that alone will be positive, because it will put an end to that open-ended question — are states going to lose $2 billion, $3 billion or $7 billion?” said Richard Larkin, director of credit analysis at Herbert J. Sims & Co. in Iselin, New Jersey. “Most people have had to assume that all this money is at risk.”

Mini sweeps

Wall Street Journal: Debt-Ceiling Standoff Restricts Muni-Market ‘Slugs’

Associated Press: Maryland studying tax revenue lost to Internet sales

iMarketNews: US ICI Data: Muni Funds Register 6th Straight Week Of Inflows

Bloomberg: Atlanta City Council Poised to Cut Workers’ Retirement Benefits

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[…] California | credit ratings | DC | Illinois | Nevada | New Jersey | Puerto Rico According to the credit rating agencies and the bond markets, these are the 8 states with the weakest credit profiles. These states may be weak because their […]

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