Bankruptcy & Default

Moody's Municipal Bond Defaults and Recovery Study 1970-2011 (3/7/12)

Moody's expects a small but growing number of issuers to default on their debt, according to this new study.


$10-20 Billion or Hundreds of Billions? (4/11/2011)

Many have voiced their opinions on why “hundreds of billions” of defaults in municipal securities within the year is an inaccurate reflection of the market. Promoting outlandish default predictions does a disservice to the investing public, as well as to the issuers, rating agencies, insurers, credit analysts, portfolio managers, and other market participants who work diligently to provide their respective services.

We analyzed the numbers to determine what’s really at risk, using a more pragmatic approach. While bankruptcy and default statistics are important, the ultimate recovery rate to the investor is what’s really at stake, and where the focus should lie. We have concluded that investors may suffer unrecoverable losses in the range of $10-20 billion over the next ten years….


Is Municipal Bankruptcy an Option by Louise T. Gantress (12/6/2010)

Should an investor expect bankruptcies to swamp the municipal bond market? How would that differ from defaults? Will it be the Great Recession, or political activism to limit government and reduce taxes, that might bring about bankruptcy or default, or both? Read more about the technicalities of defaults, bankruptcy eligibility requirements, credit enhancement, and enhanced due diligence resources available via EMMA as of December 1st...

Louise Gantress is a contributor to Muni Market Update. The opinions expressed are her own.


States are Addressing Budget Shortfalls (9/20/2010)

The Center on Budget and Policy Priorities reports that at least 46 states and the District of Columbia have made necessary spending cuts to address budget shortfalls. Reductions fall into five major categories — reductions in state workforce (43 states and DC), higher education (43 states), K-12 and early education (33 states and DC), public health care (31 states), and services to the elderly and disabled (29 states and DC). The chart shows in how many of the five categories each state has made cuts...


Las Vegas Monorail — Betting Against the House by Larry Levitz (7/19/2010)

Many commentators and analysts are talking about the “muni-bubble,” the coming crisis in municipal bonds which will rival the technology and housing bubbles of recent years. While investors should be concerned about municipal credit generally, given the stress of the current recession, market fundamentals do not suggest an imminent collapse of the en-tire municipal bond market.

However, investors are worrying about whether some recent market defaults are a harbinger of things to come. One high profile municipal default is the $450 million Las Vegas Monorail Project Revenue Bonds. Issued in 2000, the bonds financed the expansion of the Las Vegas Monorail serving a number of casinos and the convention center along the Las Vegas Strip ...

Larry Levitz is a contributor to Muni Market Update. The opinions expressed are his own.


Harrisburg: The Incinerator that Burned a City by Larry Levitz (7/5/2010)

Municipal bonds are relatively safe investments, as evidenced by the modest default rates experienced historically. Those bonds that do default are usually project-type financings where for any number of reasons − including construction problems, operational issues, and overoptimistic demand projections − the projects failed to per-form as expected. Recent  defaults of this nature include the Las Vegas Monorail deal; Jefferson County, Alabama Sewer bonds; and hundreds of land-secured bonds in Florida. (See “Diamonds in the Rough” by Larry Levitz for an update on land-secured bonds and to obtain resources for performing meaningful due diligence of these transactions.)

The default of the City of Harrisburg, Pennsylvania on its GO guarantee of the Harrisburg Authority (“Authority”) Resource Recovery Facility (“RRF”) bonds stands out as an example of an otherwise creditworthy city unwisely attaching its GO pledge to a risky project financing. The city’s GO pledge was required as credit support so the Authority could sell its bonds. City officials, particularly the then-mayor, believed that the plant could sell the steam and electricity it produced for a profit. As a result, they let project costs to spiral out of control...

Larry Levitz is a contributor to Muni Market Update. The opinions expressed are his own.


Diamonds in the Rough by Larry Levitz (3/15/2010)

The recent upswing in municipal bond defaults is al-most entirely attributable to land-secured bonds; victims of the housing crisis. According to Richard Lehmann, who publishes the Florida Community Development District Report at, a website that tracks de-faulted community development districts in Florida, land-secured bond defaults have totaled $3.9 billion since December 2008. Over 98% of those defaults occurred in Florida. Despite the bad news, the credit quality of these bonds can vary widely between regions, states, and even neighborhoods, such that investors willing to put in the research may find some diamonds in the rough...

Larry Levitz is a contributor to Muni Market Update. The opinions expressed are his own.

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