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MINNEAPOLIS, MN, May 10, 2010 /24-7PressRelease/ -- MuniMarket Pulse recently posted an interview with Natalie Cohen, founder of National Municipal Research, Inc., in which she discusses rating agency upgrades, constraints on municipal bankruptcy, and whether investors should be worried by the negative headlines surrounding the municipal market.
Ms. Cohen points out that the municipal market is not homogeneous and that chilling headlines about imminent collapse can be misleading. She reminds investors that due to different state statutes, credits can vary significantly even within the same sector such as land development deals: "...[I]n Texas the developers are required to pre-finance the infrastructure and then when enough tax base has grown-up to support tax-exempt debt, they have to get permission from the state agency overseeing them to actually issue tax-exempt bonds. And there are some constraints that are put in place for when they do issue debt. Other states don't necessarily have those constraints. That's why in Florida you're seeing a lot more defaults on community development districts today than you're seeing in Texas."
When asked if she believes that there will be an increase in municipal bond defaults, Ms. Cohen said: "...[T]here are probably going to be more defaults in the municipal market but certainly far, far lower than what you have seen or will see in the corporate markets." And she believes that the defaults will stay primarily in high yield bonds, which are inherently riskier and historically where most municipal defaults occur.
Ms. Cohen also reminds us that Chapter 9 bankruptcy is a measure of last resort for troubled municipalities, "It's not that easy and it doesn't necessarily get the municipality that much compared to Chapter 11 which is the bankruptcy code for corporations. To file bankruptcy today, there has to be a specific statute at the state level authorizing a municipality to file, and there are only about 24 states that actually authorize a filing." A major deterrent to a municipality filing for bankruptcy is that the municipality will lose its ability to borrow in the municipal market.
Although the rating agencies are in the process of recalibrating municipal bonds to the global scale, Ms. Cohen warns that the recalibration will result in a loss of "granularity" within the broad rating categories. She reinforces that: "...investors do need to do their homework." She mentions several places that investors can get free, helpful information, including going to the resources listed on her website www.nationalmunicipal.com.
For more information about MuniMarket Pulse or its sister podcasts CapitalMarket Pulse and MMA MuniCast, please visit http://podcast.derivactiv.com/. A complete audio interview and transcript can also be found at: http://podcast.derivactiv.com/.
About National Municipal Research, Inc.
Founded by Natalie Cohen, National Municipal Research, Inc, is a New York City-based consulting and research company focused on U.S. State and local government finance. National Municipal Research provides independent analysis and advice on municipal credits, training for small advisory firms, municipal default studies, and risk management. The firm also has a blog called thepublicpurse.com. Ms. Cohen has more than 20 years of experience in public finance through her previous position as a Managing Director at Financial Security Assurance (FSA), a bond insurance company, and positions at American Capital Access (ACA) and Enhance Reinsurance/Asset Guaranty (now Radian). She also worked at a rating agency and in municipal government.
About MuniMarket Pulse
Since its inception in 2007, MuniMarket Pulse has become the most popular municipal bond industry podcast available on the Internet. MuniMarket Pulse invites opinion leaders from the ranks of economists, investment bankers, issuers, bond lawyers, portfolio managers, rating agencies and academics to comment on what is happening in the municipal bond industry. These 12 to 18 minute interviews provide insightful and timely looks into what leaders in the industry are doing and seeing. Listeners can download a podcast here: http://podcast.derivactiv.com/ or at itunes.com.
About DerivActiv, LLC
DerivActiv, LLC, the primary sponsor of MuniMarket Pulse, is a leading provider of web-based derivative valuation and monitoring services, serving financial institutions, corporations, non-profits, and municipalities. DerivActiv provides daily valuations of financial products, including equity, currency and fixed income securities derivatives as well as a number of alternative investments. DerivActiv is used for FAS 133 and 161, Topic 820 (FAS 157) and GASB 53 compliance in financial statements, board and finance committee reports, and as an internal risk management tool. For more information call 1-866-200-9012, or visit the company's website at: www.DerivActiv.com.
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