Muni Credit News April 18, 2017

joseph krist

UAB Medicine Finance Authority

Moody’s: A1

The Authority will sell $52,880,000 of revenue bonds on April 18.

The bonds are joint and several obligations of the obligated group members secured by the Pledged Revenues, as defined in the bond documents. Pledged Revenues in general means the gross revenues derived from the operation of the Obligated Group’s facilities. It does not include State appropriations, or donor directed gifts. Members of the UAB Medicine obligated group are the University of Alabama Hospital at Birmingham, University of Alabama Health Services Foundation, P.C., Callahan Eye Hospital Health Care Authority, and UAB Health System.

UAB Medicine Finance Authority is a public corporation organized by the University of Alabama System to serve as the bond issuer for the obligated group. UA Hospital is a 1,157-bed facility located in Birmingham, AL and owned by the Board of Trustees of the University of Alabama. The hospital is the primary teaching site of the University of Alabama School of Medicine. University of Alabama Health Services Foundation, P.C. is the faculty physician plan. Callahan Eye Hospital provides specialty ophthalmology services and UAB Health System is a coordinating body for the other entities.

The A1 rating is based on multiple factors including UAB Medicine’s good market share in Birmingham and throughout the state for high acuity services, UAB Medicine’s affiliations and strong strategic ties with the University of Alabama School of Medicine, the University of Alabama at Birmingham, and the University of Alabama System, as well as UAB Medicine’s own strong core financial performance. These strengths are balanced against the need to make large annual transfers to the school of medicine to support research and teaching that have significantly reduced margins in recent years. Organizational and operational changes implemented over the last two years have significantly increased cash flow, net of transfers to the university.

The rating is based on multiple factors including UAB Medicine’s good market share in Birmingham and throughout the state for high acuity services, UAB Medicine’s affiliations and strong strategic ties with the University of Alabama School of Medicine, the University of Alabama at Birmingham, and the University of Alabama System, as well as UAB Medicine’s own strong core financial performance. These strengths are balanced against the need to make large annual transfers to the school of medicine to support research and teaching that have significantly reduced margins in recent years. Organizational and operational changes implemented over the last two years have significantly increased cash flow, net of transfers to the university.

The rating is also supported by a positive outlook. The outlook  reflects expectations that UAB Medicine will maintain stronger cash flow over the next several years.


The District will sell $250,000,000 of general obligation bonds.

Moody’s: “Aa3”

The bonds present one of the stronger tax backed credits funded from an economic area that has seen its share of well documented weak credits and shady credit, accounting, and management practices among other jurisdictions.

The G.O. bonds are secured by the district’s general obligation, unlimited taxing authority. The district, which is coterminous with Miami-Dade County is the fourth largest in the nation by enrollment. At the close of fiscal 2016, there were 467 schools, approximately 356,480 students, and 38,324 full and part time employees (including 20,016 full-time instructional staff). The district’s credit reflects a substantial property tax base that continues to strengthen, narrowed financial position with modest contingency reserves and cash, and an ongoing substantial capital program, funded in part with a sizable $1.2 billion voter-approved general obligation bond authorization.

The credit has been assigned a stable outlook based on the likelihood that the district will maintain its narrow reserve position in the near- to mid-term. The outlook also reflects the improving local economy and property values that are seen as ultimately  helping the district improve its reserve position.


The California Health Facilities Financing Authority is planning the sale of five series of tax exempt bonds and one series of taxable debt.

Fitch: “A+” (stable outlook)  Standard & Poor’s: “AA-” (stable outlook)

Bond proceeds will be used to reimburse Kaiser for approximately $760 million of prior capital projects; provide $2.2 million of liquidity for general corporate purposes including capital projects; refund $517 million of FRN, fixed rate, and put bonds; and refinance $900 million of existing CP debt.

Debt service is an unsecured general obligation of Kaiser Foundation Hospitals (KFH). KFH’s obligations under the loan agreement are guaranteed by Kaiser Foundation Health Plan, Inc. (KFHP), Kaiser Hospital Asset Management, Inc., and Kaiser Health Plan Asset Management, Inc., which along with KFH comprise the Credit Group. Kaiser Permanente is a unique, vertically integrated, closed health maintenance organization (HMO). Based on revenue, Kaiser is by far the largest nonprofit healthcare system in the U.S. Kaiser’s total adjusted revenues in fiscal 2016 (Dec. 31 year end; audited) were $64.1 billion.

Kaiser is diversified and operates in multiple regions across the country, including the west coast (California, Hawaii, Oregon, and Washington), central mountains (Colorado), southeast (Georgia), and mid-Atlantic (Maryland, Virginia, and D.C.). With the February 2017 acquisition of Group Health Cooperative in Washington State, Kaiser is up to 11.7 million members and growing, however, over 70% of Kaiser’s members are located in California.

In fiscal 2016, Kaiser’s adjusted operating margin measured 2.7% and operating EBITDA margin measured 6.5%. Total pro forma debt outstanding is $10.4 billion. Actual MADS is $2.2 billion, but this includes a bullet payment due in 2047. MADS coverage is 8.6x after adjustment for this bullet payment. At fiscal year-end 2016, pensions were 63% funded relative to a PBO of $18.6 billion. This $6.8 billion underfunded status is 30% greater than the value of Kaiser’s pro forma total direct debt outstanding. This the primary negative factor weighing on this credit.


$100,000,000 Taxable Bonds, Series 2017A (Sustainability Bonds)

Standard & Poor’s “AA”

Today’s modern investors are often looking not only for opportunities to earn a return of their investments but to also “do good” with their investments. There have been “socially” responsible mutual funds available for some time. Opportunities to apply the same value driven approach to fixed income investing has often been more limited. Recently, the municipal market has been more of an incubator for these investments through the advent of “green bonds” and their increased acceptance by not only investors but participants like rating agencies.

This month another opportunity to achieve social investment goals is scheduled to come to market. In a first-ever move of its kind, the Local Initiatives Support Corporation (LISC) is issuing $100 million in general obligation bonds to help accelerate its work around economic opportunity and drive investment capital into distressed urban and rural communities across the country. LISC is a national nonprofit and one of the nation’s largest community development intermediaries, having invested more than $17 billion to build up the economic infrastructure of disinvested places.

The offering represents the first time a Community Development Financial Institution (CDFI)—a designation for specialized lenders focused on the needs of low-income people and places—has tapped the bond market for growth capital. LISC is headquartered in New York but is locally focused, operating through 31 urban programs and a rural development effort that touches more than 2,000 counties. It combines corporate, government and philanthropic resources. Since 1980, LISC has invested $17.3 billion to build or rehab 366,000 affordable homes and apartments and develop 61 million square feet of retail, community and educational space. S&P Global Ratings has assigned a ‘AA’ credit rating to the bonds. LISC has posted record results in the last two years, including investing more than $1.3 billion in grants, loans and equity in 2016 to support economic development, affordable housing, health care, community safety, education, family financial stability and employment. It was assigned a stable outlook reflecting LISC’s growing assets base and consistent profitability as well as its high-performing loans.  S&P  cited the organization’s proven capacity to weather economic and real estate crises. S&P said LISC’s loan loss exposure is minimal, finding that it “has more than sufficient equity to cover potential losses.”


A Cook County judge is expected to rule this week on a pair of motions in the district’s ongoing suit against Gov. Bruce Rauner. CPS is seeking injunctive relief to order the state to help fund its existing budget shortfall, while Rauner’s attorneys have sought to dismiss the case entirely. If the district’s motion fails, it could mean nearly three weeks will be trimmed from the end of the current school year – forcing classes to end as early as June 1 instead of the scheduled date of June 20.

The judge will decide whether CPS will be “irreparably harmed” if its motion is not granted and whether pension funding is included in the state’s education funding requirements. CPS contends that despite carrying nearly 20 percent of the state’s student population, CPS receives just 15 percent of its education funding. The state argues that a shortened school year is not yet a certainty and claim CPS can borrow more money to prevent that outcome. On the pension question, CPS is the only school district in Illinois required to help cover its teacher pension cost. This year, its portion of that payment will exceed $720 million.

More debt for operations would clearly be a credit negative option for CPS. As is the case with the State budget, the Governor continues to use the fiscal process in an attempt to achieve policy goals which often do not have popular support. Rauner previously vetoed $215 million in state funding that CPS had counted on in its fiscal year 2017 budget, saying that money was tied to sweeping pension reforms at the state level that haven’t been achieved.

So CPS finds itself in the middle of an ideological and political battle over which it has limited influence. So long as this remains the case it is difficult to see how CPS’ already weak credit standing can be improved.


For the first time in modern memory the New Hampshire House failed to pass a state budget, effectively removing the 400 legislators from the process for now and erasing the work of their Finance Committee over the past several months. The budget developed by Gov. Chris Sununu will now go directly for consideration by the Senate, with none of the House changes on the table when the House and Senate meet in conference in June.

This is the first time since records started being kept in the 1960s that the House failed to adopt the budget proposed by its Finance Committee. As in the U.S. Congress, a 32 member Freedom Caucus is credited with blocking House action. Members of the Freedom Caucus wanted growth in state spending held closer to the rate of inflation, somewhere between 3 and 4.5 percent. The budget will eventually come back to the House after the Senate version of a revenue and spending bill clears a Senate-House committee of conference in June.  Other stumbling blocks included the views of  the majority of Democrats, unhappy with the level of funding for drug and alcohol abuse, the absence of full-day kindergarten and changes in benefits for retired state employees (among other things), voted “no.”

Freedom Caucus leaders wanted up to $200 million in additional cuts but offered no specific recommendations except to eliminate a plan to send $50 million to cities and towns over the next two years for property-tax relief.


Citizens Property Insurance Corporation it announced recently that will post a net loss for 2016, its first loss in more than a decade, as water loss claims, assignment of benefit (AOB) abuse and litigation costs increasingly impact the company’s bottom line. The Citizens Board of Governors was told Wednesday the state’s insurer of last resort will post a $27.1 million net loss for 2016, its first since 2005. The loss comes despite minimal damage from Hurricane Matthew, the first major hurricane to impact Florida in 11 years. Without significant statutory reforms, Citizens will be forced to pass those higher costs on to its customers in the form of higher rates for the foreseeable future, said Citizens Board of Governors Chairman Chris Gardner.

“Every year, we rely on standardized, accepted actuarial principles to set our rates,” Gardner said “Last year, the same principles that provided rate decreases to our customers in recent years translated into hikes for 84 percent of our policyholders. Without legislative changes, that trend will continue.” The percentage of non weather-related water claims – burst pipes, sudden dishwasher leaks, etc. – that move to litigation has skyrocketed. Each litigated claim raises the average claim cost by $20,000 or more. These costs must be passed on to Citizens policyholders.

Another factor driving rate increases is assignment of benefits, in which policyholders sign over policy rights to a third party, such as a repair company, who then controls their claim and deals directly with Citizens. These contractors assume all the benefits afforded the policyholders but bear few of the responsibilities, including cooperating with Citizens adjusters and reporting losses before repairs are made. The Office of Insurance Regulation has indicated that private insurance companies are facing similar trends.

Citizens is supporting bills which the Florida Legislature currently is considering that address the AOB issue as part of the 2017 Legislative Session. These include SB 1038 and HB 1421, which would bolster consumer protections and clarify attorney fee provisions. The 2017 Legislative Session ends May 5, 2017.


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.

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