Tuesday

June 14, 2016

www.bloombergbriefs.com

 

Bloomberg AAA Benchmark Yields

DESCRIPTION CURRENT PREVIOUS NET CHANGE

BVAL Muni Benchmark 1T 0.55 0.55 0

BVAL Muni Benchmark 2T 0.67 0.67 -0.01

BVAL Muni Benchmark 3T 0.80 0.80 0

BVAL Muni Benchmark 4T 0.92 0.93 -0.01

BVAL Muni Benchmark 5T 1.00 1.02 -0.01

BVAL Muni Benchmark 6T 1.12 1.13 -0.01

BVAL Muni Benchmark 7T 1.22 1.23 -0.01

BVAL Muni Benchmark 8T 1.30 1.31 -0.01

BVAL Muni Benchmark 9T 1.40 1.41 -0.01

BVAL Muni Benchmark 10T 1.50 1.51 -0.01

BVAL Muni Benchmark 20T 2.06 2.07 0

BVAL Muni Benchmark 30T 2.33 2.33 0Source:    GBY<GO>, GC I493 <GO>

Puerto Rico Debt Law Rejected; Congress in ChargeBY GREG STOHR AND MICHELLE KASKE, BLOOMBERG NEWS

The U.S. Supreme Court rejected Puerto Rico’s bid to let its public utilities restructure bonds over the objection of creditors, leaving the island’s $70 billion debt crisis squarely in the hands of Congress.

Siding with investors, the court ruled 5-2 yesterday that Puerto Rico’s measure was barred under federal bankruptcy law. The island’s debt gained after the decision, with some utility bonds jumping more than 3 cents on the dollar. Still, most of Puerto Rico’s debt is still trading at levels that signal further defaults are expected.

A decade-long economic slump has driven Puerto Rico to the brink of bankruptcy. The island has missed several payments this year and faces its biggest hurdle yet on July 1 when $2 billion in debt comes due. U.S. lawmakers are preparing to place its finances under direct federal oversight, and the Supreme Court ruling confirms that all roads to a debt settlement now lead via Washington.

The Recovery Act, as the local law was known, would have directly affected more than $20 billion in utility debt and given the commonwealth more leverage in handling the rest of its obligations.

It was challenged at the Supreme Court by investors, including BlueMountain Capital Management LLC and OppenheimerFunds Inc., who together hold more than $2 billion in debt issued by the Puerto Rico Electric Power Authority. That utility reached a settlement with creditors last year and is now in talks for a similar agreement to avert default on $420 million it’s due to pay on July 1.

The Supreme Court case focused on federal law that bars Puerto Rico and the District of Columbia from doing what U.S. states are entitled to do: authorize bankruptcy filings by public utilities and other municipalities. Puerto Rico sought to get around that provision in 2014 by passing a local law that offered an option similar to bankruptcy.

Writing for the Supreme Court majority, Justice said Congress Clarence Thomasdidn't authorize Puerto Rico to take that step. “Our constitutional structure does not permit this court to rewrite the statute that Congress has enacted,” Thomas wrote.

Justices and dissented. They said Puerto Sonia Sotomayor Ruth Bader GinsburgRico was right to argue that Congress didn’t mean to leave the island without access to either federal or local restructuring law.

STATE YIELD SPREAD TO AAA CHANGE

CA 1.75 23 +0.02

FL 1.70 19 +0.02

IL 3.34 183 +0.02

NY 1.60 9 +0.02

PA 2.23 71 +0.03

TX 1.75 24 +0.02

MUNICIPALITY AMOUNT

Memphis TN $68 million GO

Gilbert AZ $110 million Rev

Scranton Redevelopment PA $40 million Rev

Michigan $188 million GO

Chino Basin Desalter CA $68 million RevSource: Bloomberg CDRA <GO>

AMOUNT OUTSTANDING

($MLNS)

MATURING NEXT 30

DAYS ($MLNS)

ANNOUNCED CALLS NEXT 30 DAYS ($MLNS)

3,582,781 34,291 14,308Source: MBM<GO>

BENCHMARK STATES 10-YEAR

PRIMARY FIXED RATE

30-Day Supply Fixed: $9.9 Bln (LT)30-Day Supply Fixed: $1.6 Bln (ST)Sold YTD Fixed: $141.7 Bln (Neg LT)Sold YTD Fixed: $46.6 Bln (Comp LT)Sold YTD Fixed: $11.3 Bln (ST)

SECONDARY MARKET

MSRB: $12.8 BlnPICK: $14.4 Bln

VARIABLE RATE

SIFMA Muni Swap Rate: 0.39%Bloomberg Weekly AAA Rate: 0.394% Bloomberg Weekly AA Rate: 0.41% Daily Reset Inventory: $1.9 Bln  Weekly Reset Inventory: $2.5 Bln  

IN THE PIPELINE

SIZE OF MARKET

CREDIT CLOSE-UP

June 14, 2016 Bloomberg Brief Municipal Market 2

CREDIT CLOSE-UPPuerto Rico Loss Is Bondholders’ Gain With Congress’s Path Clear    BY BRIAN CHAPPATTA AND MICHELLE KASKE, BLOOMBERG NEWS

Things are starting to look up for Puerto Rico’s bondholders after the U.S. Supreme Court struck down an island law that would have allowed some agencies to turn to court to restructure their debt.

The U.S. territory’s securities climbed, with some bonds backed by sales-tax revenue reaching their highest since 2014, as the decision yesterday eliminated a risk that Puerto Rican authorities would treat bondholders worse in a debt workout than a federal oversight board. Congress is advancing legislation to empower such a panel to help chart a path out of the island’s fiscal crisis.

“Investors will doubtlessly fair better in a federally-directed restructuring program,” Height Securities analyst

said in a report. “The Daniel Hanson court’s decision essentially holds that Puerto Rico has no authority under U.S. law to take action outside the ultimate source of authority — the U.S. Congress.”

The relationship between investors and Governor has Alejandro Garcia Padillabecome increasingly adversarial since his administration began defaulting on some securities in August, saying it doesn’t have enough money to repay its $70 billion debt without shutting off services crucial to its 3.5 million residents. The court decision yesterday eliminated a way for Puerto Rico to escape from some debt on its own.

Puerto Rico enacted the Recovery Act in 2014 to give bankruptcy-like powers to some agencies that, unlike many U.S. local governments, can’t file for court protection from creditors. If allowed to stand, the law would have affected more than $20 billion in debt and strengthened the commonwealth’s hand in negotiations aimed at persuading investors to accept less than they are owed.

The court ruled 5-2 in favor of bondholders who argued that the measure was barred under the federal bankruptcy law, which doesn’t apply to the territory. The decision upheld a lower court ruling against the Puerto Rico law.

"Our constitutional structure does not permit this court to rewrite the statute that

Congress has enacted," Justice Clarence wrote for the majority. Justices Thomas

and Sonia Sotomayor Ruth Bader dissented, saying that Ginsburg

Congress didn’t intend to leave the island without access to either a federal or local restructuring law.

The decision leaves Puerto Rico largely dependent on Congress, which is advancing legislation to extricate the

"The court’s decision essentially holds that Puerto Rico has no authority under U.S.

law to take action outside the ultimate

source of authority — the U.S. Congress."

— DANIEL HANSON, HEIGHT SECURITIES

island from its difficulties. The U.S. House on Thursday passed a bill, called Promesa, that would establish a seven-member board to manage a restructuring of the commonwealth’s debt and oversee its finances. The panel could ask a judge to order a forced restructuring if the government can’t reach a deal with bondholders, ensure that the budget is balanced and recommend sales of assets to produce cash.

The Senate plans to take up the measure in the next several weeks, before July 1, when Puerto Rico owes $2 billion on a variety of securities.

Promesa is likely a “much better outcome” for creditors than the Recovery Act, according to an Charles Tyson,analyst at Keefe Bruyette & Woods who follows municipal-bond insurers. The local law had “some provisions even more draconian” than those in Chapter 9 bankruptcy, according to at Mark Palmer BTIG LLC.

The outcome of the crisis, which has been building over the past year, is far from certain and bondholders are still unlikely to recoup the full value of their investments. Garcia Padilla has said the government can’t afford to cover all that it owes next month, which may mark its first default on general-obligation bonds. In December, holders of Puerto Rico’s electric utility debt agreed to accept a 15 percent loss on their investments, though aspects of that deal are still in flux.

The verdict was welcome news to investors because reinstating the law would have injected fresh uncertainty just as Congress is moving to address the crisis. The most-traded fixed-rate senior sales-tax bonds, known as Cofinas, climbed to 64 cents on the dollar yesterday, after last changing hands at 55 cents in April. Zero-coupon Cofina bonds due in 2047 traded on the highest volume since February at 13.3 cents, the highest since June 2013.

Securities due in 2038 from the Puerto Rico Aqueduct and Sewer Authority, which would have been included in the local Recovery Act, climbed from an average of 68.8 cents Friday to as much as 72.3 cents, the highest price since September.

Puerto Rico’s benchmark general obligations, which have an 8 percent coupon and are due in 2035, were little changed after the ruling, holding near the highest price since May 24, Bloomberg data show. Three of the five other general-obligation securities with at least $1 million worth of trades increased in price.

While the federal control board could ultimately force creditors to accept a restructuring in court if the parties failed to reach consensus, the Supreme Court's decision makes it less likely for Puerto Rico to use the legal system to reduce its obligations, Hanson said.

“This idea that Puerto Rico’s going to go to court and make some persuasive police-powers argument that gets them out of paying debt seems somewhat less persuasive in the context of the Supreme Court ruling,” Hanson said in an interview.

June 14, 2016 Bloomberg Brief Municipal Market 3

 

DIARY

June 14, 2016 Bloomberg Brief Municipal Market 4

DIARY

 

Prepa Said to Offer Plan to Avert July Default      BY MICHELLE KASKE, BLOOMBERG NEWS

Creditors for Puerto Rico’s main electricity provider are reviewing a proposal from the utility that would help the agency avoid a $420 million bond default on July 1, according to three people with direct knowledge of the plan.

The Puerto Rico Electric Power Authority is in talks with investors owning about 35 percent of the agency’s securities and bond insurance companies to free up cash needed to make the principal and interest payments, according to the people, who asked for anonymity because the talks are private. The transaction would be similar to one reached before a Jan. 1 payment, where creditors agreed to buy new securities that mature in 2019. Terms of the July deal are still being worked out, according to two people.

The government-owned utility, called Prepa, reached an agreement in December with hedge funds and mutual funds known as the Ad-Hoc Group and insurers MBIA Inc. and Assured Guaranty Ltd. to restructure $9 billion in debt. The agreement was the first reached between a commonwealth entity and creditors as it seeks to reduce its $70 billion debt burden. The Supreme Court yesterday struck down a Puerto Rico law that would have let its public utilities restructure their debt over the objection of creditors.

Lisa Donahue, Prepa’s chief restructuring officer, has said the utility doesn’t have enough cash to make the July 1 debt payment and pay suppliers and contractors. Jose

, a spokesman in San Juan for Prepa, declined to comment.EchevarriaDan Zacchei, a representative in New York at Sloane & Co. for the Ad-Hoc Group,

declined to comment. , a spokesman for MBIA’s National Public Finance Greg DiamondGuarantee Corp., also declined to comment. , spokeswoman for Ashweeta DuraniAssured Guaranty Ltd., didn’t immediately respond to an e-mail and phone message.

Under the tentative restructuring agreement, bondholders will take a 15 percent loss on their securities for new debt repaid with dedicated revenue that Prepa doesn’t have access to and flows straight to the bond trustee. The island’s energy commission is reviewing a customer surcharge that would repay the restructuring bonds.

Puerto Rico and its agencies, including Prepa, owe $2 billion on July 1. Of that, $805 million is for general-obligation bonds, which Governor has Alejandro Garcia Padillasaid the commonwealth cannot pay.

Members of the ad hoc group include Angelo, Gordon & Co., BlueMountain Capital Management LLC, D.E. Shaw & Co., Knighthead Capital Management LLC,Marathon Asset Management LP, Franklin Advisers Inc., Goldman Sachs Group Inc. and OppenheimerFunds Inc.

Two California companies settled charges they used deceptive practices in trying to win business from five school districts in the first enforcement action by the Securities and Exchange Commission against municipal advisers under anti-fraud provisions of the Dodd-Frank Act.

Without admitting or denying findings in SEC orders, Fresno-based School Business Consulting Inc. and El Segundo-based Keygent LLC and their executives agreed to penalties totaling $200,000 involving solicitation of business from the California school districts, according to an SEC statement.

The SEC’s investigation found that while School Business Consulting was advising the districts about their hiring process for financial professionals, it was retained by Keygent, which was seeking municipal advisory business from the districts, the release said. School Business Consulting shared “confidential information” with Keygent, including questions it would be asked in interviews and details of competitors’ proposals. The districts didn’t know Keygent, which ultimately won the business, had the benefit of the confidential information, the SEC said.

The confidential information “could have given Keygent an improper advantage over other municipal advisers that were candidates for the same business,” said Andrew Ceresney,director of enforcement.

Keygent acknowledged that it was taking responsibility for mistakes it made but said that “Keygent did not ask for this information, nor did we change our proposals or fees based on the information,” according to a statement provided by spokesman . Nathan BallardFirm principals and Anthony Hsieh Chet

also were part of the settlement.WangWilliam Kimball, attorney for School

Business and its president, Terrance , declined to comment. School Bradley

Business also was charged with failing to register as a municipal adviser.

According to the orders, when Bradley solicited School Business’s clients for Keygent, he told the school officials of his relationship with Keygent and recused himself from districts’ interview process.

— Darrell Preston, Bloomberg News

First Muni Advisers Settle SEC Charges  

ACCORDING TO

June 14, 2016 Bloomberg Brief Municipal Market 5

ACCORDING TO

Governor said Chris ChristieDemocratic lawmakers’ $20 billion roadwork-funding proposal, which would more than double New Jersey’s levy on gasoline while phasing out the estate tax, doesn’t go far enough to create “tax fairness.”

The second-term Republican told a group of business leaders in Whippany yesterday that lawmakers “have got work to do” and he will negotiate with them. Majority Democrats in the Senate on Friday offered him a 10-year plan to replenish the transportation trust fund, which runs dry in less than three weeks.

The Senate legislation would raise the 14.5-cents-per-gallon levy by 23 cents, while repealing the estate tax in 2019, establishing an income-tax reduction for charitable contributions and increasing exemptions for retirement income. The offsets to the gasoline-tax increase “are not nearly enough for my taste,” Christie said in his first public comments on details of the proposal.

“This is a discussion we will be having in Trenton over the next three weeks," he said. "I will not sign a gas-tax increase unless it represents tax fairness for the people of New Jersey.”

Christie Pans Plan to Double N.J.’s Fuel Tax

Lawmakers intend to introduce the legislation June 16, Senator Paul Sarlo, a Democrat from Wood-Ridge and sponsor, told reporters at a news conference in Trenton attended by business lobbyists and construction union leaders. Senate President Steve

a Democrat from West Sweeney, Deptford, said that if Christie is displeased, “he should offer up a plan.”

“We’re not playing politics,” said Sweeney, who added that he had the support of three Republican senators. “We’ve put forward a plan that we think is the best that we can do at this time.”

The state’s gasoline tax is the second-lowest in the U.S.; only Alaska pays less.

— Terrence Dopp and Elise Young, Bloomberg

News

New York state’s $178.1 billion retirement system eked out a 0.19 percent return for the year that ended March 31 as stock prices declined, falling far short of what it expects to earn on its investments each year.

The results for the New York State Common Retirement Fund, the nation’s third largest public pension, were the worst since 2009 and lagged the 7

New York’s $178 BillionPension Sees Returns Lag

percent annual returns that it counts on to pay benefits to more than 1 million state and local government workers, retirees and their beneficiaries. The gain compares with a median annual decline of 0.25 percent for U.S. public pensions with assets greater than $5 billion, according to Wilshire Associates Inc.’s Trust Universe Comparison Service.

“Despite weak equity markets, the fund's diversified portfolio and our investment team delivered a positive return,” Comptroller Thomas DiNapoli said in a statement. “We continue to have confidence in our asset allocation for the long term.”

The failure to deliver the expected returns over the long-term can put pressure on governments by requiring them to increase their annual contributions to make up for lost ground. In the five years through March 2015, the fund postedaverage annual gains of 10 percent.

Over New York’s fiscal year, domestic and non-U.S. equities lost 0.54 percent and 8.54 percent respectively, DiNapoli said. Core fixed income returned 1.81 percent, while private equity and real estate returned 9.1 percent and 13.1 percent, respectively. The pension fund paid $10.9 billion in benefits during the fiscal year.

— Martin Z. Braun, Bloomberg News

 

RESULTS OF SALES

June 14, 2016 Bloomberg Brief Municipal Market 6

Long-Term Bond Sales Results

SELLING DATE

ISSUE STATE RATING TAXAMT

($Mlns)1 YEAR 5 YEAR 10 YEAR 20 YEAR STATUS TYPE

SENIOR MANAGER

ENHANCEMENT

06/13Md Eco Dev Corp   -D

MD //BBB+e N 161.625.000/2.400

5.000/2.840

Repriced NegtJP Morgan Securities Llc

06/13 Hobart Blg Corp-Ref IN /AA+ / N 64.284.000/0.860

5.000/1.380

5.000/2.020

Final NegtCity Securities Corp

ST AID WITHHLDG

06/13Baxter Cnty Hosp Rev -A

AR Baa2e// N 44.935.000/1.330

5.000/2.000

5.000/2.710

Final NegtCrews & Associates Inc

06/1311:00

Menomonee Falls Sd

WI Aa2// N 30.702.000/0.600

5.000/1.100

5.000/1.700

3.000/2.900

Awarded CompCitigroup Global Mkts Inc

06/1311:00

Foxborough MA /AAA/ N 23.362.000/0.580

1.500/1.040

4.000/1.560

3.000/2.700

Awarded CompJanney Montgomery Scott

*Moody's/S&P/Fitch

Most Active Bonds

DESCRIPTION STATE DATED COUPON MATURITY VOLUME PRICED AVERAGE YIELD AVERAGE NO. OF TRADES

Ma Dev Fin Agy-A MA 06/16/16 5.000 10/01/43 81,760,000 115.656 3.202 32

Harris Cnty-A-Ref TX 07/12/16 5.000 08/15/41 46,735,000 122.574 2.460 25

Nyc Hsg Dev Corp-C1A NY 03/24/16 3.450 05/01/50 45,235,000 99.856 3.450 104

Riverside Co-Trans CA 07/01/16 3.000 06/30/17 44,800,000 102.297 0.680 18

Harris Cnty-A-Ref TX 07/12/16 5.000 08/15/47 44,405,000 122.074 2.510 25

Mo Hlth & Edu Facs-C MO 10/31/13 N.A. 01/01/50 44,000,000 107.863 3.083 15

Nyc Hsg Dev Corp-C1A NY 03/24/16 1.375 05/01/20 38,025,000 99.946 1.374 97

Maryland St MD 06/22/16 3.000 06/01/31 37,395,000 103.824 2.467 39

Los Angeles Dept Wtr CA 06/23/16 5.000 07/01/42 36,975,000 122.795 2.321 18

Ma Dev Fin Agy-A MA 06/16/16 4.000 10/01/46 33,370,000 103.558 3.587 20

Golden Tob Sr-A-1 CA 03/14/07 5.125 06/01/47 33,080,000 99.618 5.147 15

Nyc Hsg Dev Corp-E1A NY 06/29/16 1.300 11/01/19 32,010,000 99.946 1.300 67

Nyc Hsg Dev Corp-C1A NY 03/24/16 3.150 11/01/36 31,965,000 99.939 3.150 210

Glendale Elec-Ref CA 05/18/16 5.000 02/01/38 30,900,000 123.142 2.306 22

Nyc Hsg Dev Corp-C-2 NY 03/24/16 N.A. 05/01/50 30,900,000 100.000 1.450 17

Harris Cnty-A-Ref TX 07/12/16 5.000 08/15/32 30,870,000 124.496 2.270 11

Harris Cnty-A-Ref TX 07/12/16 5.000 08/15/22 28,860,000 121.340 1.340 16

Harris Cnty-A-Ref TX 07/12/16 5.000 08/15/24 28,710,000 125.362 1.640 22

Harris Cnty-A-Ref TX 07/12/16 5.000 08/15/36 28,195,000 122.775 2.440 10

Paulding Cnty Hosp-B GA 06/28/12 N.A. 04/01/43 27,900,000 100.000 N.A. 6

Los Angeles Dept Wtr CA 06/23/16 5.000 07/01/45 26,950,000 122.532 2.348 19

Harris Cnty-A-Ref TX 07/12/16 5.000 08/15/23 26,855,000 123.537 1.490 17

Harris Cnty-A-Ref TX 07/12/16 5.000 08/15/25 25,885,000 127.398 1.730 18

RESULTS OF SALES

TRADING

TWEET OF THE DAY BY SIOBHAN WAGNER, BLOOMBERG BRIEF

June 14, 2016 Bloomberg Brief Municipal Market 7

 

Find Muni Data on the Bloomberg Terminal

DATA FREQUENCY ON THE TERMINAL

AAA Benchmark Valuation Daily GC I493 <GO>

Benchmark State Yields Daily MBM <GO>

VRDO Rates, Inventory Daily MBIX <GO>, ALLX BVRD <GO>

Upcoming Sales Daily CDRA <GO>

Volume, MSRB, PICK Daily SPLY <GO>, YTDM <GO>, MSRB <GO>, MBIX <GO>

Results of Sales Daily CDRA <GO>

Most Active Daily MSRB <GO>

Most Searched DES Every Wednesday SECF <GO>

Variable-Rate Calendar Every Thursday CDRV <GO>

Most Traded Borrowers Every Friday MFLO <GO>

Week-Ahead Calendar Every Monday CDRA <GO>

Supply and Demand Every Friday SPLY <GO>, BVMB <GO>

Muni Credit Risk Every Monday MRSK <GO>

TWEET OF THE DAY BY SIOBHAN WAGNER, BLOOMBERG BRIEF

Sotomayor Voices Dissent on Puerto Rico Case

Adam Bonin@adambonin

Sotomayor, J., dissenting, and not happy about the Puerto Rico bankruptcy decision. supremecourt.

https://t.cogov/opinions/15pdf…/lvtHMMQuGwDetails

The U.S. Supreme Court struck down a Puerto Rico law that would have let its public utilities restructure their debt over the objection of creditors. Not all were happy with the 5-2 ruling, attorney pointed Adam Bonin out in a Twitter post. He included a link to Justice 's Sonia Sotomayordissenting opinion: "...the government and people of Puerto Rico should not have to wait for possible congressional action to avert the consequences of unreliable electricity, transportation, and safe water."

 

  

 

 

 

 

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