Bloomberg: 36 Senior Living Muni Debt Issues Fell Into Default Last Year

Three-dozen municipal debt issues for senior living communities fell into default in 2020, and five more borrowers have failed to make payments this year.

That’s according to an analysis published last week by Bloomberg. A previous analysis, done by Municipal Market Analytics in Aug. 2020, showed 23 retirement communities had reported first-time defaults on municipal bonds as of that date. The previous high was 22 defaults in a single year, recorded in 2016.

https://seniorhousingnews.com/2021/02/08/bloomberg-36-senior-living-muni-debt-issues-fell-into-default-last-year/

Record Muni-Bond Sales Surge Fueled by Borrowing for Budget Gaps

As states and cities braced for pandemic-related shutdowns to batter tax collections, many turned to the municipal-bond market to soften the hit, contributing to a record-setting surge in debt sales last year.

According to an analysis by Municipal Market Analytics, at least one quarter of state and local government debt sales over $100 million included some element of deficit financing in the second half of 2020.

https://www.bloomberg.com/news/articles/2021-02-03/record-muni-bond-sales-surge-fueled-by-borrowing-for-budget-gaps

State and Local Governments Relied on Debt for Budgetary Help In 2020

Matt Fabian is a partner and Lisa Washburn is chief credit officer and managing director with Municipal Market Analytics (MMA), a research and consulting firm that specializes in the U.S. municipal bond market. Founded in 1995, the company—which has worked with The Pew Charitable Trusts to support Pew’s research on state fiscal health—helps investment firms, banks, and financial advisers navigate the nearly $4 trillion market. This interview with Fabian and Washburn has been edited for clarity and length.

https://www.pewtrusts.org/en/research-and-analysis/articles/2021/01/28/state-and-local-governments-relied-on-debt-for-budgetary-help-in-2020

IShares Muni Bond ETF hits 10-month high amid strong tax-free demand

CHICAGO, Jan 25 (Reuters) - The iShares National Muni Bond exchange-traded fund (ETF) rose on Monday to its highest level since March 2020 as heavy demand for tax-free debt sold by U.S. states, cities, schools and other issuers outstrips sluggish supply.

The largest muni ETF eclipsed its August high to close up 0.21% at 117.34 on Monday. The last time it was at this level was March 9, when it reached 118.15 in intraday trading before plunging as low as 100.03 on March 19 as fears of the economic fallout from the burgeoning coronavirus pandemic caused a selling frenzy in the municipal bond market.

The muni market stabilized after the Federal Reserve stepped in with emergency measures to backstop the market.

"The demand to buy muni bonds is absolutely swamping the supply of them," said Matt Fabian, a partner at Municipal Market Analytics.

The need by investors to reinvest cash from principal and interest payments on existing bonds, a likely rise in taxes, and expectations that the ongoing pandemic will depress debt issuance for new projects are fueling demand for tax-exempt munis and muni ETFs, he said.

https://finance.yahoo.com/news/ishares-muni-bond-etf-hits-215441531.html

It's Chapter 22, and more restructuring, for a Chicago-area senior home

The senior living sector saw 29 first-time defaults in 2020, up from 12 in 2019, 13 in 2018 and 10 in 2017 and about $2.3 billion of senior living sector bonds remain default-impaired, according to data from Municipal Market Analytics.

“That's a function of the pandemic and how horribly it has impacted” the sector, said MMA partner Matt Fabian.

The sector is prone to repeat bankruptcies, especially when, as appears to be the case for Park Place, “the borrower was being too optimistic” in the first one, Fabian said.

https://eresearch.fidelity.com/eresearch/markets_sectors/news/story.jhtml?storyid=202101051410SM______BNDBUYER_00000176-d39d-d92a-af7e-f3fd82040001_110.1

Heading Into 2021, State and Local Budget Gloom Lingers

At the local level, it could be well into 2021 or later before the damage the virus has caused to budgets becomes clear. There are also questions about the lasting marks for some local economies—for instance, if downtown offices will lose tenants if remote work continues or if businesses like restaurants and venues, hobbled by the pandemic, will be able to rebound. 

“We don’t even know how bad things are at the local level,” said Matt Fabian, a partner at Municipal Market Analytics. He noted that local government audits to put this year’s financial strain into perspective generally have not been released yet.

But there are signs that localities are under financial pressure. Fabian said he expects heavy activity into 2021 with local deficit financing and transactions known as “scoop and toss”—an often frowned upon refinancing practice. Near-term deficit borrowing could mean some localities end up extending their fiscal pain out two or three years.

https://www.route-fifty.com/finance/2020/12/state-local-government-budgets-coronavirus/171073/

MTA Maxed Out Its Fed Credit Line. So Now What?

Absent a huge injection of federal funds, the MTA’s options are limited. The agency had more than $45.5 billion of debt as of Nov. 4, even before last week’s borrowing from the Fed’s facility, and its forecast is for a $16.2 billion deficit through 2024. As I wrote in June, the MTA is legally barred from filing for bankruptcy, and the state has pledged not to change the law as long as any transportation revenue bonds are outstanding.

For those who might be wondering, it’s also almost certainly not possible for the MTA to simply walk away from its $3.35 billion in notes sold to the MLF and have the Fed and Treasury foot the bill without triggering a cascading effect on its entire debt structure, according to Matt Fabian at Municipal Market Analytics. As Richard Ravitch, a former MTA chairman, told me in September, the agency is entirely at the mercy of Washington lawmakers to strike a fiscal aid deal.

https://www.bnnbloomberg.ca/mta-maxed-out-its-fed-credit-line-so-now-what-1.1536126

Rent-A-Muni Issuer Scored Market Access for Bond Now at 11 Cents

This has pushed up the number of defaults even in the municipal-bond market, a haven marketed overwhelmingly toward Americans seeking safe and steady returns. There have been 70 so far this year, the most since 2012, according to Municipal Market Analytics.

https://www.bloombergquint.com/business/rent-a-muni-issuer-scored-market-access-for-bond-now-at-11-cents

New Jersey’s American Dream Mall is still waiting to fully open

When the mall reopened for business Oct. 1, Lisa Washburn, an analyst for Municipal Market Analytics, took a research trip to see what the first back-to-business day looked like. The crowds were sparse, she said, and many stores had more workers than customers. (She bought $14 worth of gummy bears at the IT’SUGAR candy store.)

The development sits on state land and was able to obtain tax-free debt financing through a series of bonds that could carry risks to investors.

Washburn said there was very little transparency into the mall’s finances for bond investors to look at so it was difficult to obtain an accurate picture of its situation.

“The disclosure is very poor,” she said.

https://www.moneycontrol.com/news/world/new-jerseys-american-dream-mall-is-still-waiting-to-fully-open-6162311.html

Instant View: Mnuchin Asks Fed to Return Money for Emergency Lending

"Investors have banked on the MLF (Municipal Liquidity Facility) being a reliable, emergency lender to our (municipal bond) market’s core borrowers. It has taken the idea of a payment default or catastrophic budget problem off the table. Without the MLF, the market won’t collapse, but it will lack some resilience if its tested by a selloff or more pronounced credit fears."

https://money.usnews.com/investing/news/articles/2020-11-19/instant-view-mnuchin-asks-fed-to-return-money-for-emergency-lending

US states face biggest cash crisis since the Great Depression

Over the past six months, there have been 51 first-time bond payment defaults, according to Municipal Market Analytics data. It’s the highest level over that time frame since 2012, when a string of borrowers still reeling from the last recession ran out of money to pay their debts.

While none of the recent defaults have involved state credits, some local governments are facing repayment strains. The airport authority of Rock Island County, Ill., for example, disclosed in August that it hasn’t been able to collect enough in airline ticket fees to maintain the level of cash it promised bondholders it would set aside. The authority filled in the gap with other funds, such as parking lot revenues, and may consider delaying capital projects, its executive director said.

https://www.foxbusiness.com/markets/us-states-face-biggest-cash-crisis-since-the-great-depression

Analysis: Empty dorms put squeeze on colleges to bail out billions in debt

Nine student housing projects have become impaired in 2020, the most since 2009, according to Municipal Market Analytics, which tracks actions by municipal borrowers like defaults, reserve withdrawals and technical defaults.

https://www.crainscleveland.com/education/analysis-empty-dorms-put-squeeze-colleges-bail-out-billions-debt

Municipal Bond Market Continues to Face Risks

Looking ahead, some analysts even predicted that the muni market could suffer from downgrades. Prices across most of the market remain at or near pre-pandemic highs even as borrowers’ finances have grown weaker, the Wall Street Journal reports. Moody’s Investors Service already lowered its outlook to negative on all muni sectors except for housing-finance agencies and water, sewer, and public power.

“It’s amazing that we’ve sustained six months of being shut down to some degree with very minimal rating actions,” Lisa Washburn, a managing director at Municipal Market Analytics, told the WSJ.

https://www.etftrends.com/municipal-bond-market-continues-to-face-risks/

Threat of coronavirus-driven mass evictions weighs on economy, budgets

Though not a common site of evictions, senior housing bears the most risk in terms of default on bond payments.

A record 23 retirement communities have reported first-time payment defaults on municipal bonds in 2020, according to Municipal Market Analytics.

Since 2009, the retirement sector has never before posted more than 22 defaults in a given calendar year, according to MMA. The previous high of 22 came in 2016.

In addition to having the most first-time payment defaults, the sector also has had the most emergency draws (13) on contingent security provisions such as reserve funds and bond insurance to avoid default.

https://eresearch.fidelity.com/eresearch/markets_sectors/news/story.jhtml?storyid=202008311231SM______BNDBUYER_00000174-4155-d64e-a1f6-e1f7d9510001_110.1

Junk-Muni Boom Sets Up Historic Distress For Billions Of Debt

This year, more than 50 municipal-bond issues worth $5 billion have defaulted, the most since 2011, according to Municipal Market Analytics, an independent research firm. Nearly two dozen more have drawn on reserve funds since the start of the year to cover debt payments when revenue fell short, a potential sign of more stress to come, according to data compiled by Bloomberg.

“They’re really just starting,” said Lisa Washburn, chief credit officer at Municipal Market Analytics, which tracks municipal-bond defaults. “It was just more than the deals could handle.”

https://www.fa-mag.com/news/junk-muni-boom-sets-up-historic-distress-for-billions-of-debt-57491.html

Wave of Deficit Borrowing Coming From States Hit by Downturn

While most states began the fiscal year on July 1 with full-year budgets in place, coronavirus infections have accelerated in Florida, Texas, California and Arizona since mid-June, prompting renewed lockdowns and weighing on an economic recovery. Uncertainty over tax collections and spending on government services means states will likely need to meet in special sessions to revise their budgets, according to Municipal Market Analytics.

“The interesting stuff and the non-recurring stuff tends to happen in the mid-year sessions,” said Matt Fabian, a managing director at Municipal Market Analytics on a Thursday webinar.

While borrowing to fund operations is a negative sign to bond-rating analysts and investors, they may be more forgiving with states and local governments facing the biggest fiscal crisis since the Great Depression.

https://www.bnnbloomberg.ca/wave-of-deficit-borrowing-coming-from-states-hit-by-downturn-1.1467118

Muni Market Niche Faces Biggest Test With Sales Taxes Crumbling

Matt Fabian, an analyst for Municipal Market Analytics, said the sales-tax bonds were designed to be insulated from the state and city budgets, with the revenue behind them typically well above what’s needed to cover the debt payments.“But sales tax bonds weren’t built with the pandemic in mind,” Fabian said. “You can’t have sales transactions go down 80% for months without problems.”The risk hasn’t yet had a big effect on the price of the securities, which have rebounded along with the broader market from the March crash triggered by the first wave of shutdowns.

https://www.bloomberg.com/news/articles/2020-07-15/muni-market-corner-faces-biggest-test-with-sales-taxes-crumbling

Junk Munis See Best Run Since 2009 With Pandemic Panic a Memory

While the economic slowdown has left states and cities contending with massive budget shortfalls, the market is factoring in little risk, driving yields back to the lowest in more than six decades. That’s in part because governments have broad latitude to raise taxes and cut spending, minimizing the odds of default.

But there are signs of mounting distress in the riskiest corner of the municipal market, where speculative projects like nursing homes, factories and tourist attractions are often financed. This year, at least 104 borrowers have skipped debt payments, violated financial clauses in their contracts or drawn on emergency funds to cover what they owe, the most since 2012, according to Municipal Market Analytics.

Yet the $4 billion of bonds that have defaulted still represent a small fraction of the $3.9 trillion municipal market, underscoring the extent to which it acts as a haven during times of economic stress.

https://www.bnnbloomberg.ca/junk-munis-see-best-run-since-2009-with-pandemic-panic-a-memory-1.1459952

Coronavirus Surge Strains Municipal Bond Market, but Investors Still Pile In

Ten municipal borrowers defaulted for the first time in May and another 10 in June, the highest for those months since 2012, when borrowers were still absorbing hits from the 2008 financial crisis, according to Municipal Market Analytics data.

Many municipal borrowers are being crushed by the massive falloff in the collection of sales, income and hotel taxes, airport fees and other revenues. Even some investment-grade issuers are showing signs of serious strain in their abilities to pay future debts.

https://www.marketscreener.com/BARCLAYS-PLC-9583556/news/Coronavirus-Surge-Strains-Municipal-Bond-Market-but-Investors-Still-Pile-In-30860694/

Municipal Bond Insurance Industry Busier Than Ever After Decade-Long Slump

The insurers’ rising market share has come amid a steady increase in the volume of new bonds being offered, suggesting demand is both “real and distributed,” wrote Matt Fabian and Lisa Washburn of Municipal Market Analytics in a note to clients. MMA says that any new issue penetration above 6% represents a “material change” in investor behavior.

https://www.insurancejournal.com/news/national/2020/06/26/573599.htm