MuniLand

Last June I wrote about a bizarre, unrated municipal bond deal that was issued to finance some new parking garages at Yankee Stadium. Because very few people were using the parking facilities, it looked like the $237 million of tax-exempt bonds would soon default. Now the law firm of the former mayor of New York, Rudy Giuliani, has been hired to strike a deal between Bronx Parking Development Co, the parking garages’ operating entity consisting of a husband-and-wife team based in upstate New York, and the bondholders. From the Daily News:

Former Mayor Rudy Giuliani’s law firm has been hired by a group of private bondholders to restructure $237 million in tax-exempt financing for the nearly bankrupt owner of the Yankee Stadium parking system.

The surprise choice of Giuliani’s firm, Bracewell & Giuliani, is part of an agreement reached last week between Bronx Parking Development Co, owner of the 9,000-space garage and lot system, and its creditors.

Giuliani, after all, is widely known as one of the Bronx Bombers’ most loyal boosters, while one of his former deputy mayors, Randy Levine, is the team’s president.

It’s interesting to note that shortly before leaving office, Giuliani announced a deal in which the City of New York would contribute $800 million in public financing for the new Yankee Stadium and provide an additional $390 million in extra transportation funds. Additionally, Giuliani’s original plan would have allowed the Yankees to keep all parking revenues, which angered state officials, who viewed those revenues as the state’s compensation for building the new garages for the team.

The solution to Greece’s debt crisis that Europe’s leaders announced on Thursday has market participants and commentators howling. It includes a provision that changes long-established rules for credit-default swaps mid-game. Mike Dolan, Reuters’ Investment Strategy Editor in Europe, said this:

For all the ifs and buts about the latest euro rescue agreement, one of its most profound market legacies may be to sound the death knell for sovereign credit default swaps — at least those covering richer developed economies.

I’d suggest that death knell just rang for U.S. municipal credit-default swaps (CDS), too. They’ve recently been on their last legs amid collapsing volumes, but actions in Europe just might have delivered the deathblow.

If municipal bonds lose their tax-exempt status, as some in the corridors of power in Washington are suggesting, municipalities will increasingly be competing with corporations for investors. As this competition intensifies, municipalities with poor accounting and disclosure practices could find it difficult attracting capital.

Let’s say you’re an investor looking to buy the bonds of either Goldman Sachs or New York City and to help guide your decision, you seek out their most recent financial statements. As a public company, Goldman Sachs is subject to the SEC’s disclosure regulations which mandate the filing of audited annual financial statements 60 days after the end of the year. If Goldman does not file within the 60 day window then the SEC has the authority to restrict certain simplified securities offerings and the New York Stock Exchange, which lists their securities, can take action too.

Contrast that with the Municipal Securities Rulemaking Board, New York’s regulator, which encourages municipalities to make public their audited statements, which are called CAFRs or Comprehensive Annual Financial Report within 120 days of the end of their fiscal year. Unlike the SEC, the MSRB has no authority to discipline issuers who file late, other than suggesting the municipality issue a notification of late filing.

Richard Ravitch, who helped New York state and city survive the fiscal crisis of the 1970s, breathed fire on bond market participants attending their annual industry get-together in New York City today.

Ravitch is now working with Paul Volcker on a project that’s funded by private interests with the aim of ascertaining the sustainability of state and local government revenues. It is an effort to identify key issues for municipal government funding and avert the same type of fiscal crisis that New York City faced in the 1970s when it nearly went bankrupt. He said for municipal governments to continue funding their capital needs, the municipal bond market must remain strong and investors must continue to have confidence in bond issuers. Transparency was critical to continue building investor confidence.

Ravitch said he was appalled in 1975 when he began to assist with the fiscal crisis in which the New York state government sold off $20 billion of assets to gain one-shot revenue enhancers. The state was treating the proceeds of these sales as revenues and they had no strategy to actually balance their budgets. Public officials had no willingness to raise taxes or cut expenses. As for advice for muniland’s current predicament, Ravitch said that like the governments of the 1970s we must recognize we have made fiscal commitments that are not sustainable without serious changes.