Muniland’s ‘Best of 2013’

December 26, 2013

Some exciting developments happened in muniland in 2013. Here is a round-up:

Best paradigm shift

The Center for State and Local Government Excellence developed a holistic approach to analyzing pension costs for local taxpayers that eschews the current approach of reporting municipal, sewer, library and school pension burdens separately.

The team at The Center for State and Local Government Excellence has set a new standard in how local pension burdens should be reported in financial documents like CAFRs. The center’s new approach for measuring a municipality’s pension burden is to aggregate the direct cost of locally-administered pension plans (both city and taxpayers’ share of costs) and contributions to state teacher and non-teacher plans on behalf of dependent school districts. The aggregated cost is compared to a community’s revenues to understand how much must support pensions.

A lot of previous pension analysis looked at pension plans’ funding levels. This study looks at the cost to taxpayers to support the pension promises they have made.

Standard & Poor’s new methodology for evaluating local general obligation pension and OPEB liabilities echos the CSLGE approach.

Increased credit rater oversight and transparency

The regulation of credit raters has come a long way since the SEC issued its first concept release in 2003 after the bankruptcies of Enron and Worldcom. The SEC now oversees raters and can look into their books and records at any time to check for compliance with stated policies and rating methodologies. The rating business has become more transparent and will be more competitive in the years to come. From Compliance Week:

Credit rating agencies, although still ‘evolving’ since their role in the financial crisis, are improving compliance efforts and becoming ‘more competitive and transparent.’

That’s the assessment offered by Thomas Butler, director of the Securities and Exchange Commission’s Office of Credit Ratings, upon release of anannual staff report on Nationally Recognized Statistical Rating Organizations submitted to Congress on Christmas Eve.

Best buy-side interview

I may just nominate my interview with Hugh D. McGuirk, head of T. Rowe Price’s municipal bond team, as the best buy-side interview of the year. Here is a sample:

Q: Is shrinking municipal bond issuance a problem for you? Would it be if inflows got stronger?

A: We have not found the lower level of municipal bond issuance during the past several years to represent a problem for our approximately $19 billion dedicated municipal bond platform. We view the level of muted issuance as a natural by-product of deleveraging in the U.S. economy since 2008, along with fiscal austerity, not only at the federal level, but also at the state and local levels.

Stronger inflows could impact our approach of remaining fully invested across a full market cycle. In recognizing that we may not get the primary issuance that we want―in conjunction with stronger flows that may come within a concentrated segment of time―we may need to purchase certain liquid and benchmark representative issues tactically to gain market exposure and then methodically shift our exposure into the securities we prefer over time.

Best regulatory advance

In one of the biggest expansions of legislative and regulatory oversight since 1975, the SEC issued its muni advisor rule in September. A vast portion of previously unregulated activity will have important oversight and transparency. Here is a high level view of the SEC rule from attorneys Rick Witte, Todd Brewer and Andrew L. Bethune of Andrews Kurth LLP:

Under the new rules, a ‘municipal advisor’ is a person who provides advice to a municipal entity or ‘obligated person’ with respect to the issuance of municipal securities, about certain ‘investment strategies’ or on municipal derivatives. The MSRB determines whether ‘advice’ is being provided by examining all the surrounding facts and circumstances, including whether such counsel involves a ‘recommendation’ to a municipal entity, is particularized to the specific needs of a municipal entity or relates to municipal financial products or the issuance of municipal securities.

Best transparency initiative

MSRB has been taking input on the need for its Central Transparency Platform (CTP):

The MSRB’s Long-Range Plan envisions that the CTP would serve as the next-generation of RTRS [Real Time Transaction Reporting System] and would include, in addition to enhanced public access to real-time post-trade pricing information, new centralized public access to pre-trade pricing information, as well as related disclosure information, yield curves and other utilities for public users of the information.

Best pension reform

Overcoming tremendous political hurdles, both Illinois and Puerto Rico are to be commended for addressing their woefully underfunded pension programs through legislative efforts. Both still have big demands on their general funds to support their pension plans, but every effort helps.

Muniland’s social media lift-off

Triet Nguyen, managing partner of Axios Advisors, captured the dynamics of muniland and social media best in this snip from his blog post:

Looking back, 2013 may well be viewed as the year social media finally made their mark on the muni scene. Muni-oriented blogs are now fairly commonplace, offering a wide variety of opinions, some supportable, some not as much. Investment discussion groups are springing up all over LinkedIn, including Axios’ own Municipal Credit Research Forum, whose membership now numbers close to 700.

Nowhere has the impact been more dramatic than on Twitter, which has become a key clearinghouse of information on municipal finance. For instance, when the City of Detroit held its bankruptcy eligibility hearing a couple of weeks ago, one could have followed the entire proceedings in real-time through tweets posted by the Detroit Free Press. And the speed of information dissemination has accelerated to match: the latest economic indicators from Puerto Rico hit Twitter more than three hours before they were reported in the financial media.

Best bankruptcy tweeters

Special kudos to Robert Snell and Chad Livengood of the Detroit News and Barnett Wright and Kyle Whitmire of the Birmingham News for their exceptional coverage of the municipal bankruptcies happening in their communities. It’s not easy to dive into complex muniland issues, and these beat reporters did an outstanding job covering and tweeting their respective bankruptcy trials.

Best muni CDS coverage

Kamakura, a risk management company, has been regularly tweeting data about municipal CDS. It’s not the most complete information, but it is useful to get a general sense of how active specific names are:


Best muniland hashtag

If you are new to Twitter, the easiest way to get started is to follow and use the hashtag #muniland. It has become the go-to place to find market data, research, credit rating reports, issuer news and market color. Join us!


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Municipal bonds are on track to post their worst annual performance in nearly two decades as 2013 ushered in more financial woes for U.S. cities.

Municipal debt is down 2.58% so far this year after handing investors a 6.78% return in 2012 and a 10.70% return in 2011, according to Barclays’s municipal-bond index.

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Muni bond funds that report flows weekly recorded outflows of $1.49 billion for the week of Dec. 25, down from $1.71 in the week prior, Lipper FMI numbers showed.

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