Monthly Archives: October 2017

Muni Credit News Week of October 30, 2017

Joseph Krist






Tax-Exempt Senior Lien Private Activity Revenue Bonds (Transform 66 P3 Project)

Moody’s: Baa3

A long awaited private activity bond financing should hit the market this week from the Virginia Small Business Financing Authority. Proceeds of the PABs will be loaned to I-66 Express Mobility Partners LLC (the concessionaire) and will be used together with the proceeds of a $1.2 billion TIFIA loan to help finance the construction of the I-66 outside the beltway project. Construction on the project is expected to start later this year and December 31, 2022 is the expected project completion date.

The bonds are guaranteed by LLC members are unrated Ferrovial Agroman SA, Ferrovial Agroman International Ltd, Ferrovial Agroman US Corp, Allen Myers VA Inc. and Allan Myers, Inc.. The project includes a security package during construction including a $750 million performance bond which will be reduced to not less than 2.5% of the Design/Build (DB) price and effective for a warranty period of 5 years after project completion as well as a $750 million payment bond, which will be in effect until one year after project completion. The overall maximum aggregate liability of the Design Build Joint Venture (DBJV)  towards the developer under the DB contract is limited to 50% of the contract price.

The PABs obtained a Baa3 rating from Moody’s. This was based on the high leverage of the project (debt/mile around $89 million), a back-loaded debt amortization profile, uncertainty around the future traffic profile over the long-term horizon of the concession and the potential for high volatility in revenues. Constraints to the rating include the fact that managed lanes are a relatively new asset class in the United States and there is very limited performance data in particular over a longer time period.

The project encompasses the I-66 outside the beltway managed lanes project along a 22 mile corridor on I-66 between US-29 at Gainesville, Virginia and I-495 (Capital Beltway) in Fairfax County, Virginia. I-66 Express Mobility Partners LLC has entered into a 50-year concession agreement in December 2016 with the Virginia Department of Transportation and will be responsible for the design, build, finance, maintenance and operation of two tolled express lanes in each direction and for the design, build and finance of three general purpose lanes in each direction and associated infrastructure, which will be operated and maintained by VDOT. I-66 Express Mobility Partners LLC, is the borrower and concessionaire and is wholly owned by I-66 Express Mobility Partners Holdings LLC. I-66 Express Mobility Partners Holdings LCC is owned by Cintra Global Ltd. (10%), Cintra Infrastructures SE (40%), Meridiam Infrastructure North America Fund II (26.7%), I-66 Blocker, LLC representing Dutch pension fund APG (13.3%) and John Laing Investment Limited (10%). The Design-Build joint venture comprises Ferrovial Agroman U.S. Corp. (70%) and Allan Myers Va, Inc. (30%). Operating activities will be self-performed by the consortium.



A contract between PREPA and a small independent contractor to provide services in the restoration of the Puerto Rican power grid. The contract has a value of $300 million. PREPA and Whitefish signed the deal with no competitive bidding process in late September, despite Whitefish having only two employees at the time and little history working on infrastructure repair. Puerto Rico officials say Whitefish won the contract because it didn’t require a deposit the island couldn’t afford.

“The size and terms of the contract, as well as the circumstances surrounding the contract’s formation, raise questions regarding PREPA’s standard contract awarding procedures,”  according to the chairman of the House Energy and Commerce  Committee. Among the questions are the legality of provisions including one that provides that “In no event shall PREPA, the Commonwealth of Puerto Rico, the FEMA Administrator, the Comptroller General of the United States, or any of their authorized representatives have the right to audit or review the cost and profit elements.”

An Energy and Commerce hearing on the administration’s approach to recovery efforts will be held this week, giving lawmakers the chance to probe the Whitefish contract and more general issues, including the slow pace of repairs on the island. As those hearings approach, the governor of Puerto Rico has asked the management of PREPA to void the contract which FEMA did not approve.

The process continues PREPA’s streak of management errors that left the utility poorly prepared for a natural disaster let alone one of this scale. Now its lack of managerial acumen threatens to shove the recovery off track


The NYS Housing Finance Agency has enacted new requirements for projects it finances such that they qualify for “green bond ” financing. All new construction projects must meet the U.S. Environmental Protection Agency (EPA) Energy Star Programs standards to enable projects to be Climate Bond Certified as Green Bonds, using criteria established by the Climate Bond Initiative (CBI).

New construction projects must also select one or both of these two programs: Enterprise Green Communities Criteria or NYSERDA Low-Rise New Construction Program or Multifamily New Construction Program. As an alternative to these two programs,  HFA may choose to approve projects that prefer to implement standards of one of the nationally recognized leaders in the sustainability and energy efficiency industry such as the Passive House Institute US (PHIUS) or Passive House Institute (PHI); National Green Building Standard; Leadership in Energy and Environmental Design (LEED).

Applicants must document that project meets the rigorous CBI criteria for low carbon emissions. Applications must include signed contracts with qualified energy consultants to certify that the criteria of selected standards will be met.

Now the Agency is positioned to issue some $115 million of green bonds to finance the construction of three multifamily housing projects in the State. Two of the projects are in Brooklyn and one is in Suffolk County on Long island. The bonds will be issued under the Agency’s Affordable Housing Bond resolution which secures bonds from repayments on its portfolio of geographically diverse project mortgage loans, credit facilities, and debt service reserve funds.

So the bonds represent a proven credit of long standing but by establishing standards and procedures for compliance, allow the agency to access an expanding class of socially and/or environmentally responsible investors. And so the municipal bond market continues to evolve.


In June, a US Court dismissed for lack of jurisdiction an interlocutory appeal from the district court’s order denying the Salt River Project Agricultural Improvement and Power District’s motion to dismiss SolarCity Corporation’s antitrust lawsuit based on the state-action immunity doctrine, the panel held that the collateral-order doctrine does not allow an immediate appeal of an order denying a dismissal motion based on state-action immunity.

Now the District plans to market its first issue of revenue bonds since that setback in the anti-trust case.

Solar-panel supplier SolarCity Corporation filed a federal antitrust lawsuit against the Salt River Project Agricultural Improvement and Power District (the Power District), alleging that the Power District had attempted to entrench its monopoly by setting prices that disfavored solar- power providers. The Power District moved to dismiss the complaint based on the state-action immunity doctrine. That doctrine insulates states, and in some instances their subdivisions, from federal antitrust liability when they regulate prices in a local industry or otherwise limit competition, as long as they are acting as states in doing so. The district court denied the motion, and the Power District appealed. The Circuit Court joined the Fourth and Sixth Circuits in holding that the collateral-order doctrine does not allow an immediate appeal of an order denying a dismissal motion based on state-action immunity.

So what is the issue for Salt River? SolarCity sells and leases rooftop solar-energy panels. These solar panels allow its customers to reduce but not eliminate the amount of electricity they buy from other sources. Many SolarCity customers and prospective customers live near Phoenix, Arizona, where the Power District is the only supplier of traditional electrical power. Allegedly to prevent SolarCity from installing more panels, the Power District changed its rates. Under the new pricing structure, any customer who obtains power from his own system must pay a prohibitively large penalty. As a result, SolarCity claims, solar panel retailers received ninety-six percent fewer applications for new solar-panel systems in the Power District’s territory after the new rates took effect.

Clearly Salt River sees  Solar City as an economic threat. As a political subdivision of the State of Arizona, the District argues that it has authority to set prices under Arizona law and so is immune from federal antitrust lawsuits. The district court denied the motion, citing uncertainties about the specifics of the Power District’s state-law authority and business. The district court also decided not to certify an interlocutory appeal, but the Power District appealed nonetheless. The District is appealing this particular provision of a more expansive proceeding in which a “final decision” has not been issued by the District Court. The Power District argues that an interlocutory order denying state-action immunity is immediately appealable under the collateral-order doctrine.

Salt River is concerned that the ongoing litigation could, among other things make it more difficult for the District to finance its operations as it attempts to deal with a rapidly changing environment for generators and distributors of electric power. On one front, Salt River has been on the progressive dynamic side of the overall issue through its agreement to close the 2.25 MW Navajo Generating Plant, a coal fired facility due to unfavorable plant economics. On this other front, Salt River faces an independent provider of solar based electricity which would be expected to substantially reduce demand for power from Salt River. This would be a credit negative for salt River in that it would be forced to spread its fixed cost base over a much smaller number of customers. Hence, the effort to “discourage” solar City’s efforts to provide power.

Now the District is seeking to market its first bond issue after this decision. S&P has decided that it is maintaining its AA stable rating on the District’s $3.7 billion of debt. S&P cites the fact that SRP’s residential customers accounted for about 50% of 2017 retail revenues, which we view as contributing to revenue stream stability. Electric retail revenues represented 90% of fiscal 2017 operating revenues. Its ability to raise rates on  an unregulated basis and good debt service ratios are cited to support a cap on the rating level rather than any negative outlook due to what it calls ” uncertainties emissions regulations and their related compliance costs present.” The legal threat to the Phoenix retail base was not referenced.

We think that when an entity reacts to something like a change in technology and goes for the no-competitive practices grenade, they are letting us know that the threat is at least somewhat existential. We’re not saying that it’s a non-investment grade credit but some negative action – at least in outlook pending the results of the litigation – is warranted. Not the rating agencies best moment.


The IL Teachers’ Retirement System investments generated a positive 12.6 percent rate of return, net of fees, during fiscal year 2017 – a return that exceeded the System’s custom investment benchmark of 11.4 percent. TRS ended FY 2017 on June 30 with $49.4 billion in assets. Gross of fees, the TRS return for FY 2017 was 13.3 percent. Total investment income, net of fees, was $5.5 billion. The 30-year investment return for TRS currently is 8.1 percent, net of fees, which exceeds the System’s long-term investment goal of 7 percent.

Before we break out the bubbly we note that while the System’s funded status improved modestly during FY 2017 from 39.8 percent to 40.2 percent, the unfunded liability increased. At the end of the fiscal year the unfunded liability was $73.4 billion, compared to $71.4 billion at the end of FY 2016. The System’s three-year return at the end of FY 2017 came in at 6.1 percent, matching the System’s custom benchmark. The TRS five-year average of 9.9 percent at the end of the last fiscal year exceeded the benchmark of 9.3 percent. The 10-year average for FY 2017 of 5.4 percent barely topped the custom benchmark of 5.3 percent.


Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Muni Credit News Week of October 23, 2017

Joseph Krist





Forty years after his death, the life and legacy of Elvis Presley still maintain a hold on a substantial number of Americans. While many different images of Elvis live on in the collective memory of Americans, it isn’t likely that many of those memories involve municipal bonds. That may be about to change.

The Economic Growth Engine Industrial development Board of Shelby County, Tennessee is circulating a Limited Offering Memorandum in support of a proposed issue of $39,610,000 of unrated tax increment revenue bonds to support the expansion of “attraction” space at Graceland, the world famous former home of Elvis Presley.

The bonds would be paid from three sources: 50% of all incremental real and personal property taxes collected from the project area through January 1, 2034; a portion of all state and local sales taxes generated in the project area through June 30, 2045; and proceeds of a 5% sales tax surcharge generated from the project area through April 30, 2045.

The entire “Graceland Campus” as it is now known covers 120 acres and includes not only the home but a variety of entertainment, retail, and hospitality facilities. This project would develop some 220,000 square feet of additional retail, entertainment, and support space which are being undertaken in association with plans to run tours from a regional area defined as a five hour driving radius from Memphis.

There is nothing particularly new or innovative about the security or financing structure of the deal. The risks associated with it are the standard risks of development and operation of the project and the risk that demand will not be commensurate with the levels projected in sizing the bond issue. We do not pretend to make any judgments about the viability of the projections of visitors and/or spending. We realize that the attraction and the personality and image on which it is based are unique and arguably have worldwide appeal.

What is of interest here is the fact that the deal is being undertaken despite years of political attack on the need for and usefulness of tax exempt financing for municipalities even if they involve basic infrastructure facilities of unquestioned public value. We just question whether the proposed use of the tax-exemption to finance clearly (except to die hard Elvis acolytes) non-essential private facilities meets the test of best and highest use of the tax exempt financing exception. At a time of unquestioned shortfalls in infrastructure financing nationwide, we find the proposed transaction extremely difficult to justify under most flexible interpretation.



SCANA Corporation (SCANA) (NYSE:SCG) announced that SCANA and its subsidiaries have been served with a document subpoena issued by the staff of the Securities and Exchange Commission in connection with an investigation they are conducting relating to the new nuclear project at V. C. Summer Nuclear Station. The Company intends to fully cooperate with the investigation. SCANA was the investor owned utility partner of the South Carolina Public Service Company (Santee Cooper) in the recently cancelled project. It is not clear what the focus of the Commission’s request is and there is no indication as of yet that Santee Cooper is under investigation.


Starbucks Corp. will create 100 new jobs and invest $120 million in expanding the company’s coffee roasting facility in Augusta. The new roasting operation will add 140,000 square feet onto the existing facility in the Augusta Corporate Park in Richmond County. The expansion is expected to be completed by the end of 2018 and is part of the company’s plan to create more than 68,000 new jobs in the U.S. by 2021.

Starbucks opened its Augusta plant in 2012, making it the company’s fifth manufacturing facility in the U.S. and the company’s first owned and operated facility in the world to produce soluble products. The facility prepares and packages ingredients and finished products for most of the company’s soluble-based beverages for all of North America and parts of Europe.

The Augusta Georgia Economic Development Authority has just approved a $130 million industrial development bond issue. It has already set aside property in the city to accommodate the proposed facility expansion.


On Friday, October 19, Moody’s announced that the City of Hartford (Caa3 negative) is likely to default on its debt as early as November without additional concessions from the State of Connecticut (A1 stable), bondholders and labor unions. Its analysis projects operating deficits of $60 million to $80 million per year through 2036, the final maturity of its general obligation debt. Moody’s estimates that fixed costs — including pension contributions, benefits and insurance, and debt service — are driving large projected operating deficits of approximately 11% of revenues.

Moody’s asserted that “one option is the state fully funding the existing payments in lieu of taxes formula, which has been underfunded for years; fully funding the payments in lieu of taxes (PILOT) formula would provide the city with $52.3 million of additional revenue each year.”


Three weeks before election day, Moody’s Investors Service has upgraded the City of Detroit, MI’s issuer rating to B1 from B2. According to Moody’s, ” t he upgrade to B1 reflects improved fund balance and liquidity coupled with adoption of a pension funding strategy that will lessen the budgetary impact of a future spike in required contributions. The rating also considers the very conservative fiscal approach of Detroit’s current administration as well as the city’s current economic performance, which is strong considering its historic contraction. The rating still weighs these credit strengths against long-term risks arising from high unfunded pensions and economic vulnerabilities tied to a weak socioeconomic profile and low industrial diversity. The rating further acknowledges that maintenance of healthy reserves and budgetary capacity to fund rising fixed cost demands is highly dependent on continued revenue growth.”

As for its positive outlook assignment, Moody’s said ” the positive outlook reflects the possibility of further upward movement in Detroit’s rating in the event current economic and financial trends persist. Sustained growth in revenue that enhances the city’s capacity to fund its long-term obligations will positively impact the city’s credit profile.”


The Indiana Department of Transportation is taking the next step toward instituting tolling on interstate highways by requesting proposals from firms interested in developing a strategic plan and doing other preparatory planning. INDOT posted a request for proposals, or RFP, to do the work on Tuesday. The agency expects to select a firm by Jan. 26.

Five corridors are under consideration by the State for tolling: I-94 from Illinois to Michigan; I-65 from I-90 south to I-465 and then south from I-465 to the Ohio River; and I-70 from the Illinois state line to I-465, then from I-465 to the Ohio state line. It is also considering tolling in Indianapolis.

The RFP requires the selected firm to determine what environmental studies will be necessary to comply with the National Environmental Policy Act, and to develop the methodologies to accomplish them. It also must perform traffic, environmental justice and other studies associated with NEPA studies.


Construction work on a critical project to repair damage from Superstorm Sandy in East River tunnels used mostly by the Long Island Rail Road may not begin until 2025. The work, once expected to begin by 2019, now will cost more than $1 billion — three times original estimates, according to Amtrak. It will also require the LIRR to operate without one of four East River tunnels linking Long Island to Penn Station for up to four years.

Amtrak has opted for a “full reconstruction” of the tunnels — a complex project that requires years of design work and other preparations. That includes fortifying the other two East River tunnels not damaged by Sandy so they can be as reliable as possible while the other two tubes are offline. It intends to wait until the railroad begins running some trains to Grand Central Terminal as part of the Metropolitan Transportation Authority’s East Side Access project. That project, which has been besieged by delays since it was proposed in the 1990s, is scheduled to be completed by late 2022. But it has fallen further behind in recent months, and the MTA has blamed Amtrak for not scheduling construction at the Harold Interlocking, just east of the tunnels, used by both railroads.


The financial pain continues for Chicago’s strained finances. The budget proposed for 2018 by Chicago Mayor Rahm Emmanuel includes a rise in taxes for the sixth time in seven years. The budget would raise the city’s 911 phone tax for the second time in four years to balance the budget, raise taxes on ride-sharing services like Uber and Lyft to pay for CTA upgrades and increase the amusement tax for concerts at larger venues while eliminating them at smaller theaters. Chicago property owners next year already face a previously approved water and sewer tax increase and a $63 million city property tax increase, the fourth and final consecutive annual hike in that levy approved in 2015 to dramatically increase pension contributions. That doesn’t include a separate Chicago Public Schools property tax increase of $224.5 million.

The $8.6 billion plan would spend about $289 million more than this year. The 911 tax would go up $1.10 a month, while fees would rise 15 cents on Uber and Lyft rides. The previously approved CPS and city property tax increases are expected to cost the owner of a $250,000 home an additional $230 per year.  It is offset in part, by a newly increased homeowners exemption from state lawmakers in August that city officials estimate would lower the bill on a $250,000 home by about $148 next year.

The phone tax increase would add $30 million to the city’s revenues, and city officials have said $11 million of it would go toward a required modernization of the 911 system, allowing it to receive text messages and photos that can be relayed to emergency responders. Police overtime continues to increase. The city budgeted for $78 million this year, but by the end of July it already had topped $95 million.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Muni Credit News Week of October 16, 2017

Joseph Krist








This non-rated bond issue will provide the financing for the expansion of the Ballpark Village mixed use retail, entertainment, and residential project that has been being developed across the street from Busch Stadium, the home of Major League Baseball’s Saint Louis Cardinals. The Cardinals have long been one of the most regionally supported baseball teams due to their pre-1958 status as the western most located major league baseball franchise and the broadcast of their games to some 40 states over legendary radio station KMOX. This has created a large and loyal fan base which is known to travel significant distances to see the team play.

The development seeks to capitalize on the team’s role as the City’s leading sports attraction as well as the unique attendance characteristics of its disperse fan base. This is seen as generating a higher than usual demand for retail and entertainment product as a part of the overall fan experience. This is supported by the changing nature of demand for an experience which extends beyond the game itself.

The facilities are expected to produce revenue to support infrastructure needed for development through the collection of sales taxes generated within the area. Two entities – a Community Improvement District authorized to collect a sales and use tax of 1% on activities within its boundaries and a Transportation Development District also authorized to collect its own 1% sales tax – are designed to generate the revenues pledged to the repayment of the Bonds.

Also pledged to the payment of the Bonds are all payments from the District paid in the form of payments in lieu of taxes or PILOTs. There are also pledged 50% of so-called economic activity taxes or EATs. Additional pledged revenues include 25% of revenues collected by the City of St. Louis (e.g. city sales taxes) excluding hotel taxes. These revenues are subject to appropriation. The State of Missouri has also pledged a portion of State sales and Income Tax collected from activities within the Districts.

Clearly, the complex security structure as well as the underlying project concept stand out within the municipal bond space. While many stadium projects are advertised as engines of economic development, this may be one of the clearest and most developed concepts to result from stadium development to date.



The Brownback era may be over in Kansas but trail of wreckage to the State’s fiscal position remains. The Kansas Supreme Court has given a thumbs down to the $488 million of school funding added by Senate Bill 19 for the current biennium. The court gave the state until April 30 to present an adequate funding plan. Under the ruling the state can review and make necessary adjustments to its current budget to address the court decision.

The unanimous ruling was based on a number of factors. The spending plan included funding to some districts to cover the costs of absorbing lower income children into their schools yet some of those districts received funds to serve more children from low-income families than those districts actually enroll. The state argued that districts with a low percentage of children from low-income backgrounds still have their share of kids who are struggling academically. Hence, they should get a cushion of extra funding to serve those academically struggling kids.

The Court disagreed with the selective provision of that funding instead taking the view that all districts in the state should receive funding on that basis. Revisions to school finance laws, allowed some districts to enlarge one part of their budgets that comes primarily from local taxpayers — without approval from those taxpayers. The Legislature later closed this window and grandfathered in those districts.

The Court found that this denies the rest of the state’s schools equal access to funding. This spring lawmakers wanted school districts to start paying their utilities and some of their insurance bills with a specific local property tax fund that is otherwise meant for things like building construction and computer purchases. A key feature of this fund is that the amount of money poorer and richer school districts have in it varies. The Court disagreed.

Another change in state law caused the State to change how it calculates some of the money it gives to poorer districts. Instead of taking into account current data from local school budgets, it decided to start using data from a year earlier. The state argued this offers budget stability and predictability. Those changes cut an estimated $16 million from the state’s aid to schools in 2017-18 — savings that come from reducing payments to districts with weaker tax bases.

The concept underlying all of these issues is equality of treatment for all school districts. The Court wants the Legislature to put effort into figuring out what amount is needed and then show the court how it came up with it. And the court wants reasoning and calculations that make sense. The court calls this “showing your work.” The Legislature offered up a four-page statistical analysis of how much money schools need in order to be successful. The justices devoted some 14 pages to criticizing weak documentation, methodology and reasoning.

Two prior school finance studies the Legislature commissioned in  took analysts at least half a year to complete. One resulted in more than 340 pages of analysis and supporting documentation. The other had more than 160 pages.

The ruling was anticipated when the budget was adopted and was seen by outside observers as a huge risk to the State’s budget and credit. Nevertheless, the legislature went ahead and challenged the Court to find in favor of the plaintiffs. Now that the legal process has effectively been fully tested, the Legislature must address the issues raised by the Court while also addressing the State’s weakened budget position and outlook.


Attorney General Jeff Sessions announced Chicago, New Orleans, New York and Philadelphia were all determined to have “laws, policies or practices” that violated a federal statute that requires jurisdictions to comply with federal immigration officials and help to deport suspected undocumented immigrants held in local jails. The department sent the letters on Wednesday to the four cities as well as Cook County, Illinois, which includes Chicago and its sprawling suburbs.

Each jurisdiction has until Oct. 27 to demonstrate they do not have policies in place that restrict law enforcement officers and city employees from fully cooperating with federal immigration officers.  The department cleared four other jurisdictions –  Milwaukee County, Wisconsin, Clark County, Nevada, the State of Connecticut, and Miami-Dade County, Florida .stating that they did not violate the federal statute.

DOJ would seek to withhold Edward Byrne Memorial Justice Assistance (JAG) Grant Program funding from the cited jurisdictions. The program is the primary provider of federal criminal justice funding to state and local jurisdictions.  The Byrne JAG Program is administered by the U.S. Department of Justice, Office of Justice Programs and was created in 2005 by merging the Edward Byrne Memorial Grant Program (Byrne) with the Local Law Enforcement Block Grant Program (LLEBG). Byrne JAG funding can be used to support a broad range of state and local government projects, including those designed to prevent and control crime and to improve the criminal justice system.

According to the National Criminal Justice Association, under current law, Congress is authorized to spend up to $1.095 billion per year for the Byrne JAG grant program. In practice, however, annual funding has not reached that level in over a decade. In FY02 and FY03, Byrne and LLEBG funding (see Byrne JAG History above) together totaled $900 million. In FY05, the first year of the combined Byrne JAG program, funding dropped to $536 million (after subtracting unrelated carve-outs). In FY06, funding dipped further to $322 million and then rose again to $520 million in FY07. In FY08, although both the House and Senate Appropriations Committees had recommended significantly increased funding in their committee-passed bills, funding in the final conference report was cut by two-thirds to $170 million.

In FY13, the justice assistance grant programs and all other projects and programs funded by the defense and non-defense discretionary portions of the budget were subject to automatic across the board cuts, called sequestration, as required by the Budget Control Act of 2011. The final FY13 appropriations bill increased funding for the Byrne JAG formula program by 5 percent, from $352 million to $371 million, which was then reduced by the sequester to $352 million. Therefore, final FY13 funding for Byrne JAG was funded at the FY12 level. Funding dropped again in FY14 to $344 million and in FY15 to $333 million. In FY16, funding was bumped up to $347 million.


With two executive decisions, President Donald Trump launched two more missles at the finances of healthcare providers. The first was the decision to eliminate cost sharing reduction (CSR) payments, on a monthly basis to compensate insurance companies who offer subsidies to low income purchasers of health insurance through the ACA marketplaces. The federal cost is estimated at $7 billion annually. While courts have determined that the payments are not supported by statute, there has been a clear consensus among insurers, providers, and politicians that the payments had a key role in stabilizing state marketplaces. The CBO also said halting the payments would increase the federal deficit by $194 billion through 2026.

The second was the decision to allow the purchase of insurance by allowing small businesses to band together and buy insurance through entities known as association health plans, which could be created by business and professional groups. Historically, the plans were not subject to state regulations that required insurers to have adequate financial resources, some became insolvent, leaving people with unpaid medical bills. Some insurers were accused of fraud, telling customers that the plans were more comprehensive than they were. They will be permitted to cover a far less extensive range of conditions and will not be required to cover preexisting conditions.

The changes are being made under a broader interpretation of federal law — the Employee Retirement Income Security Act of 1974 — “could potentially allow employers in the same line of business anywhere in the country to join together to offer health care coverage to their employees.” So said the White House. The Congressional Budget Office (CBO) said in August that about 1 million people would be uninsured in 2018 and insurance companies would raise premium prices by about 20 percent for ACA plans if the payments were cut off.

The executive order largely does not make changes itself; rather it directs agencies to issue new regulations or guidance. Those new rules will go through a notice and comment period that could take months. New York and California have already said that they will challenge the order in the courts. This could mitigate the impact on rates in 2018 but the outlook for 2019 is highly uncertain absent Congressional action.


In the midst of the failure to renew the CHIP program and the action to undermine the ACA, some hospital credits withstand the pressure. Last Thursday, S&P announced that it had raised its long-term rating to ‘A+’ from ‘A-‘ on the California Health Facilities Financing Authority’s for Children’s Hospital of Orange County (CHOC). The outlook is stable.

S&P cited the “view of CHOC’s growing volumes and sharply improved balance sheet, coupled with increased operating income and cash flow over the past year generating over 4x maximum annual debt service (MADS) coverage.”

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Muni Credit News Week of October 9, 2017

Joseph Krist





$1,792,905,000 System Revenue and Refunding Bonds First Tier Bonds

Moody’s: “A1”  S&P: “A”

$776,590,000 System Revenue and Refunding Bonds Second Tier Bonds

Moody’s: “A2”  S&P: “A-”

In a somewhat abbreviated week, these two issues dominate the new issue calendar.  The NTTA manages an established multi-asset tollway system in the Dallas-Fort Worth MSA. Assets include two bridges; one tunnel and four highways, approximately 150 miles in length and with 745 lane miles. Traffic is predominantly two axle passenger cars with only 2.4% multi-axle vehicles. The NTTA bonds are secured by net system revenues, with first tier having a priority claim, followed by the second tier and the Capital Investment Fund (CIF) bonds that are secured only by balances in the CIF.

A rate covenant in the amended and restated trust agreement dated April 1, 2008 requires net revenues to provide at least 1.35 times coverage of first tier debt service requirements, 1.2 times coverage of outstanding first tier and second tier debt service, and 1.0 times coverage of all outstanding obligations. The first tier bonds are additionally secured by a DSRF equal to average annual debt service the and second tier equal to one-half of average annual debt service.

The Moody’s ratings are based on NTTA’s essential roadway network located in one of the fastest growing US service areas. Moody’s projects that they will produce strong revenue growth from continued traffic growth and automatic biennial toll increases. Debt service coverage ratios over the next five years are expected to be consistent with its A1 rated peers, however leverage will remain elevated over the period. NTTA’s ability to fund its five-year growth needs without additional debt and minimal reduction in liquidity additionally supports the rating. The A2 rating on the second tier obligations reflect payment of debt service made after first tier debt and a relatively weaker debt service reserve fund that is cash funded at half of average annual debt service requirements.

The S&P rating on the first-tier bonds reflects its view of the region’s economic strength, with significant development along the corridors where the NTTA’s roads are located. These strengths are offset by the S&P view of the NTTA’s highly leveraged system of toll facilities that requires continuous revenue growth to meet its financial forecast. The ‘A-‘ rating on the second-tier bonds reflects S&P’s view of their subordinate status.



Bondholders got caught in another hurricane of sorts when President Trump made a few incredibly ignorant remarks about Puerto Rico’s debt. Upon his return from a very quick trip to the Commonwealth, the President stated the following: “They owe a lot of money to your friends on Wall Street and we’re going to have to wipe that out. You can say goodbye to that.”  “I don’t know if it’s Goldman Sachs, but whoever it is, you can wave goodbye to that.” Prices on the Commonwealth’s uninsured debt tanked into the low $30 range and the equity of bond insurers also took a significant hit.

The fact that OMB Director Mick Mulvaney tried to walk back the statements did not enhance the discussion. “I wouldn’t take it word for word with that,” OMB Director Mick Mulvaney said on CNN. “We are not going to deal right now with those fundamental difficulties that Puerto Rico had before the storm.” Added Mulvaney: “Puerto Rico’s going to have to figure out how to fix the errors that it’s made for the last generation on its own finances.”

The statement from the President showed a real ignorance of the situation and a lack of interest in policy and programmatic details that have characterized his Administration. They did encourage others who subscribe to the view that Puerto Rico’s debt should be forgiven. Disappointingly, these include representatives of some larger players in the market. Perhaps it is their own realization that they for so long enabled a series of Commonwealth administrations to conduct their finances recklessly and do so under the cover of inadequate disclosure.

In the meantime, the legal process to determine the legitimacy of Puerto Rico’s debt and the ultimate positions of the various debt holders continues. To make comments of the sort that the President indulged in before those processes have run their course is a disservice to all municipal bond market participants. It also shows real disregard for the many individuals who hold the triple tax exempt debt directly or through mutual fund proxies.

An intervention that absolves Puerto Rico of a significant segment of its debt obligations would have significance for the entire market. Municipal bonds are by and large secured by not just legal (constitutional and statutory) but moral obligations and these have allowed borrowers to access the public markets under very favorable comparative  terms. In exchange, they have been granted access to bankruptcy and debt repudiation under only the most limited of circumstances compared to other classes of borrowers. It is what separates the municipal market from other markets such as the ones that the Trump family have so successfully used to their advantage when they mismanaged their businesses.

So we have real trouble with the Presidents latest fulminations. We are also troubled by a fairly weak response from the Administration’s senior economic and finance advisors. To allow these sorts of remarks to negatively impact a market as large ($3.5 trillion) and diverse that is so vital to the provision of basic capital based services is the height of irresponsibility.


The President’s “casual” remarks about Puerto Rico’s debt come as the financial control board is seeking help from the US Congress. the board asked for quick federal action, including the authorization of a short-term, low-interest loan to keep Puerto Rico’s government functioning. The board urged “the maximum federal assistance to Puerto Rico to help it respond to and to recover from Hurricanes Irma and Maria.”

“This federal assistance should come in the form of grants and reimbursements to assist Puerto Rico in responding to the catastrophic damage it has suffered, and pursuant to an emergency liquidity program, low-interest loans to assist Puerto Rico in responding to its cash flow deficiencies.” Ideally, Congress would waive matching fund requirements and provide aid in grants versus loans which would simply add to the debt burden. in addition it would  increase the limits of disaster recovery programs, allow it to benefit from recovery programs and give Puerto Rico parity for receiving Medicaid funds.

One wild card is the fact that the president has no direct power over the territory’s debt, though he can fire members of the federal board that was set up to oversee the island’s finances and nominate others. If the President sought to become engaged on the matter, he could throw a major wrench into the works through altering the membership of the board. Executive support is crucial to the Board’s efforts to oversee a recovery of the Commonwealth’s finances and debt.


The media has begun to focus on the fact that the long term nature of the recovery in Puerto Rico from hurricane Maria is forcing many to explore alternative off island living arrangements. The impact on hospitals and schools driven by the lack of basic utilities if forcing those with children and significant medical conditions to seek schools and medical care. their status as citizens and the significant Puerto Rican diaspora in the US makes this a viable choice.

While the US population is concentrated in certain metropolitan areas, the area most likely to be on the front line in dealing with this phenomenon is Florida, especially the Orlando area. In Florida, Gov. Rick Scott declared a state of emergency last week for all 67 counties in the state in order to facilitate  counties’ efforts to house, educate and help Puerto Ricans by waiving regulations. It is hoped that the  declaration could also attract more federal money to the state. Florida will also establish ” relief shopping centers” at relief shopping centers at ports and airports relief shopping centers. These centers will provide one-stop locations  where Puerto Ricans can seek assistance with jobs, education, housing and programs like Medicaid and food stamps.

Since many of these current migrants are of less economic means than have been those in the steady stream of migrants over the last decade, there will likely be strains on housing, Medicaid, and education budgets in destination locations.


The Pennsylvania Legislature is still debating the revenue side of the FY 2018 budget despite its potential negative impact on the Commonwealth’s credit. The Assembly could not deliver votes for a commercial storage tax or a hotel tax despite their offering of both as counters to a severance tax. The commercial storage tax would have raised approximately $100 million in year one and approximately $170 million in year two. The severance tax passed by the Senate will raise the same amount and is widely supported throughout the commonwealth and among bipartisan legislators. Pennsylvania is the only major gas producing state without a severance tax.

Now the Governor has proposed a different revenue source. Governor Wolf will securitize profits from our state’s liquor system. It will raise $1.25 billion to pay off nearly all of our prior year deficit and significantly reduce the need for additional temporary borrowing to pay our bills. The Liquor Control Board transferred $210 million to the General Fund last year, far in excess of the annual amount necessary to make payments on this loan.

Such a move would keep the Commonwealth in the retail liquor business resulting in monopoly based higher prices for state residents. Such a financing would be in lieu of a much debated tobacco settlement fund securitization.


The well publicized scandal involving the University of Louisville basketball program has already claimed famed head coach Rick Pitino’s job. Now it has placed the University’s credit rating in jeopardy. Moody’s has announced that it has decided to revisit a review of the University’s rating for downgrade which it had concluded on July 21.

Moody’s said “newly developing credit issues including recent criminal allegations against senior athletic personnel have the potential for increased financial burden on a currently weakened university liquidity profile and support renewal of the review for downgrade of the ratings. It also noted that questions surrounding integration risk and funds flow impacting the university resulting from the July 1, 2017 academic affiliation agreement with University Medical Center further support the current rating credit action.

The review “will focus on the University of Louisville’s ability to maintain stakeholder confidence and structural balance given its current weak liquidity, which Moody’s estimates at approximately $80 million of unrestricted cash as of June 30, 2017. Timing and intention for installing permanent leadership, along with an assessment of sustainable remediation of ongoing governance concerns, will also be incorporated into the review. Moreover, legal considerations and challenges related to the integration of the new hospital relationship, incremental to other competing operating priorities – such as immediate and longer term trends effects on enrollment, net tuition revenue growth and donor support – will also be central to the analysis.

Adverse impacts from the confluence of these governance, legal, operational and financial risks could put multiple notch downgrade pressure on the ratings.


Madison Square Garden may be the “World’s Most Famous Arena” but the Barclays Center in Brooklyn has actually been the busiest based on number of days in use. In spite of this however, financial performance for fiscal year (FY) ended June 30, 2017 was weaker than expected, owing to a drop in revenues and cash flow caused by the attendance and related ticket sales decline at the New York Islanders home games held at the Barclays Center. Moody’s projects that that similar financial under

performance will continue for the next 12 to 18 months owing in large part to the contractual arrangements between the Islanders and the Barclays Center.

Specifically, weak financial performance during FY 2017 was in large part driven by the Barclays Center’s obligation to make fixed annual payments to the Islanders for an anchor tenant guarantee fee. These payment obligations, which are part of a 25-year license agreement, coupled with lower revenues stemming from attendance related underperformance for the Islanders has resulted in a net loss from Islanders’ related business activities for the Barclays Center for the most recent FY, a financial performance that Moody’s anticipates continuing this season and next season unless there is a substantial improvement in attendance.

So now despite the booming demand for entertainment based in the rapid gentrification of Brooklyn, Moody’s changed Its rating outlook to negative from stable on approximately $526.8 million PILOT Revenue Bonds, (Barclays Center Project) issued by the Brooklyn Area Local Development Corporation (PILOT Bonds) which are rated Baa3.

The Barclays Center’s debt service coverage ratio (DSCR), as calculated by Moody’s, declined to 1.31x during FY 2017 from 1.51x in FY 2016. In addition, the DSCR as calculated by Moody’s for the current fiscal year ended June 30, 2018, is forecasted to decline even further to 1.07x. This differs from the calculation of forecasted DSCR by the arena’s management of 1.35x for FY 2018 because they have bolstered liquidity by including excess cash flow that would otherwise have been distributed. In arriving at the 1.07x DSCR calculation for FY 2018, Moody’s has excluded this excess cash and has reflected only cash flow from operations for that year.

The situation could be improved if the Islanders are able to persuade state and local government to help them construct a new arena closer and more attractive to their core Long Island fan base. There are negotiations underway regarding such a facility to be located on land at the Belmont Park racing facility located adjacent to the Queens-Long Island border with access to highways and Long island railroad facilities.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Muni Credit News Week of October 2, 2017

Joseph Krist




There are two major issues upcoming to finance arenas housing professional sports teams. The first is $140,000,000 Sales Tax Revenue Bonds (Quicken Loans Arena Project) to be issued by Cuyahoga County, Ohio. This current issue and the county’s outstanding sales tax revenue bonds are secured by a senior lien on revenue collected pursuant to the county’s current 1.25% sales tax. Although secured by the city’s sales taxes, debt service on the 2017 bonds is expected to paid with other county resources (1.5% hotel tax and arena event tax receipts), city resources (arena event admissions tax) and rent payments from the Cleveland Cavaliers.

The bonds are rated Aa2 by Moody’s. This special tax sales tax rating largely incorporates Cuyahoga County’s general obligation (GO) rating. While the county has favorably covenanted to direct the State of Ohio state Tax Commissioner to directly transfer receipts first to the bond trustee, this does not achieve complete legal divergence. The rating also considers the large economic base from which the tax is generated, a strong 3.0x additional bonds test, healthy coverage of maximum annual debt service, and positive sales tax trend.

Cuyahoga County is one the two largest counties in Ohio with a population of 1.3 million as of the 2010 Census. Approximately 30% of the county’s population resides within the City of Cleveland, the county seat. County operations include economic development, health and human services, public safety and general governmental functions.

The second is $137,460,000 City of Atlanta and Fulton County Recreation Authority Revenue Refunding and Improvement Bonds (Downtown Arena Project). The facility which will benefit is the Philips Arena, the home of the NBA Atlanta Hawks.



It is impossible to underestimate the scope of the damage that has been to the economic and financial prospects of the commonwealth of Puerto rico. The physical damage and hardship has  been obvious as has the obsequious response of the Commonwealth government at the gubernatorial level. When it became obvious that the deference being paid by the Governor to the President was not yielding results, the mantle of leadership naturally fell to officials at the mayoral level to step up and advance the island’s cause. One can have different views political and philosophical about  the style of those like the Mayor of San Juan but there can be no doubt that it had its effect.

We understand the need to get basic services like utilities up and running to the greatest number of people as soon as possible. At the same time, we cannot help but observe that all of the stakeholders in Puerto Rico have a real interest in seeing that the island’s infrastructure is not replaced as is. The totality of the destruction provides Puerto Rico with a real opportunity to move from a trailing position to a leading position in terms of how it provides basic services.

This refers to things like renewable energy that takes advantage of the solar and wind resources that are available in abundance. It provides for the installation of modern water and sewage treatment facilities. Through the use of diverse and alternative technologies, new employment and skills development opportunities can result. Especially in the area of energy, the storm provides a window to reduce dependence on oil (of which Puerto Rico has none) and move towards at least some level of self-sufficiency. This is not about policy or philosophy, it is about economics.

To the extent possible, aid should be directed towards modernization and automation of government systems. Utility lines should be placed underground to the greatest extent possible. Fiber optics should be installed along with new utility lines. The benefits in terms of both efficiency, economics, and reliability would make Puerto Rico a more attractive venue for the establishment of manufacturing and production facilities. it would increase the quality of the schools and thereby make it more likely that residents will stay long term.

Of course, the Commonwealth’s debt and financial management situations need to be addressed. And it is not totally incorrect to wish to address these in an overall context of a successful recovery plan. This will require serious federal support at both the executive and legislative levels. Unfortunately, we have grave concerns about whether the Federal government has the leadership ( and not just about the Tweeter in Chief) at the various federal agencies which would have to be involved in a comprehensive effort. Legislatively, it will require strong leadership from its legislative proxies in Congress given the Commonwealth’s lack of direct representation and inability to vote in US presidential elections.

There was at least one ray of hope from the Congress. Sens. John McCain (R-Ariz.) and Marco Rubio (R-Fla.) have introduced a bill to permanently exempt Puerto Rico from the ban on foreign-flagged ships traveling between U.S. ports. American Samoa, the Northern Mariana Islands and the Virgin Islands are already exempt. In a statement, McCain called the Jones Act “an antiquated, protectionist law that has driven up costs and crippled Puerto Rico’s economy.”


After a period of financial instability caused by debt management issues that led to a partial acceleration of the Authority’s debt, investors had hoped for financial stability going forward. Obviously, there was concern about the hotel based tax revenues which support debt issued for the various professional sports facilities around Houston in the aftermath of Hurricane Harvey. Some of that concern was ameliorated when Standard and Poor’s announced it had affirmed its outstanding ratings on the Authority’s debt. S&P said that while there may be some short-term budgetary pressures because Gov. Greg Abbott has suspended all laws authorizing or requiring the collection of HOT taxes, the authority has already collected enough pledged revenues to make its principal and interest payment in November 2017. It noted that none of its facilities were damaged. In addition, there were no additional personnel or operating expenditures incurred as a result of Hurricane Harvey.


Sarasota County, West Villages and the city of North Port and the Atlanta Braves have agreed on a plan to finance an $80 million spring training facility for the Braves. The move comes after the Braves complete their first season on Sun Trust Park in suburban Atlanta. That facility was the object of some controversy over the public role in financing that was controversial when it was undertaken.

The stadium would include 9,000 seats, a 360-degree concourse, luxury suites, 750 paved parking spaces, six fields and two half practice fields. The costs cited do not include the cost of the land. $20 million in funding had been conditionally approved by the Florida Department of Economic Opportunity. Sarasota County will commit $22 million of tourist taxes to support debt for the project. the West Villages Improvement District will issue debt for infrastructure support for the project which is designed to be the centerpiece of an overall 11,000 acre development. The District will use its special tax authority to secure debt it issues.

The deal marks another step in professional sports’ efforts to extend its record of obtaining public financing for stadia for its major league teams. Spring training has become a huge business in the last two decades and many long standing relationships between teams and communities have been left behind as teams seek to maximize revenues from even these “exhibition” games. In the case of the Braves, it would mark their second move of their spring training base in just over a decade. The Braves will retain all revenues generated by its use of the stadium but they will pay between $2 million to $2.5 million each year toward the debt to build the stadium. The team will be required to pay for routine maintenance.


$45 million in revenue is believed to have been lost when the state suspended highway toll collections to help speed evacuations and relief efforts for Hurricane Irma according to Florida’s Turnpike. Tolls were suspended on September 5 to facilitate evacuations ahead of the storm and were only reinstated in full on September 20. Tolls will remain suspended on the Homestead Extension of Florida’s Turnpike south of the interchange with the Don Shula Expressway, State Road 874 (Mile Post 0-17) to help Monroe County residents with recovery efforts.

The Turnpike System comprises much of the state’s storm evacuation routes so the suspension was not unexpected. With a total FY 2018 budget of $1.5 billion, Florida’s Turnpike operations and credit should be well positioned to absorb the impact.


On Aug. 2, 2017, S&P lowered its ratings on the South Carolina Public Service Authority to ‘A+’ from ‘AA-‘ and maintained a negative outlook following the decision by Santee Cooper to suspend the the V.C. Summer nuclear units 2 and 3 project construction. In lowering the rating, S&P cited its opinion that, without a generating asset to show for its issuance of $4.6 billion of debt, Santee Cooper had diminished debt issuance and rate-raising capacity, and hence weakened credit quality.

Since then Santee Cooper has reviewed its load forecasts and decided to lower them. A lower load forecast relieves the authority of the immediate need to add generating capacity, and alleviates the need to issue additional debt. For S&P, it believes Santee Cooper has clarified the impact of the suspension on financial metrics, rates, and power supply plans.

As a result, it has restored its outlook for Santee Cooper’s rating to stable. It does not anticipate raising the rating given the financial forecasts for coverage and liquidity, the overhang of legal and political fallout from the suspended project, diminished financial flexibility from future rate increases, and high debt levels that we do not expect to improve meaningfully over the next two years.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.