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Belle Haven in the News.
Best Places to Work in Money Management 2023
Belle Haven Investments
By CARYL ANNE FRANCIA
Headquarters: Rye Brook, N.Y.
AUM: $16.2 billion as of June 30
U.S. employees: 42
Years won: 2018-2023
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The importance of a 'pawsitive' environment at the office
The importance of a 'pawsitive' environment at the office
BPTW winners find ways to integrate pets into work environment
By CARYL ANNE FRANCIA
Having a "ruff" day? Money managers have some "paw-some" ways of relieving stress.
Winners of Pensions & Investment's 2023 Best Places to Work in Money Management program said integrating pet-related initiatives into their environment and culture helps to improve employees wellness.
From offering pet care and insurance to volunteering time to supporting animal shelters, there are several ways money managers support the welfare of furry companions.
And having pets in the office — especially when they're dressed for a holiday celebration — is one way firms are lightening up the mood in a demanding industry.
"There's a mental health component to having your dogs with you, especially after (the COVID-19 pandemic)," said Brie Elliott, head of human resources at Ballentine Partners. "Because we work from home so much, people aren't used to being away from their pets, so being able to bring them is one less stressor to an employee."
Ballentine, which managed $10 billion in assets as of June 30, has been a BPTW winner six times, including in 2023. The Waltham, Mass.-based family office is one of the few firms among BPTW winners that allow employees to bring their furry companions to work.
Dogs have been welcome at Ballentine's New Hampshire offices in Wolfeboro and Rochester since 2016, thanks to a deal negotiated with landlords.
As many as eight friendly well-behaved dogs, big and small, come to work on Thursdays, free to roam the office or hang around their owners' desks, Elliott added. One small dog named George gets annoyed when Elliott's office door is closed, so "he'll pick up his paw and tap on the glass."
Belle Haven Investments started allowing pets in the office during the pandemic. When employee numbers were limited in the firm's office in Rye Brook, N.Y., a suggestion was made to allow dogs in the office to "boost morale," said Nicole Robbins, director of marketing at the firm.
What started off as a monthly perk of having "a little happy dog walking around the office" became a once-a-week deal, usually on Fridays or special occasions such as Halloween.
Many Belle Haven employees have bigger dogs and puppies that may be hard to keep inside the office space for a full day. But Gracie — a small, older well-behaved dog owned by portfolio manager Cara Greeley — tends to be the office's primary furry visitor.
When Greeley brings her dog, one can "immediately hear Gracie's little collar jingling, and everyone perks up," Robbins said. Gracie is commonly found sitting behind the desk of CEO and CIO Matthew Dalton, who is generous with treats and has a water bowl and blanket already set up.
When Gracie isn't in the office, the photo of her in a Victorian outfit hanging in the middle of the trading desk becomes an interesting talking point for visiting clients.
When Belle Haven employees know that a familiar pet-loving client is visiting, Robbins said they "would almost make it a point to have the pet in the office because we know they would like to see that." Belle Haven, which had an AUM of $16.17 billion as of Oct. 31, has been a BPTW winner six times, including in 2023.
At Schroder Investment Management North America, there's an annual "puppy therapy" day that's part of the firm's Mental Health Awareness Month program in May. Employees get 10 minutes each to play with the puppies in the firm's big multipurpose room, said Racheal Hanifan, head of human resources for the Americas region at Schroders. Dog handlers help supervise and feed the puppies.
The idea originated from a bring-your-children-to-work day celebration in 2019; the puppies "appealed not only to the kids but to all of our employees as well," Hanifan said. She had read how petting animals reduces stress, which is something that can "really help with that stress-relieving aspect of mental health."
Schroders had $101.6 billion in assets under management in the North American region as of June 30.
Employees at Shelton Capital Management can bring dogs to the firm's Denver office on Fridays. While working from home during the pandemic, employees created a photo collage of their home office setups, some including dogs, and shared it for their firm's BPTW profile in 2020.
Bringing the pets at work is like bringing "a little piece of home," said Clark Davis, director of marketing at Shelton. And having employees share that piece adds an element to the firm's fun culture.
"For everyone who doesn't have pets at home, it's great because you actually have a little furry friend to be with — because I don't have a dog, and I love dogs," added Bronte Cochran, a digital marketing associate at Shelton. "For those of us who don't have animals, it's really nice that we can add that little thing to share at work. I think it's pretty important that they all just love it when they come in."
Shelton has been a BPTW winner four times, including in 2023. The firm had $4.3 billion in assets under management as of Sept. 30.
Another way firms allow employees to share their pets is through internal communication tools like newsletters and dedicated pet channels in messaging platforms such as Slack.
At Fort Washington Investment Advisors, CEO and President Maribeth Rahe said having pets in the office would be great but the firm does not allow it in an abundance of caution for employees with allergies.
But in its company newsletters, the Cincinnati-based money manager invites employees to talk about their families, including pets. There's plenty of pet-related news, from newly adopted dogs to photos of pets having fun with their owners.
Fort Washington has been a BPTW winner nine times, including in 2023. The firm had $74.3 billion in assets under management as of Sept. 30.
During the pandemic, Hamilton Lane Advisors created a Slack channel to share "pup dates" and other pet photos to alleviate stress from working remotely, said Tia Wilson, a corporate communications and public relations analyst at the firm.
On a grander scale of communication, Hamilton Lane held auditions for employee pets to play a part of the firm's 2023 "Wizard of Oz"-themed presentation of its annual overview report on private markets. Lola, a Shih Tzu-miniature poodle mix, was cast as Toto opposite wizard-playing CEO Mario Giannini in the video portion of the broadcast.
Hamilton Lane, which ranked No. 2 among firms with 500 to 999 employees, has been a BPTW winner since the program's inception in 2012. The firm had $119.2 billion in assets under management and $734.8 billion in assets under supervision as of Sept. 30.
Money managers have been rolling out pet-related benefits to support both emotional wellness and financial wellness of employees.
Among the 123 money managers recognized as BPTW winners in 2023, 17 offer pet insurance, including Ballentine, Schroders and Hamilton Lane.
Ballentine began offering pet insurance in 2017 and now features two plans for cats and dogs. With pets commanding a big role in employees' personal lives, Elliott said they "were looking for ways to protect them, just like they protect their families."
Schroders started offering pet insurance in 2023, Hanifan said. It provides up to $25,000 for cats and dogs and up to $10,000 for exotic pets such as rabbits and reptiles.
Hamilton Lane began offering customizable pet insurance plans in 2021, said Jessica Homa, vice president of global benefits and wellness. The insurance reimburses up to $7,500 for dogs, cats and most exotic animals. Homa said 6% of the company's U.S.-based staff have pet insurance, adding that there was a 15% increase in participation for 2024.
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https://www.pionline.com/best-places-work-money-management/importance-pawsitive-environment-office
Bond Buyers Unfazed by California’s Alarming $68 Billion Deficit
Bond Buyers Unfazed by California’s Alarming $68 Billion Deficit
By Maxwell Adler
December 8, 2023 at 1:14 PM EST
Municipal bond investors seem to have brushed off news that California’s budget has gone from a record surplus recently to its largest deficit ever at $68 billion.
An index of California bonds showed yields trading below those of top-rated debt after the state’s budget adviser said tax revenue had plummeted below what was expected, more than doubling the budget shortfall from a year ago.
That’s because demand for California bonds that wealthy residents use to shield their income from taxes is outweighing concerns about the looming fiscal crisis facing the most populous US state. Put simply, high-tax rates in California are more concerning than the budget hole.
“I don’t think California credit spreads will react to the shortfall,” said Adam Weigold, head of the municipal fixed income team at Manulife Investment Management. “Between sky-high state tax rates, limited supply and overall positive technicals for California paper, I wouldn’t expect any trade-off of California bonds relative to the overall market anytime soon.”
That wasn’t always the case. California used to be one of the worst rated states in the US, with the yield penalty investors demanded on bonds sold by the state and its localities soaring to as much as 170 basis points above top rated bonds in 2009, when the state resorted to IOUs to pay bills. But a series of budget reforms, tax increases and fiscal discipline starting under former Governor Jerry Brown restored some fiscal credibility on Wall Street.
In high-tax states like New York and California, wealthy investors have propped up municipal bond valuations. In November, high absolute yields increased the value of the tax-exemption on municipal bonds to their highest level in 20 years, according to strategists at Bank of America Corp.
“I really don’t see California spreads getting meaningfully wider,” said Mikhail Foux, head of municipal strategy at Barclays Plc. “I am a believer in market technicals, and at current levels the market tone is strong, and technicals are supportive.”
Still, the $68 billion projected shortfall is a stark reversal for California, which enjoyed remarkable surpluses in the wake of the pandemic as the stock market rallied on the back of massive stimulus from the federal government. That delivered windfalls to wealthy residents who account for a large chunk of California’s income tax-revenue.
California is rated AA by Fitch Ratings, AA- by S&P Global Ratings and Aa2 by Moody’s Investors Service. The state has about $70.3 billion of general obligation bonds outstanding, with more authorized but not yet issued, according to the state treasurer’s office.
California has long been prone to booms and crippling deficits because of the sensitivity of its revenue to financial markets. High interest rates have hit top earners in the state hard, echoing challenges faced during historical market downturns.
The state’s Legislative Analyst’s Office said in a report released Thursday that tax receipts fell $26 billion short of earlier estimates during the last fiscal year and forecast a cumulative $155 billion deficit through 2028.
“The LAO report is a warning that revenues have slowed and that the economy is slowing, but it’s really important to remember that if you go back to 2019, their general fund budget was $144 billion, said Karen Krop, senior director of US public finance at Fitch. “In 2024, even with lower anticipated revenues, their revenues were estimated at $208 billion.”
Governor Gavin Newsom in January will present his budget proposal for the upcoming fiscal year that begins in July 2024. He and state legislators reached a $311 billion budget deal this past June for the current fiscal year which covered a $32 billion shortfall and at the time they set aside $38 billion of reserves.
“California knows that it gets hit hard when the economy turns, which is why they’ve been hoarding reserves and been careful about spending during the past couple budgetary ‘boom’ years,” said Dora Lee, director of research at Belle Haven Investments.
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https://www.bloomberg.com/news/articles/2023-12-08/bond-buyers-unfazed-by-california-s-alarming-68-billion-deficit?sref=dlv6Ue8o
A Hidden Risk in the Municipal Bond Market: Hackers
A Hidden Risk in the Municipal Bond Market: Hackers
By Brenda León
Dec. 7, 2023 5:30 am ET
Local governments are spending big to mop up after hacks and prevent new ones. That means peril—and opportunity—for the investors who buy their bonds.
Hacks are on the rise across all industries, but the public sector’s weak protections make it an increasingly attractive target for cybercriminals. Cybercrime has left schools, hospitals and utilities from Baltimore to Los Angeles struggling to pay ransom, restore services and boost security. Finances have suffered, threatening credit ratings.
The number of K-12 public schools suffering ransomware attacks almost doubled between 2021 and 2022 to almost 2,000 a year, according to a report by Emsisoft, a cybersecurity company. The growing use of technology in education, which was accelerated by the Covid-19 pandemic, as well as healthcare’s reliance on IT infrastructure, has made schools and hospitals particularly vulnerable, according to analysts.
“This year alone, we’ve seen a lot more of these attacks compared to prior years, and it’s a concern that has come up in almost every discussion that we have with issuers,” said Li Yang, lead analyst at S&P Global Ratings.
Cyberattacks on the Los Angeles Unified School District, the nation’s second-largest school system, caused problems including the release of confidential student data. Superintendent Alberto M. Carvalho said officials convened a task force of cybersecurity experts to begin modernizing the district’s technology. This year the school district sold hundred of millions of dollars of debt and plans to use $72 million to secure its technology infrastructure, according to a spokesperson.
So far, cyberattacks seem to act as a wake-up call for municipalities, leading to investments in security that reassure bondholders. Researchers at Massachusetts Institute of Technology found that following a ransomware attack, municipalities spent 50% more on technology and bond yields fell by 0.03 percentage point.
The Los Angeles Unified School District’s renewed focus on cybersecurity attracted investors including Belle Haven Investments. Dora Lee, Belle Haven’s director of research, said the firm views it as a boost for a borrower’s creditworthiness when finance officials increase cybersecurity and the financial resources to weather an attack.
“Just as we evaluate whether or not a state or local government is continuing their investment in their physical infrastructure, we are also looking to see that continued investment in their IT software,” Lee said.
No protocols govern disclosure about muni issuers’ relative vulnerability to cyberattacks, ratings firms said. Downgrades would only come when the cleanup of a problem hurts the finances of the local government.
That leaves investors scrambling to keep up. Big incidents, such as the one that crippled Baltimore’s city government computers in 2019, attract notice. Less-prominent attacks don’t always get the same attention.
“Markets are watching more closely, as big cyberattacks get big headlines, but smaller ones don’t,” said Daniel S. Solender, partner and director of tax-free fixed income at the asset manager Lord Abbett.
The Securities and Exchange Commission voted earlier this year to adopt rules requiring publicly traded companies to report cyberattacks. Starting later this month, companies will have to describe the processes under which they identify in their annual reports material cybersecurity risks.
Ratings firms are asking local governments issuing debt about the protections they have in place—such as whether they have cyber insurance and how quickly they are prepared to respond and recover in case of a cyberattack, said Rudy S. Salo, public-finance attorney and partner at Nixon Peabody.
“Cybersecurity has evolved as a risk factor, and starting in 2018, you started to see due diligence questions disclosed in bond deals, and two years later, more and more rating agencies took notice,” said Salo.
Analysts expect the sophistication and frequency of cyberattacks will continue to evolve but worry that cyber risk management remains underfunded. There is cyber insurance available, but the costs can be prohibitively high for small government agencies. Job retention in information-technology departments is likely difficult when competing with the private sector, according to analysts.
Governments “don’t usually run with much excess cash to plow into a state-of-the-art technology,” said Lisa Washburn, managing director at Municipal Market Analytics, a bond research firm.
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https://www.wsj.com/finance/investing/a-hidden-risk-in-the-municipal-bond-market-hackers-d0ff1de2
US State Tax Revenue Drops in Sign of Tough Budget Decisions Ahead
US State Tax Revenue Drops in Sign of Tough Budget Decisions Ahead
By Tanaz Meghjani
November 10, 2023 at 10:34 AM EST
US states’ tax revenue is sliding broadly, raising the prospect of difficult budget decisions in coming years for officials as they spend through cash amassed during the pandemic.
Total state tax revenue sank in September for the 14th straight month on an inflation-adjusted basis, falling by 5.6% from a year earlier, according to a fresh analysis from the Washington-based Urban Institute. Of those that provided information, 34 of 46 states reported year-over-year declines.
Cooling economic growth, tax cuts and weak stock-market performance are big contributors to the drop in revenue. Healthy rainy-day funds will soften the blow for some time, but states will eventually have to figure out how to raise more revenue or cut spending, said Lucy Dadayan, principal research associate at the Urban Institute.
“They’ll have to come up with new revenue sources, increase the tax rates, reverse the prior tax cuts, or cut spending on different areas,” she said in an interview.
Nearly all states saw robust revenue growth on the heels of the pandemic, fueled by federal stimulus, inflation-driven increases in sales-tax proceeds, elevated spending on taxable goods rather than services and surging stocks. Now those trends are reversing, thanks in part to the Federal Reserve’s interest-rate increases to tame inflation.
“Economic challenges lie ahead due to factors like persistent inflation, financial market volatility, higher interest rates, weakening housing prices, and geopolitical crises,” Dadayan wrote in a report released Nov. 7. “These could further dampen state tax revenue collections in the months ahead.”
For investors in the $4 trillion municipal-bond market, the key will be to monitor how states navigate the revenue declines, said Dora Lee, director of research for Belle Haven Investments.
“What investors will be focused on is how quickly states draw the balances of their rainy-day funds down and what other tools they utilize to offset the declines,” said Lee. “For example, are they raising taxes, cutting spending in addition to using reserves.”
New York laid out the strains on its tax-revenue outlook last month in a midyear update to its financial plan for this fiscal year.
The state said tax proceeds are expected to drop by $9.6 billion from the previous year, an 8.5% decline. In response, the office of Governor Kathy Hochul, a Democrat, said it’s considering limiting financial support for migrants.
“New York State can only shoulder this financial commitment for a limited duration without putting other areas of the state budget at risk,” Blake Washington, the state director of the Division of the Budget, wrote in a memo.
Other big states are seeing signs of a slowdown as well. In Texas, sales-tax revenue — the largest source of funding for its budget — was down 0.3% in October from a year earlier, the first time in 31 months it failed to grow. And California is poised to fall short of its budget forecasts as weakness in stocks crimps tax revenue.
“We’re not at a catastrophe level now,” said Emily Mandel, an economist at Moody’s Analytics. “States are coming in below, but this isn’t going to require massive course readjustments at this point. Chances are states might be adjusting their spending plans and just pulling back in some areas as a result of this.”
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https://www.bloomberg.com/news/articles/2023-11-10/sliding-us-state-tax-revenue-signals-tough-budget-decisions-loom?sref=dlv6Ue8o
State Governments Lure Workers With Higher Pay. Moody’s Warns of Budget Strains
By Maxwell Adler
November 7, 2023 at 12:00 PM EST
State and local governments are approaching pre-pandemic employment levels as workers are lured into public service with incentives such as higher salaries that will strain some budgets, Moody’s Investors Service warned.
The US labor market has experienced a strong recovery following significant job losses at the beginning of the Covid-19 pandemic. But public employment fell behind as state and local governments struggled to compete with the private sector for workers. So cities and towns and state agencies have had to raise pay and retirement benefits to keep up.
“Many states’ revenue growth should be sufficient to pay for wage increases while maintaining a balanced operating budget,” Moody’s said in a Nov. 3 report. “However, in some cases, states will likely have to draw on reserves and face structural imbalance in order to fund the bumps.”
In March, Missouri gave state workers an 8.7% raise in a move intended to help fill 7,000 vacant positions and reduce a 30% employee turn-over rate. In California, the Los Angeles Unified School District agreed to increase wages 21% over the next three years for teachers, but positions with particularly high vacancy rates, such as nurses, will receive even higher wage hikes even as the district projected material operating deficits through fiscal 2026. And Moody’s has estimated that Pennsylvania will have to draw on its reserves to pay for state employee raises, including a 5% increase in fiscal 2024.
In some states, long-term pension liabilities will increase to the extent that wage growth exceeds actuarial assumptions, according to the Moody’s report.
Municipalities are offering more employment incentives to dig themselves out of a persistent labor problem that has left public services such as education, transportation, and healthcare severely understaffed. When the pandemic hit, public sector hiring had only just recovered from its massive declines following the Great Recession.
Additionally, advancements in technology and communication tools have turbocharged changes in workforce behavior, making it harder for municipalities to compete for labor.
“In today’s gig-economy, finding low-cost labor is like hunting for a unicorn,” said James Pruskowski, chief investment officer at 16Rock Asset Management. “More creativity is needed than just wage increases which have barely kept pace with inflation.”
Recent public sector pay increases have in fact helped fuel more municipal hirings. As of September, the state and local government sector’s employment level had finally recovered to its January 2020 benchmark. The gains still pale in comparison to those made in the private sector, where employment is 4% above its pre-pandemic level.
“While hiring people is a cost, many of these workers also unlock revenue opportunities. The most basic example is more building inspectors and law enforcement which can increase the amount of fees and fines a government collects,” said Dora Lee, director of research for Belle Haven Investments.
With budget reserves sitting at record levels across most state and local municipalities in part due to inflation, Covid-stimulus, and more conservative management practices, municipalities should have plenty of flexibility to fund wage increases, according to Pruskowski.
“But the road ahead from a macro-economic perspective warrants caution,” he added.
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https://www.bloomberg.com/news/articles/2023-11-07/public-worker-salary-incentives-strain-budgets-moody-s-says?utm_source=google&utm_medium=bd&cmpId=google&sref=dlv6Ue8o
New York, New Jersey Muni Bond Buyers Reap Net Yields Near 10%
New York, New Jersey Muni Bond Buyers Reap Net Yields Near 10%
By Nic Querolo
October 30, 2023 at 2:29 PM EDT
UBS Financial Services Inc. is urging investors to buy the debt of states, whose credit quality is among the highest in the $4 trillion municipal bond market and whose bonds are offering sky-high after-tax yields.
Strong revenue growth, record-high cash reserves and billions in pandemic stimulus strengthened the credit quality of US states, just as a muni market selloff has driven yields to their highest levels since the financial crisis more than a decade ago.
In New York, for instance, yields on 30-year debt are 4.8%. On a tax-equivalent basis, which accounts for tax savings, that translates to roughly 9.8% for buyers in the state’s top tax bracket, according to a Friday research note by Kathleen McNamara, senior municipal strategist at UBS.
“Given the higher yield environment, we believe that high quality state GO bonds now present an attractive risk-return tradeoff for long-term investors,” McNamara wrote.
The report also highlighted states like California, Texas and Washington, where investors in the top tax bracket can reap yields ranging from 8% to 10% for long-maturity, general-obligation debt. For New Jersey, UBS strategists suggested bonds in the 15- to 21-year maturity range.
State level credits even outside of the general obligation sector are providing extra yield. Take 30-year bonds sold this month by the New York Power Authority. They’re trading at about 5.2%. On a tax-equivalent basis that would earn about 10.7% for investors in the top bracket, according to an online tool from Eaton Vance Management.
Year-to-date, state general-obligation debt has lost 1.8%, according to data compiled by Bloomberg, outperforming the 3.45% losses from local credits and the 2.26% losses among munis broadly. UBS attributes the losses to the surge in rates, rather than declining credit fundamentals.
Dora Lee, director of research for Belle Haven Investments, echoed the recommendation.
“In muniland, you are talking about single and double A-rated credits offering these very attractive yields for a minuscule default rate,” Lee said. “You can find very good opportunities within your home state.”
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https://www.bloomberg.com/news/articles/2023-10-30/new-york-new-jersey-muni-bond-buyers-reap-net-yields-near-10?sref=dlv6Ue8o
Cities, States Contend With More Strikes as Unions Gain Power
Cities, States Contend With More Strikes as Unions Gain Power
By Lauren Coleman-Lochner
October 24, 2023 at 11:56 AM EDT
State and local governments are contending with more strikes as unions gain strength after decades of decline, a particular concern for hospitals still struggling to recover from pandemic-induced setbacks.
Wage and staffing troubles recently led more than 75,000 workers at Kaiser Permanente to stage a three-day walkout earlier this month in the largest health-care strike in US history; parties reached a tentative agreement for a 21% wage increase over four years.
The Kaiser strike is part of a rising wave of labor action that will take a toll on state and local budgets at a time of shrinking revenues, according to analysts at Barclays Plc, especially in the health and education sectors.
“In the past couple of years, unions have become more active and have gained increased leverage in contract negotiations,” the analysts wrote in a note. “Strikes have multi-pronged negative effects on local, state and the national economy,” including missed work time and lower fees and tax revenues after longer strikes.
A widening gap with the private sector and the erosive effects of inflation are spurring workers to action — supported by what Barclays describes as rising public approval of unions. This year has seen 312 strikes involving about 453,000 workers compared with 180 strikes encompassing 43,700 workers two years ago, the firm said.
Notable actions this year include city workers in San Jose, California, who won a 15% raise over three years, a teachers strike in Oakland, California, which resulted in a 15.5% salary increase for most teachers and a walkout by graduate student instructors at the University of Michigan that netted better pay and health-care coverage. More than 7,000 New York City nurses walked out at two hospitals in January and came away with better staffing levels and wages.
While the outcomes are advantageous for workers and help combat the staffing shortages that have plagued health care and other industries, they are simultaneously a strain on budgets, both at hospitals — which are already dealing with weak operating results — and on municipalities concerned that they’ll have to pay more just as tax receipts and other revenues may be slowing.
The strikes are “clearly a negative” for local economies, Mikhail Foux, Barclays’ head of municipal strategy, said in an interview. There were 4.1 million work days lost in August alone this year, the highest since 2000, according to the firm. And while the report focused on public-sector strikes, private ones “also have direct and sizable effects on local economies,” including an estimated $3 billion hit to California from the writers and actors strike.
A Vulnerable Sector
Not-for-profit hospitals are particularly at risk of financial distress as they grapple with continued labor shortages and higher expenses due to widespread financial and logistical woes brought on by the pandemic, and Foux said he doesn’t think the sector has fully turned a corner yet. Labor is by far the largest cost for hospitals.
Downgrades have outpaced upgrades in the hospital sector, which has also been among the worst performers in the high-yield municipal bond space, with a -4.28% return year-to-date.
But the sector has been creeping toward recovery as patients return for elective procedures and expenses stabilize after historically bad financial performance in 2022. The uptick in strikes could slow that progress and “further bifurcate” stronger from struggling systems, said Dora Lee, head of research at Belle Haven Investments.
“The larger systems will be able to absorb the higher labor costs, but it will just further add to the headwinds that this sector has been facing just when there were signs they might abate,” Lee said. And according to Foux, the high profile of the Kaiser strike is likely to encourage others, adding to the 18 strikes in the health-care space that have already happened this year.
Not every labor effort will be successful, though, said Clare Pickering, director of municipal strategy and research at Barclays. For struggling hospitals in more remote areas, “there’s only so much margin, and if you’re not in a competitive urban market, there’s not so much to negotiate.”
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https://www.bloomberg.com/news/articles/2023-10-24/cities-states-contend-with-more-strikes-as-unions-gain-power?srnd=undefined&sref=dlv6Ue8o
A Florida Beach Paradise Needs Millions to Keep Toilets Flushing
A Florida Beach Paradise Needs Millions to Keep Toilets Flushing
By Shruti Singh and Eniola Longe
October 20, 2023 at 11:19 AM EDT
The accelerating growth of Cape Coral, Florida, is spurring the town to tap the municipal bond market for basic needs like running water and working toilets.
The Gulf Coast city plans to sell $138 million in debt next week, with proceeds used for water systems to reduce reliance on wells and site-specific septic tanks. Cape Coral joins other Florida cities building and expanding water and sewer facilities to meet demand from a US migration that’s given the state the fastest-growing population in recent years.
“We didn’t expect this to happen this quickly,” Ryan Rossi, director of the South Florida Water Coalition, said regarding the population growth in the region. “We really need in Florida to update a lot of our infrastructure.”
Cape Coral, whose number of residents ballooned almost 40% to more than 200,000 in the last decade, intends to install water mains and improve its sewage system in the developing north part of town. The infrastructure is needed to move from a dependence on wells and septic tanks that will threaten to pollute the aquifer as more residents arrive, according to city officials and bond filings.
The Covid-19 pandemic accelerated Florida’s population growth as especially those in colder northern states, moved south for both the warm weather and lower tax rates. State and local officials increasingly saw the need to shift from limited wastewater solutions such as septic tanks.
Miami-Dade County, for example, has spent $1 billion on water and sewer lines, with another $1 billion proposed for an incinerator and power plant. The city of Miami, where Citadel founder Ken Griffin moved the firm’s headquarters from Chicago last year, faces the risk of running out of landfill space and overwhelming its sewer systems because of population increases.
More Construction
For Cape Coral, expanding its water and sewer facilities is likely to be an ongoing project. More than half the city’s land is undeveloped and officials expect its population to grow at a 3% clip over the next five to 10 years.
It’s among the top 10 cities homebuyers are looking to move into, according to a July report based on searches by 2 million users of the online real estate firm Redfin. The city estimates the population will reach more than 400,000 by 2080.
The bond sale is expected to help address the rising density and allow for more growth, Mark Mason, the city’s director of financial services, said in an email. The primary revenue source backing the bonds is an assessment on property owners in the area of town being developed.
Mason said that about half the assessment area is being built out, triggering the need for more water and sewer lines. Once those systems are completed, additional building can occur in an almost 1,500-acre tract known as North 1 West Area.
Fitch Ratings assigned the bonds an A rating, five notches into investment grade, partly given a “rapidly growing service area.”
Cape Coral’s growth follows the state’s development trend, even with the risks climate change may present, said Dora Lee, director of research for Belle Haven Investments, which holds $16.2 billion of municipal assets.
“The fact that it still continues to grow despite worsening hurricanes shows how resilient the demand is for housing in Florida,” Lee said.
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https://www.bloomberg.com/news/articles/2023-10-20/florida-beach-paradise-needs-millions-to-keep-toilets-flushing?srnd=markets-vp&sref=dlv6Ue8o
Chicago Bets on DNC Convention, Nascar Race to Plug Budget Hole
Chicago Bets on DNC Convention, Nascar Race to Plug Budget Hole
By Shruti Singh
October 13, 2023 at 11:18 AM EDT
Chicago Mayor Brandon Johnson is counting on tourists and residents spending more to have fun, take ride shares and stay in hotels to help plug a half-billion-dollar deficit in next year’s budget.
Johnson’s $16.6 billion spending plan, unveiled earlier this week, includes $187 million more in revenue than projected as recently as last month thanks largely to rising tourism and recreation dollars that include hotels, boating, liquor and cannabis.
“A lot of economic data has come in since that time that gives us a lot of confidence in those particular key taxes,” Annette Guzman, the city’s budget director, said after Johnson released the spending plan. “There’s a lot of stuff that’s going to be happening next year, so we have a lot of large events coming.”
Chicago will welcome NASCAR’s street race as well as the Lollapalooza music festival. McCormick Place, the city’s main convention center, will bustle with an auto show in February, the Democratic National Convention in August and a massive manufacturing trade show in September.
More Revenue
The first-term progressive mayor is anticipating more money from recreation and business taxes that come from mooring of boats, cannabis, off-track betting, and liquor, cigarette and e-cigarette purchases. Revenue from recreation is projected to increase 8% to $344.3 million. Business taxes, which are mostly made up of levies on hotels, are estimated to jump 21%.
He’ll need the money to reopen mental health clinics, reduce crime, and chip away at a $35 billion pension burden. He is keeping a campaign promise to forgo — this year at least — an annual property tax increase attached to inflation that his predecessor Lori Lightfoot had implemented. He also didn’t include new taxes on the rich or corporations but said a new city council revenue subcommittee will explore ideas.
Johnson chose not to pursue a higher hotel tax, which will help the city’s convention center industry, said Michael Jacobson, chief executive officer of the Illinois Hotel & Lodging Association.
McCormick Place hosted 104 events in the first half of the year, one more than in all of 2022, according to external spokeswoman Cynthia McCafferty.
Convention planners play close attention to any increases in hotel taxes and the industry still hasn’t reached pre-pandemic occupancy levels, Jacobson said.
Hotels reached about 7 million room nights through August, up 13% from a year earlier and showed a 90% recovery compared to 2019, according to Choose Chicago, a marketing organization for the city. Hotel revenue and taxes during that time have risen about 15% to top pre-pandemic levels.
Johnson told reporters on Friday that increases in airport traffic and recent sold-out concerts are indicators of more people spending money in the city.
‘Economic Pressures’
Still, broader economic concerns could put revenue from leisure or business spending at risk. Fitch Ratings, which has a BBB rating on the city’s debt, currently projects “slowed overall economic growth and a shallow economic downturn in the coming months.”
“Reaching Chicago’s revenue projections could be a challenge in light of additional spending or economic pressures that could develop over the year,” Ashlee Gabrysch, a Fitch director, said in an email.
Those include larger-than-budgeted costs for the migrant crisis. Johnson’s forecast reduced the amount earmarked for migrants to about $150 million from a previous projection of $200 million. His administration is counting on expanded worker permits and additional federal and state aid.
“Whether or not those forecasts come true is not really a knock on their budget team but speaks to the volatility we are seeing in the economy and the unknowns we may or may not face in the coming year,” said Dora Lee, director of research for Belle Haven Investments.
The city council will hold hearings on the proposal and is expected to vote on the spending plan by the end of this year.
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Muni Investors Spark Selling Frenzy to Seize on Fleeting Rally
Muni Investors Spark Selling Frenzy to Seize on Fleeting Rally
By Amanda Albright and Nic Querolo
Municipal-bond investors, jolted by price swings in the Treasury market, are rushing to sell and
take advantage of the biggest rally in a year.
Muni bonds out for the bid on Bloomberg’s trading platform hit $2.1 billion on Wednesday, the most since December 2022, according to data compiled by Bloomberg. The selling spree comes after muni investors, who had been stung with losses for five straight weeks, saw prices rise this week as the conflict in Israel-Palestine triggered a flight to safety.
“Fixed income, as a whole, has been punched in the stomach as a result of the back up in rates over the past month or so,” said Nicholos Venditti, senior portfolio manager at Allspring Global Investments. “The conflict in
Israel/Palestine reversed that trend pretty aggressively. Investors are likely taking this opportunity to try to sell into market strength in order to reposition their portfolios to take advantage of their individual market expectations for the remainder of the year.”
The rally may prove short-lived after data Thursday showed US consumer prices advanced at a brisk pace for a second month, reinforcing the Federal Reserve’s intent to keep interest rates high to bring down inflation.
Treasury yields rose after the release of the stronger than expected Bureau of Labor Statistics data. Muni yields were mostly unchanged as of Thursday morning, though the tax exempt securities tend to lag Treasury moves.
Max Christiana, a portfolio manager for Belle Haven Investments, said that the recent rally was a good way for money managers to “lock in some gains and reposition the portfolios following the rocky September everyone faced.”
The market swings are causing a surge in activity in the municipal-bond market this month, with trading activity climbing. By one measure, the muni market this week hit its most volatile level since mid-2022, according to a gauge of the 10-day volatility of Bloomberg’s muni index.
James Pruskowski, chief investment officer at 16Rock Asset Management, said that some newly-sold transactions saw yields cut dramatically by underwriters before pricing, a sign of strong demand.
“The atmosphere today is one of renewed liquidity,” he said.
California bonds price well despite economic, market headwinds
California bonds price well despite economic, market headwinds
By Keeley Webster
September 28, 2023, 11:27 a.m. EDT
6 Min Read
Economic headwinds and market forces did not affect California's bond pricing power as it entered the market this week with a $625 million lease revenue bond refunding.
Goldman, Sachs & Co and Academy Securities were joint senior managers on the deal. Backstrom McCarley Berry & Co. was co-senior manager and 15 other banks rounded out the syndicate.
"They have been well received considering what the market has been doing," Dora Lee, director of research for Belle Haven Investments, said Tuesday as the state presented the deal to retail buyers. It held institutional pricing Wednesday on the deal.
The Investment Company Institute reported Wednesday that investors pulled $845 million from municipal bond mutual funds in the week ending Sept. 20 after $1.566 billion of outflows the previous week.
Reports of expected outflows in the fourth quarter didn't dampen enthusiasm for California's bonds.
Goldman Sachs priced the State Public Works Board bonds with 5s of 2024 at 3.69%, 5s of 2028 at 3.61%, 5s of 2033 at 3.76% and 5s of 2038 at 4.09%. The bonds carry a 10-year par call. In Wednesday's secondary market, California 5s of 2028 sold at 3.31%.
Stradling Yocca Carlson & Rauth was bond counsel. Ballard Spahr was underwriter's counsel. Squire Patton Boggs was disclosure counsel, and Orrick Herrington & Sutcliffe and Stradling Yocca Carlson & Rauth were co-disclosure counsel on Appendix A.
The proceeds will be used to refund the State Public Works Board's outstanding Series F, 2013 Series G and 2013 Series I bonds for debt service savings. Debt service on the series 2023C bonds are supported by rental-lease payments from a county jail, juvenile rehabilitation facility, state prison buildings and a San Diego courthouse.
The lease revenue bonds received an A-plus rating with a positive outlook from S&P Global Ratings, AA-minus from Fitch Ratings with a stable outlook, and an Aa3 rating with a negative outlook from Moody's Investors Service.
All three rating agencies hold the lease revenue debt one notch below California general obligation bonds.
Lee said Tuesday Belle Haven expects the bonds to price through the MMD as they have before, sustaining the state's reputation of being well received by investors.
"With the mutual fund versus the Money Market Account dynamic, we see the front end will be well subscribed and then there will be concessions on the longer maturities, because the natural buyers are those two areas of the maturity band," she said.
California's revenue bonds were expected to trade competitively to the MMD scale based off GO sales. But revenue bonds sometimes trade better than GOs because investors see a reliable revenue stream as a better bet than whether lawmakers will raise taxes to support GOs.
"There has always been a lot of demand for California paper, given the tax rate and strength of California credit," Lee said. It's still considered a strong credit even though it has forecasted budget gaps, and heading into a probable recession, she said.
The state closed a $31.5 billion deficit when it approved a $310 billion budget in July, and preserved $32 billion in reserve funds. This year's budget process was much different than the one a year before when lawmakers were contemplating how to spend a $100 billion surplus.
The deficit was a result of downturn in the stock market as a significant source of the state's revenues come from income taxes and high earners. To add to the state's uncertainty, tax filers were allowed to delay filing income tax returns from April to October, which created uncertainty around state revenue figures.
The tax filings delay hasn't appeared to impact retail demand for the state's bonds. Consistent demand for the state's bonds has often been attributed to the high number of high net state residents seeking the tax break that investing in municipal debt offers.
"Through the end of the year, we will see tax loss harvesting," Lee said. "That always comes in November and December. For some reason, people leave that to the last minute."
Nor have investors dinged the state for its late annual comprehensive financial report.
Nearly 15 months after the close of fiscal 2022, the ACFR has yet to be published.
The State Public Works Board bond offering documents included California's ACFR for fiscal 2021, which acknowledged that it marks the fourth year the state has gone beyond the "regulatory deadline of nine months after the fiscal year-end" to produce the document. The state has attributed the delays to problems converting over to FI$CAL, a new electronic financial reporting sytem.
"The State Controller's Office remains dedicated to supporting timely and accurate financial reporting, and is confident that the efforts currently underway which include moving the SCO Book of Record to FI$CAL will lead to measurable advancements in improving timely financial reporting," said the letter attached to the ACFR from State Controller Malia Cohen, who was elected to the office in 2022.
The state on Sept. 6 also priced $2.6 billion of tax-exempt general obligation bonds that included a $1 billion refunding for savings on Sept. 6.
The new debt on that deal funded capital projects that included school construction, improvements to clean water access and high-speed rail. Citigroup and RBC Capital Markets were lead managers on that deal.
It also has $1.1 billion in various-purpose federally taxable GOs selling competitively on Oct. 4, and two additional sales planned for October and November with unknown amounts.
The state's GOs are rated Aa2 by Moody's, AA-minus by S&P, and AA by Fitch. The state has mixed outlooks: negative from Moody's, stable from Fitch and positive from S&P Global Ratings.
Moody's revised its outlook to negative and affirmed the Aa2 rating in May saying the revised outlook "reflected a weakened and uncertain revenue environment that raised the possibility of extended pressure on the state's budget."
The "state's enacted fiscal 2024 budget scaled back or delayed certain non-recurring spending in an effort to retain budget reserves. However, a more complete and accurate picture of the state's revenue collections will likely not be available until October given an allowable shift in the income tax filing deadline. The delayed receipt of revenue leaves the state with less certainty around fiscal 2024 budgeted revenues and a narrowed window in which to respond to revenue collections that fall short of present assumptions."
Trading on California's GOs in the secondary market stayed pretty steady throughout the year continuing to price well against the MMD's AAA scale. The one-years were trading 5 basis points below the MMD Tuesday, 10 years were trading 10 basis points above and 30 years were trading 13 basis points above the MMD. Trading on the state's bonds were pretty similar at the beginning of the year, accept for the one years. On Jan. 1, the benchmark 10-year California GOs were trading 8 basis points above the MMD, while on Jan. 3, the 10 years were trading 6 basis points above the MMD.
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https://www.bondbuyer.com/news/california-bonds-continue-to-price-well-despite-economic-headwinds#:~:text=Economic%20headwinds%20and%20market%20forces,senior%20managers%20on%20the%20deal.
Nursing Home Staffing Mandates to Further Strain Troubled Sector
Nursing Home Staffing Mandates to Further Strain Troubled Sector
By Lauren Coleman-Lochner
September 8, 2023 at 11:37 AM EDT
A proposed federal rule that would establish staffing requirements at nursing homes across the US could push the already-troubled sector further into distress, even as the pandemic highlighted their failings.
The Centers for Medicare & Medicaid Services said that “chronic under-staffing remains a concern,” in a Sept. 1 statement outlining the proposed rule, which includes requiring a registered nurse onsite 24 hours a day, seven days a week. About 75% of US facilities would need to make adjustments under the new rule, CMS said. Nursing homes could receive a hardship extension “in limited circumstances.”
Labor shortages and their associated costs still plague nursing homes, which in some cases have eliminated beds because of an absence of caretakers. That’s also created a problem for hospitals, which rely on the homes to take patients who need rehabilitation services when they’re ready for discharge.
“I 100% agree that there should be adequate staffing at nursing homes,” but “this is an added cost on an already-strained sector,” said Lisa Washburn, managing director at Municipal Market Analytics. CMS estimates that the costs over 10 years to meet the mandates will be $40.6 billion.
Four nursing homes that have borrowed in the municipal market have had payment defaults this year, according to data compiled by Bloomberg Intelligence. For the entire senior-living sector, which includes developments that offer a range of care, from independent living to 24-hour care, the number is 26, most of them payment, not technical defaults.
The sector along with hospitals is also the worst-performing category in the high-yield municipal bond market, with a return of -0.5% this year, according to data compiled by Bloomberg.
“We’re seeing an uptick in bankruptcies and defaults,” said Washburn.
More Closures Ahead
The American Health Care Association has tallied 579 nursing home closures since 2020. Some struggling homes that are still operating were “propped up” by federal pandemic relief funds that have run out, Washburn said. There is “no shortage of new ones that are making their way into trouble,” she said.
The proposed rule will “likely force more closures given the low reimbursement rates that have failed to keep up with rising labor costs,” said Dora Lee, director of research at Belle Haven Investments, which invests in the sector. “Never mind whether operators can afford the increased costs, they are already having a difficult time finding qualified people.”
In Wisconsin, the home state of Larry Lester, a principal in the senior-living consulting practice at Wipfli LLP, thousands of beds were lost in the past decade, he said.
“We’re downsizing at a time when the baby boomers are just outside the window and are going to need services,” said Lester, whose firm forecasts the population of Americans over the age of 85 to double by 2035.
The large number of deaths at nursing homes early in the pandemic highlighted the need for better care and accountability. It prompted action from federal and state legislators, including a 2022 White House proposal for more staffing, enforcement and ownership disclosure in the sector, where about 70% of facilities are privately owned. A congressional report last year examined breakdowns in care at five for-profit chains.
National Consumer Voice for Quality Long-Term Care, a patient-advocacy group, called the proposed rule “dismal,” saying it falls far short of standards needed to ensure adequate care.
The rule, which CMS says would affect more than 1.2 million Americans at Medicare and Medicaid-certified long-term care facilities, now undergoes a 60-day comment period.
Industry groups, including the American Hospital Association, have already expressed their opposition. In a statement, the head of the American Health Care Association said the rule “requires nursing homes to hire tens of thousands of nurses that are simply not there.”
— With assistance by Eric Kazatsky and Karen Altamirano
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https://www.bloomberg.com/news/articles/2023-09-08/nursing-home-staffing-mandates-to-further-strain-troubled-sector?srnd=undefined&sref=dlv6Ue8o
Facing Budget Shortfall, California Preps $2.6 Billion Bond Sale
Facing Budget Shortfall, California Preps $2.6 Billion Bond Sale
By Maxwell Adler
September 1, 2023 at 12:00 PM EDT
California is coming to market next week with its largest municipal-debt offering of the year, $2.6 billion of tax-exempt general obligation bonds that are expected to draw strong demand from investors during a period of lower-than-expected issuance.
The sale includes $1 billion of new debt to fund a variety of voter-approved capital projects including school construction, improvements to clean water access and high-speed rail. The Golden State will also sell $1.6 billion of refunding bonds to cut its borrowing costs, according to bond documents.
Retail investors will begin placing orders on Wednesday ahead of pricing Thursday. The bonds will be underwritten by Citigroup Inc. and RBC Capital Markets, and they are rated Aa2 by Moody’s Investors Service, AA- by S&P Global Ratings, and AA by Fitch Ratings.
“We expect investor demand to be strong for the deal,” said Dora Lee, director of research at Belle Haven Investments. “New issue supply has been so low that it’ll be a welcome drink of water for the parched investor community,”
The sale comes as a downturn in California’s historically cyclical economy is once again casting a shadow over its most recent budgetary outlook.
After experiencing combined budget surpluses of well over $100 billion during the past two fiscal years, Governor Gavin Newsom signed a budget in June that closed a nearly $32 billion shortfall. The sudden u-turn from surplus to deficit epitomizes the state’s volatile tax-revenue structure, which depends largely on personal income taxes from the highest earning Californians. Nearly half of California’s income tax collections come from residents in the top tax bracket.
Tax Deadline
The state’s outlook is further complicated by a six-month extension on its income tax filing deadline that was granted to those who were affected by severe winter storms this year. A complete accounting of California’s revenue collections will not likely be available until October due to the delays.
However, the state’s Budgetary Stabilization Fund gives it ample flexibility if collections fall short, S&P Global Analysts led by Oscar Padilla wrote in a rating report Aug. 24. California has a total of $37.8 billion in total budgetary reserves, according to bond documents.
“California’s has more than enough internal liquidity to manage the delay in those revenues given the state’s improved fiscal profile driven in part by greater fiscal and budgetary discipline. At this point, we don’t view the deficit as something problematic, ” said Ty Schoback, a senior municipal research analyst for Columbia Threadneedle Investments.
The slow down in issuance of state and local debt may bolster muni returns as investors react to the Federal Reserve’s signals that it will keep interest rates higher for longer to tame inflation. Long-term municipal bond issuance finished August at $236.8 billion, down 11.4% from the same period in 2022. The total number of deals sold is down 17.4% from 2022.
Price Cheaper
“It’s a great time to get into munis because you actually get paid for being in fixed income assets, which isn’t necessarily something we could have said a couple years ago,” said Jennifer Johnston, director of research for Franklin Templeton Fixed Income’s municipal-bond team.
Johnston said supply is expected to pick up after Labor Day.
Kyle Gerberding, Director of Trading at Asset Preservation Advisors, said he expects that the deal will have to price cheaper than where bonds have been trading in the secondary market.
“The benchmark 10-year California GO, with a 5% coupon, is currently changing hands in the secondary market close to flat to the AAA scale, or at a spread of 0-5bps. While it has traded as wide as roughly +20 to AAA MMD and as tight as 10bps through the scale (lower in yield than AAA benchmarks), we expect this deal, during the early September period, to see pricing closer to those wides, but should expect to see it tighten upon break,” said Gerberding.
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https://www.bloomberg.com/news/articles/2023-09-01/california-preps-2-6-billion-bond-sale-amid-budgetary-concerns?sref=dlv6Ue8o
Overlooked and Underappreciated – Taxable Municipal Bonds
Overlooked and Underappreciated – Taxable Municipal Bonds
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https://bluetoad.com/publication/?i=799641&article_id=4626500&view=articleBrowser
LA School System Kicks Off School Year With Municipal Bond Sale
LA School System Kicks Off School Year With Municipal Bond Sale
By Lauren Coleman-Lochner
August 14, 2023 at 1:45 PM EDT
The nation’s second-largest K-12 district is kicking off the new school year with a municipal bond offering while it contends with attacks from hackers, a dwindling student body and soaring labor costs.
The Los Angeles Unified School District, which begins the school year Monday, plans to borrow about $384 million to tackle cyberattacks, school safety and climate change, according to the bond offering prospectus. The series of bonds carries a sustainability label.
“The district is constantly facing a variety of persistent and evolving cybersecurity threats,” said the prospectus, which details previous incidents, including a ransomware attack last year that exposed some student data.
With more than 400,000 students, the Los Angeles school system trails only New York City in enrollment. The district sprawls over 710 square miles — or more than twice the land mass of New York City — encompassing most of the city and pieces of the rest of Los Angeles County.
More than $166 million, the biggest chunk of the bond proceeds, will go to cybersecurity, while $146 million will fund security, including video surveillance systems, at its more than 1,200 campuses, bond documents say.
“The reality is that many of our students encounter violence, unacceptable violence, at various levels on a near-constant basis,” superintendent Alberto Carvalho said in opening school-year remarks earlier this month, adding that gun violence is at “epic proportions.”
In 2021, the board of education for LAUSD approved a 35% cut in school police staff after activists pushed for redeployment of money for other services. This year to address safety issues, the district introduced a new school-safety program and an app to anonymously report incidents.
The latest bond offering follows one in November when LAUSD issued $500 million of general obligation debt. A bond due in 2047 from that series with a 5.25% coupon last traded at a yield of about 3.8% or roughly 15 basis points over the benchmark, data compiled by Bloomberg show.
The new series of bonds, which are backed by lease payments and rated A2 by Moody’s and A- by Fitch, is expected to be priced on Aug. 17. Some of the proceeds, approximately $81 million, will be used to purchase 180 electric buses and upgrade its bus yards for EV charging, according to the prospectus, while a small portion of the bond sale will go to improving student enrollment.
Like other major school districts, Los Angeles is grappling with an outflow of families who are moving to less expensive areas and a high portion of students living in poverty, according to Fitch Ratings director Divya Bali.
Bali said LAUSD has worked to stabilize enrollment, going door-to-door to reduce absenteeism and “reaching out to parents of newborns in maternity wards” with gifts of onesies to tell them about the state’s transitional kindergarten program that offers a second year of learning for children with birthdays in the latter part of the year.
The district, which is also having a difficult time retaining teachers, is also facing higher labor expenses, with growing pension and benefit costs. After a three-day strike by support staff in March, the district and teachers recently agreed to a new contract that includes a 21% wage increase through 2025.
The resolution of the teachers’ contract is a welcome development, said Dora Lee, director of research at Belle Haven Investments, which holds LAUSD debt. “Labor contracts have always been a major issue for the district, so the fact that they have an agreement in place through 2025 offers some near-term stability,” she said.
Even with higher labor costs, Los Angeles has “a strong track record of aligning revenues and expenses, and managing to their situation,” Bali said. “We expect that to continue to be the case going forward.”
— With Brad Skillman
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https://www.bloomberg.com/news/articles/2023-08-14/la-school-system-lausd-taps-muni-bonds-to-protect-it-from-cyberattacks?sref=dlv6Ue8o
DC Transit System Sells Debt for Green Projects as Ridership Lags
DC Transit System Sells Debt for Green Projects as Ridership Lags
By Skylar Woodhouse
August 8, 2023 at 11:14 AM EDT
As the Washington DC region’s transit system struggles to regain ridership to pre-pandemic levels, its operator is tapping the municipal-bond market for the second time this year to finance sustainability projects.
The Washington Metropolitan Area Transit Authority is selling $798 million of debt on Tuesday to help fund its zero-emission bus transition plan. Transit agencies like WMATA are seeking other sources of revenue as farebox sales continue to lag due to a slow return to office for commuters who have grown accustomed to working from home.
WMATA is projecting a budget shortfall of $750 million in fiscal 2025, according to a June financial report. That gap is expected to grow through fiscal year 2035 even if ridership recovers. Weekday rail ridership has only reached about 50% of pre-Covid 19 levels.
The agency did not respond to a request for comment.
The deal comes as the $4 trillion municipal-bond market saw one of its worst weeks of performance in more than three months and outflows persist. Benchmark muni yields, which jumped up in the week ended Friday, have since stabilized and even inched down in early trading on Tuesday.
Dan Solender, head of municipals at Lord Abbett & Co., said now is a good time for transit deals. The supply of bonds has dwindled, so “if the deal is priced correctly there should be plenty of demand since they are strong credits in most cases,” he added.
Municipal-bond issuance for mass transportation totaled about $5.9 billion this year, down about 40% from the same period in 2022, according to Refinitiv data as of August 7.
Dora Lee, director of research at Belle Haven Investments, said investors have cash on hand so they will want to spend.
While S&P Global Ratings has a negative outlook on WMATA, the company grades the new series of bonds AA with a stable outlook. The debt is backed by dedicated capital funding revenues appropriated by DC, Maryland and Virginia, according to offering documents. Kroll Bond Rating Agency also has a AA rating on the series.
The bond sale, which is labeled as “Sustainability - Climate Transition,” is part of a broader effort by public transit agencies across the US trying to reduce their carbon footprint. Public transportation is viewed as an environmentally clean way to travel.
ESG investors say it’s important that green bond issuers authenticate how proceeds will be used for environmental or social purposes. WMATA hired BLX Group LLC, a municipal consulting group, for that purpose.
The agency will use money raised from the bond sale to create a 100% zero-emission bus fleet by 2024, deliver 10 megawatts of renewable energy to local communities and finance a plan to annually reduce the authority’s carbon dioxide emissions by 160,000 metric tons by 2025, bond documents show.
This year, the muni-bond market has seen a growing number of deals with ESG labels, which has drawn political criticism. Republican leaders have attacked ESG, saying the investment strategy is a way to move money for a liberal agenda.
“The green/sustainable labeling isn’t a negative on a deal, but at this time it does not give an issuer any material pricing advantage as opposed to not having the label. That could change in the future as demand for sustainable muni bonds grows and it is possible that could happen but not over the short term,” Solender said.
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https://www.bloomberg.com/news/articles/2023-08-08/dc-s-metro-wmata-to-sell-debt-for-green-projects-as-ridership-lags?sref=dlv6Ue8o
Belle Haven Investments Earns 2023 Great Place To Work Certification
Belle Haven Investments Earns 2023 Great Place To Work Certification
RYE BROOK, N.Y., July 31, 2023 /PRNewswire/ -- Belle Haven Investments is proud to be Certified™ by Great Place To Work® for the second year in a row. The prestigious award is based entirely on what current employees say about their experience working at Belle Haven Investments. This year, 93% of employees said it's a great place To Work – 36 points higher than the average U.S. company.
Great Place To Work® is the global authority on workplace culture, employee experience, and the leadership behaviors proven to deliver market-leading revenue, employee retention and increased innovation.
"Great Place To Work Certification is a highly coveted achievement that requires consistent and intentional dedication to the overall employee experience," says Sarah Lewis-Kulin, the Vice President of Global Recognition at Great Place To Work. She emphasizes that Certification is the sole official recognition earned by the real-time feedback of employees regarding their company culture. "By successfully earning this recognition, it is evident that Belle Haven Investments stands out as one of the top companies to work for, providing a great workplace environment for its employees."
Matt Dalton, CEO & CIO, expressed his excitement emphasizing "We owe the Firm's continued success to our dedicated and awesome employees. We celebrate and thank them for all they do to earn this incredible recognition."
About Belle Haven Investments
Belle Haven Investments is an independent, employee-owned asset manager that focuses exclusively on fixed income. They prioritize service, reliability, and customization, nurturing long-term partnerships with their clients. Their core values - trust and communication - permeate both external client relationships and internal team dynamics. The autonomy given to employees fosters trust, driving them to deliver their best work daily. To learn more, visit: https://www.bellehaven.com/
About Great Place to Work Certification™
Great Place To Work® Certification™ is the most definitive "employer-of-choice" recognition that companies aspire to achieve. It is the only recognition based entirely on what employees report about their workplace experience – specifically, how consistently they experience a high-trust workplace. Great Place to Work Certification is recognized worldwide by employees and employers alike and is the global benchmark for identifying and recognizing outstanding employee experience. Every year, more than 10,000 companies across 60 countries apply to get Great Place To Work-Certified.
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https://www.prnewswire.com/news-releases/belle-haven-investments-earns-2023-great-place-to-work-certification-301889586.html?tc=eml_cleartime
Swarthmore Leverages Its Rare AAA Rating to Borrow for Campus Renovations
By Jordan Fitzgerald
June 21, 2023 at 2:17 PM EDT
Swarthmore College is expected to tap the $4 trillion municipal bond market for more than $125 million of debt, hoping to lure buyers with its top-tier credit rating.
The Swarthmore Borough Authority will issue tax-exempt bonds in a competitive auction Thursday. The proceeds will fund capital projects on the Pennsylvania campus and will be used to refinance outstanding debt, according to preliminary bond documents. Improvements include the renovation of Martin Hall, an academic building that houses the school’s computer science and media studies departments.
Both Moody’s Investors Service and S&P Global Ratings granted Swarthmore their highest rating of AAA, a rare distinction among colleges. S&P currently designates 29 of about 450 colleges and universities as AAA, the company said. Other educational institutions that boast the rating include the nation’s wealthiest schools like Harvard University, Yale University and the University of Texas.
“We assessed Swarthmore’s enterprise risk profile as extremely strong, characterized by a history of solid demand including very solid selectivity, matriculation and retention rates, and student quality,” S&P Global Ratings credit analyst Phillip Pena wrote in a report.
Swarthmore bucks a broader trend in higher education in which some small-private schools have struggled to retain students amid cheaper public alternatives. Private schools that have strong endowments and prestigious reputations, like Swarthmore, are more insulated from the pressures.
“The sector has really turned into the haves and have nots,” said Dora Lee, director of research at Belle Haven Investments. “The pressure in the higher education sector have really hit institutions that have weak enrollment and small endowments hard. But institutions that have that endowment cushion — and have distinguished themselves academically — have had significantly less challenges.”
S&P has a stable outlook on the credit indicating the rating is unlikely to change in the near term. That reflects the company’s expectation that “Swarthmore will maintain steady enrollment and its excellent demand characteristics,” analysts wrote in the report.
Its $2.7 billion endowment and ultra-selective application process set it apart. Last fall, the school accepted roughly 1,000 of its 14,707 applicants — amounting to a roughly 7% acceptance rate.
Representatives for Swarthmore referred questions about the deal to Linda Fan, a partner at the Yuba Group, which serves as the financial advisor on the transaction. Fan said she anticipates that the bonds will price well.
The total cost to attend Swarthmore during the 2022-2023 academic year amounted to $77,354 including tuition, fees, housing and food expenses. That is about 14% increase in the last five years, according to bond documents. Peer institutions such as Yale and Columbia University — who also received AAA ratings from S&P — charged more than $80,000 last year.
Moody’s credit analysts pointed to the school’s “exceptional wealth” relative to its operating expenses, in a June report evaluating the credit.
“The college competes with other highly selective and well-endowed institutions, driving the need for capital investment and a premier student experience,” Moody’s analysts wrote.
And though inflation and interest rates remain high “projects need to get done,” Susan Shaffer, vice president at Moody’s said.
Read original article:
https://www.bloomberg.com/news/articles/2023-06-21/swarthmore-poised-to-tap-muni-market-with-rare-aaa-rated-issue?sref=dlv6Ue8o
States, Cities Up High-Coupon Debt Sales
States, Cities Up High-Coupon Debt Sales
By Shruti Date Singh
The sharp jump in interest rates is spurring a boom in higher-coupon debt in the $4 trillion municipal-bond market.
Sales of state and local debt with interest payments set at 5.5% or more have jumped to $8.8 billion in 2023, up 102% compared to the same period last year. That’s the most in at least a decade.
The typical structure for tax-exempt municipal bonds include a 5% coupon with an option to redeem the securities at full value after a decade. Now, governments and Wall Street underwriters are catering to investor demand for securities with higher payouts, which provide greater tax protections from price drops set off by rising interest rates.
In 2022, as the Federal Reserve began to raise rates, annual issuance of higher-coupon muni debt ballooned to $25 billion, more than four-times the 2021 volume. The rate hikes hammered municipal bonds with the steepest losses since the early 1980s.
“The emergence of coupons above 5%, that’s a sign that there is appetite for more coupon protection,” James Iselin, a managing director and head of municipal fixed income at Neuberger Berman Group, which holds about $12 billion of muni assets. “You don’t want bonds trading at deep discounts.”
Iselin said that raises the risk that bonds will be snared by the federal government’s de minimis rule, which requires investors to pay higher taxes on the capital gains from bonds purchased at a deep discount to face value — which has been common for low-coupon debt that tumbled sharply last year. For tax-conscious muni investors, hitting that extra-tax threshold is unpalatable.
Illinois recently offered higher coupons on a sale. The state sold $2 billion of bonds in April that had coupons at or above 5% in all but one maturity.
The issuance of the higher coupon debt along with the recent upgrades the state has gotten has boosted demand and narrowed spreads for the state’s debt, said Max Christiana, a portfolio manager for Belle Haven Investments, which holds more than $15.5 billion in muni assets.
“In the higher interest rate environment, we’ve seen buyers looking for more defensive debt and demanding higher coupons as a result,” Christiana said.
Elk Grove Unified School District, located near Sacramento, California, sold $132.4 million in tax-exempt bonds through a competitive deal on May 31 with a 6% coupon on a bond due in 2028. Under a competitive bid, underwriters select the coupons and reoffering yields for each maturity not the issuer.
“Higher coupons are becoming more popular as interest rates rise,” Kristen Coates, deputy superintendent for business services and facilities in the district, said in an emailed statement.
—with assistance from Eric Kazatsky
US Public Transit Systems Face Credit Downgrades as Riders Stay Away
US Public Transit Systems Face Credit Downgrades as Riders Stay Away
By Skylar Woodhouse
June 6, 2023 at 1:45 PM EDT Updated on June 6, 2023 at 5:14 PM EDT
US public transit systems have faced a slew of challenges from trying to bring riders back after a pandemic-induced slump to struggling with financial shortfalls. The latest hurdle will be trying to avoid credit-rating downgrades that will make borrowing more expensive.
California’s Bay Area Rapid Transit District had its credit rating lowered two-notches to A+ by S&P Global Ratings last week. That revision also cited a negative outlook on its score, indicating future downgrades may be likely.
It’s one of several public-transit agencies put on notice by S&P, including the San Francisco Municipal Transportation Agency and DC’s Washington Metropolitan Area Transit Authority. Both S&P and Moody’s Investors Service have negative outlooks on the public-transit sector broadly.
“I do expect to see downward rating pressure as these systems try to find a way to operate in this new normal,” said Dora Lee, director of research at Belle Haven Investments. “How hard it will be is truly determined on how state level actors are committed to seeing these systems survive.”
Transit agencies across the US are already facing budget shortfalls in the coming years as federal Covid aid evaporates and persistent remote-work trends suppress weekday ridership. Credit-rating downgrades would likely raise borrowing costs for accessing the $4 trillion municipal bond market exasperating financial pressures.
New debt sales by public transit systems are already depressed. Municipal-bond issuance for mass transportation totaled about $4.3 billion this year, down about 44% from the same period in 2022 and the lowest since 2018, according to Refinitiv data as of May 25.
As costs mount and those federal dollars run dry, the systems are reliant on state bailouts to avoid service cuts, layoffs and fare-hikes.
New York Governor Kathy Hochul gave the largest mass-transit provider in the US, the Metropolitan Transportation Authority, a major cash infusion in April. In the state’s most recent budget, lawmakers raised a tax on New York City’s largest businesses to bring in about $1.1 billion for the agency.
Not all states have been so generous as revenue declines make spending decisions harder. California Governor Gavin Newsom has offered no new funding for transit system budgets amid a state cash crunch, despite systems pleading for $5.15 billion over the next five fiscal years.
“We are seeing interest and dollars out there to support transit systems, but there has also been some more challenging stories like what we’ve seen in California,” Baye Larsen, vice president for Moody’s said. “Mass transit enterprise ratings are more vulnerable to the declining fare revenues to the decline in federal stimulus aid.”
Empty Bucket
Bay Area Rapid Transit, which services six million people in Northern California, has an unusually high dependency on fares, making it more susceptible to pandemic-induced shortfalls. But S&P analyst Kurt Forsgren said that all systems are on their radar.
“They are all kind of suffering in some extent, but clearly BART is ahead of the pack,” Forsgren said in an interview. “We are keeping an eye on all systems and how they address this sort of empty bucket that was previously addressed with passenger fares.”
James Allison, a spokesperson for BART, said they are “concerned” about how its outstanding debt is evaluated by rating companies and investors. The agency, like its peers nationwide that are reliant on riders to produce revenue, have begun to adjust to the post-pandemic landscape, he said.
The agency doesn’t currently have plans to halt capital projects or cut service to make up for increased borrowing costs, Allison said.
Meanwhile, the transit system that runs through the nation’s capitol has rebounded to only about half of its pre-pandemic ridership. Washington Metropolitan Area Transit Authority chief financial officer Yetunde Olumide said the system needs a long-term funding plan which addresses operational, maintenance and capital needs.
And the Chicago Transit Authority has recaptured roughly 60% of its passengers. In March, Moody’s analysts said that if there is a decline in ridership and regional sales taxes, the system could see a downgrade.
“Based on conversations to date with the State legislature, we are optimistic about receiving additional funding,” Maddie Kilgannon, a CTA spokesperson, said in a statement. “We believe a funding solution will be viewed positively by the rating agencies.”
Read original article:
https://www.bloomberg.com/news/articles/2023-06-06/transit-systems-face-downgrades-as-us-riders-aren-t-returning?sref=dlv6Ue8o
New Jersey Senior-Living Facility’s Woes Exacerbated by Construction Delays
By Lauren Coleman-Lochner
June 2, 2023 at 1:23 PM EDT Updated on June 2, 2023 at 3:09 PM EDT
An assisted-living complex for low-income senior residents in southern New Jersey has been struggling to make timely monthly loan payments.
New Standard Senior Living said construction delays at its Village Drive campus in Millville has impeded its ability to lease units and choked its cash flow, according to a recent regulatory filing.
While such holdups have been a nationwide problem across industries, for health care they are one more added stress that can be crippling. Higher labor and supply costs, not to mention changing preferences that predate the pandemic, have made it difficult for numerous facilities to meet their financial obligations.
The senior-living industry, which includes bonds sold by retirement, nursing and assisted-living facilities, has been an outlier in the $4 trillion municipal bond market. About $5 billion of senior-living bonds are in either distress or default, roughly 11% of the sector’s outstanding debt, according to data compiled by Bloomberg.
Health-care debt, which includes senior living facilities, is the worst performing sector within high-yield municipals in 2023, losing 0.13%, the only negative return.
“While muni credit is likely to remain healthy, there is a small universe of credits that will remain challenged, mostly in the senior living, health care, and industrial revenue sectors,” Barclays analysts Mikhail Foux, Clare Pickering and Mayur Patel wrote in a recent note.
The New Jersey Health Care Facilities Financing Authority issued $23 million in revenue bonds in 2018 for construction of New Standard’s facility in Millville. The complex, which offers 154 pet-friendly, single-occupancy studios with private baths, opened about 10 months ago and is currently 60% occupied, according to Drew Barile, president and chairman of Noble Senior Services and New Standard Senior Living. The construction challenges delayed the facility’s opening and subsequent resident enrollment.
Even without construction problems, it’s hard for senior-living facilities “to make the economics work,” said Dora Lee, director of research at Belle Haven Investments. “There’s been a very big divergence between the private-pay senior-living facilities and the ones that rely more on Medicaid and Medicare.”
About 80% of residents at New Standard are Medicaid-funded, according to Barile. Facilities that have a larger number of low-income residents are scarce and struggle financially because government reimburses at a lower rate than private insurers, Lee said.
“COVID did create massive supply-chain and labor disruption contributing to serious challenges that we had to overcome,” Barile said in an email. He said the delays caused “market confusion” which they are addressing “aggressively.”
Barile said that currently, “all payments have been made within required parameters.” According to the filing, the facility has used loans from members and related parties in order to make late payments to the Trustee.
New Standard is not alone. There were regulatory filings detailing impairments at three other senior-living facilities, in Colorado, Tennessee and Illinois this week.
“We are likely to see increased defaults from this universe,” said the Barclays analysts. “Muni credit events tend to have a much longer lag from economic downturns.”
— With assistance by Shruti Singh and Trevor Rowe
Read original article:
https://www.bloomberg.com/news/articles/2023-06-02/nj-senior-living-facility-s-woes-exacerbated-by-construction-delays?srnd=citylab&sref=dlv6Ue8o
Belle Haven Investments named to 2023 Best Companies to Work for in New York
Belle Haven Investments named to 2023 Best Companies to Work for in New York
RYE BROOK, N.Y., April 24, 2023 /PRNewswire/ -- Belle Haven Investments is proud to announce that it has been named as one of the 2023 Best Companies to Work for in New York by The New York State Council of the Society for Human Resource Management, Best Companies Group and Rochester Business Journal. This is the fifth time the Firm has received this recognition.
Belle Haven's culture is built on a foundation that leverages mutual respect, teamwork, and passion. Commitment to shared success is at the heart of what they do. That is why they believe that hiring and retaining individuals with a diverse set of talents, perspectives, and experiences generates better ideas, creates a more creative work environment, and empowers employees to bring their whole self to work. The Firm is committed to maintaining an inclusive organization where all employees feel heard, valued, and respected.
Best Companies to Work for in New York identifies, recognizes, and honors the best places of employment in New York in three categories: small companies (15-99 employees), medium companies (100-249 employees), and large companies (250 or more employees). To be considered, companies must have at least 15 full-time or part-time employees working in New York; be a for-profit or not-for-profit business or government entity; be a publicly or privately held business; have a facility in the state of New York and be in business a minimum of one year.
Best Companies Group managed the overall registration and survey process and also analyzed the data and used their expertise to determine the final rankings.
For a complete list of the 2023 winners, visit: https://rbj.net/event/best-companies/.
About Belle Haven Investments
Based in Westchester County, New York, Belle Haven Investments is an independent, employee-owned money manager specializing in separately managed taxable and tax-exempt fixed income portfolios. The Firm's expertise and focus in one asset class have resulted in award-winning strategies. Their goal is to provide an unrivaled level of service, reliability, and customization to their Partners in building what they hope are partnerships for years to come.
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https://www.prnewswire.com/news-releases/belle-haven-investments-named-to-2023-best-companies-to-work-for-in-new-york-301805861.html?tc=eml_cleartime
Wall Street Boosts States’ Credit Scores as Recession Worries Cloud Outlook
By Skylar Woodhouse
April 19, 2023 at 10:57 AM EDT
The flood of US pandemic aid that flowed into state treasuries helped balance budgets and raise bond ratings. Now the question is whether a recession will halt states’ financial progress.
“If we have a very deep and sustained recession, we might see the credit quality or the ratings being adjusted,” said Dora Lee, director of research for Belle Haven Investments. “If we have a pretty mild recession, it is highly unlikely that these upgrades will be reversed.”
Illinois, Massachusetts and New Jersey this year have garnered higher credit scores from rating companies, including brighter outlooks for the states as well. The upgrades also helped shrink bond yield spreads in the primary and secondary municipal markets, signaling investor perception of state debt is improving.
The better state ratings are due in part to the positive effect of federal pandemic aid, which some states used for one-time expenses while others set cash aside for the future. State treasuries also saw an influx of tax revenue from residents — bolstered by US stimulus money sent to individuals — who spent on services at home at the height of the pandemic, and on travel after Covid lockdowns were eased.
Still, a slowdown in the US economy this year is causing concern that states can no longer expect a cash haul. The likelihood that the economy in the next 12 months will slide into a recession is greater now than a month earlier, according to a March 20-27 Bloomberg survey of 48 economists.
The poll, conducted after several bank closures roiled financial markets, put the odds of a contraction at 65%, up from 60% in February, amid interest-rate hikes by the Federal Reserve and growing risks of tighter credit conditions.
“Right now every state seems to have a fiscal position with sufficient flexibility, that we view as able to get through a mild, shallow recession,” Geoffrey Buswick, government sector leader at S&P Global Ratings, said in an interview. “Typically some states within a longer recessionary cycle will face great credit pressures.”
While many economists anticipate any recession will be relatively shallow, there are some who are warning of a deeper drop. “There remains a very real risk that the US could be about to enter a prolonged recessionary period,” a report last month from Teneo Holdings said.
Sunny Skies
For the moment, states continue to enjoy an improved status on Wall Street. The Commonwealth of Massachusetts was upgraded from AA positive to AA+ stable by S&P on Friday. Its general-obligation debt is just one step below the highest level for the first time since 2008.
In February, Illinois improved to A- from BBB+ stable at S&P. And in March, the state was upgraded a level to A3 from Baa1 by Moody’s Investors Service and had its outlook changed to positive from stable by Fitch Ratings Ltd.
New Jersey was raised to A1 from A2 by Moody’s this month. Also in April the state went to A stable from A- positive at S&P and A+ stable from A positive at Fitch Ratings. The upgrades came after state officials in the last two fiscal years made full pension contribution payments for the first time in decades, reducing New Jersey’s unfunded retirement liability.
S&P anticipates a shallow recession, but says if a contraction were to linger some states could see credit impacts. Fitch also says that due to the aggressive Fed tightening to arrest inflation there will be a mild recession in 2023.
“If the downturn becomes much more severe and much deeper than we’re anticipating, that does raise risk and there’s the potential that there would be more negative rating action,” said Eric Kim, a Fitch analyst. “But that’s not what we’re anticipating. Our ratings build in an expectation of a moderate downturn. If things get much deeper and much weaker, there’s more risk there.”
— With assistance by Sue Lucas
Read original article:
https://www.bloomberg.com/news/articles/2023-04-19/wall-street-boosts-states-credit-scores-as-recession-woes-cloud-outlook?sref=dlv6Ue8o
Largest Catholic University in US Faces $56 Million Budget Gap
Largest Catholic University in US Faces $56 Million Budget Gap
By Nic Querolo
April 14, 2023 at 2:41 PM EDT
DePaul University is facing financial pressure after the pandemic intensified declining enrollment and widened the Chicago private school’s budget gap.
To narrow the growing gap between revenue and expenses the largest Catholic university in the US is starting to cut its budget. It is offering a voluntary separation program to about 15% of the school’s 1,400 full-time staff and administration, according to an April 4 notice by DePaul University President Robert Manuel, faculty are ineligible. School officials project a shortfall of $56 million for the fiscal year beginning July 1, barring cost-cutting measures.
Higher education institutions across the country, in particular small private schools without the cushion of a large endowment, are facing financial strain as pandemic stimulus fades and students become increasingly leery of expensive loans at higher interest rates. Many students are even turning to alternative paths after graduating from high school.
“DePaul is facing a lot of the same challenges that a lot of their peers are facing, especially in the Midwest,” said Emily Wadhwani, a senior director at Fitch Ratings. Those challenges include post-Covid recruiting as students weigh alternatives, alongside inflation pushing the cost of expenses like wages and utilities higher.
University-wide enrollment at DePaul fell 3.5% year over year to 20,917 students in 2022. Since 2018, total enrollment fell 6.8%, with steep declines more recently among graduate students, according to data from the school. Nationally, undergraduate enrollment fell 9% to 15.9 million students between 2009 and 2020, according to data from the National Center for Education Statistics.
Manuel and DePaul University’s nine-member Strategic Resource Allocation Committee will need to submit a budget proposal to the board for approval in May.
“Currently, the university is engaged in its annual budgeting process, and is working to close a budget gap in order to meet its budgeted operating income for fiscal year 2024,” said spokesperson Kristin Claes Mathews in an emailed statement. “These activities will not impact the university’s outstanding debt, and we do not expect to issue any additional new debt.”
Wadhwani also stressed the budget gap is only about 10% of total revenue — a sum she said is significant, but not insurmountable.
“Our first concern is can they pay debt service — the answer here is definitively yes,” she said. DePaul has about $240 million of bonds and notes payable, about $186 million of which is public debt.
In the spring of 2020, DePaul was facing an $11 million budget gap but leadership delayed cost-saving measures to give the school flexibility during the pandemic, which exacerbated financial challenges.
DePaul received authorization for $77 million of stimulus funds as of June 2021, according to Fitch Ratings, and about $34 million of those funds were earmarked for student aid.
Many universities faced similar pressures before the pandemic, according to Dora Lee, director of research for Belle Haven Investments, who said Covid stimulus helped only temporarily.
“The federal aid papered over some of those stresses,” Lee said. “As that aid is sunsetting, we are seeing those same pressures re-emerge.”
Read original article:
https://www.bloomberg.com/news/articles/2023-04-14/depaul-university-faces-growing-budget-gap-as-enrollment-shrinks?sref=dlv6Ue8o
Illinois Bonds Surge Fueled by Credit Upgrades, Improved Revenue
Illinois Bonds Surge Fueled by Credit Upgrades, Improved Revenue
By Shruti Date Singh
Illinois’ bonds are rallying amid better-than-expected revenue and back-to-back credit upgrades.
An index of bonds sold by the state and its municipalities is up 2.7% since the start of the year, outpacing the 2.1% gain in the $4 trillion municipal-bond market’s benchmark index, according to data compiled by Bloomberg. And investors are demanding a smaller penalty to hold debt sold by Illinois, thanks to an improving financial outlook for the worst-rated US state.
One state of Illinois security due in 2033 traded with an average spread of 102 basis points over the benchmark on Tuesday, narrower than the last time the bonds changed hands at 145 basis point spread in late January, according to data compiled by Bloomberg.
The rally has been spurred by dual credit rating upgrades by S&P Global Ratings and Moody’s Investors Service, which allowed the Land of Lincoln to shed its position as the only US state without an A-level rating. Illinois’s bipartisan budget forecaster also raised its revenue outlook earlier this month. Investor sentiment has also turned more positive after the state started passing budgets on time, paid down billions in backlogged bills, built up a rainy day fund and boosted contributions to its severely underfunded pensions.
“Two upgrades into the A category is a big deal and I think you’ve seen a transformation,” said James Iselin, a
managing director and head of municipal fixed income at Neuberger Berman Group LLC, which owns Illinois debt as part of $11 billion of muni assets. “This is quite a turnaround story.”
This is a stark change from just several years ago when investors feared Illinois may be downgraded into junk as revenue plummeted and borrowing costs surged with 10-year state bond yields widening to a whopping 4.4 percentage points more than top-rated debt in May 2020. That forced Illinois to be one of only two issuers and the sole state to borrow from the Federal Reserve’s emergency lending arm during the depths of the pandemic.
When the national economy rebounded bolstered by federal aid, tax revenue filled coffers and allowed the state to pay down some of those long-time liabilities. Now, investors are demanding less of a concession for holding the state’s bonds. Ten-year Illinois bond spreads are hovering around 120 basis points more than top-rated securities, according to data compiled by Bloomberg.
That market confidence may help the state get a better rate when it borrows for the first time this year. Illinois plans to sell as much as $2.5 billion of general obligation bonds before June 30 to finance capital projects, its pension buyout plan, and refund currently callable bonds, according to Governor J.B. Pritzker’s budget office.
‘Tightly Held’
The state’s general obligation bonds are “tightly held” after a drop-off in new municipal bonds which has amplified the spread compression, Iselin said in an interview. Investors want to keep Illinois debt to hold a yield attached to an improving credit and because it’s hard to replace those bonds with other comparable securities, he said.
“Broadly, riskier credits that widened during 2022’s selloff are tightening as specific metrics improve for these types of credits,” Kimberly Olsan, senior vice president of municipal bond trading at FHN Financial , said in an email. “The other component adding to tighter conditions is that supply remains muted and secondary inventories are challenged for product.”
Long-term municipal sales through March 21 are down 18% this year, the slowest start to a year since 2018,
according to data compiled by Bloomberg. Investors are seeking refuge from the global banking crisis in the low default municipal market.
“Illinois bonds have benefited from a convergence of a positive credit story and recent upgrades with a period of low supply and a general flight to quality resulting in muni inflows,” said Dora Lee, director of research at Belle Haven Investments, which holds Illinois debt as part of about $15 billion in muni assets. “With so many inflows and so little supply, it’s like the toilet paper shortages at the beginning of the pandemic for high quality bonds.”
Chicago’s Next Mayor Must Have a Plan to Tackle the City's $34 Billion in Pension Debt
By Shruti Singh
March 2, 2023 at 3:17 PM EST
Chicago is guaranteed a new mayor after voters rejected incumbent Lori Lightfoot’s bid for a second term. With the looming leadership change, investors want to know whether the city will keep up recent financial momentum or return to old bad habits.
The third-largest US city escaped from junk-rating territory late last year after paying more into its long-strained pensions that are still short nearly $34 billion. The mayoral runoff contenders — Cook County Board Commissioner Brandon Johnson and Paul Vallas, the former Chicago schools chief, have starkly different approaches for how to address that shortfall and the rest of the challenges facing its 2.7 million residents.
“Preserving and furthering the financial and credit improvements should be a top priority for any candidate,” said Dora Lee, director of research at Belle Haven Investments, which holds Chicago debt as part of $15 billion in muni assets. “Campaign promises are very easy to make but very hard to execute. However, they will be easier to accomplish if the city is on a sound financial footing.”
The city has long struggled with pension debt and chronic structural deficits. With about one out of every five budget dollars going to pensions, there’s less money available for crucial services like policing. This comes as the city struggles with rising crime, a key issue that contributed to Lightfoot’s loss. Both Vallas and Johnson have promised to make the city safer and more equitable for residents but differ on how to fund their plans.
Johnson, who is backed by the Chicago Teachers Union, and Vallas, who is endorsed by the police union, have laid out high-level plans. Neither were immediately available for an interview.
According to his campaign website, Johnson, 46 wants to raise taxes on companies that profit from doing business in the city, including hotels, and airlines that pollute the city’s air. He would reinstate the so-called “big business head tax” with a $4 per employee levy on companies that perform 50% or more of their work in Chicago. He’s also proposing a “mansions tax” on the transfer of high-value properties and a levy on securities trading, which the city’s exchanges have opposed.
Vallas, 69, the front-runner who won nearly 34% of the Feb. 28 vote compared to Johnson’s 20%, has an entire page on his campaign website devoted to pension funding. He would put the city’s retirement funds under the direction of independent professional investment managers who are held accountable for performance. His plan also leans heavily on working with state officials to secure more funding.
Vallas also would consider tapping surpluses from tax increment financing districts to fund pension obligation bonds, according to his campaign website.
One major point of agreement: both Vallas and Johnson have said they won’t raise property taxes, a major source of revenue. Roughly 80% of those levies go to pay retirement benefits.
Under Lightfoot, the city boosted payments to its retirement funds by more than a $1 billion in the last three years to meet statutory funding mandates that kicked in before Covid-19 hit. But her administration went further by putting in $242 million more than required in the 2023 budget. It also advanced roughly half a billion dollars to its funds starting in late 2022 to prevent them from selling assets during a market rout.
The increased pension funding led to credit upgrades, including one in November from Moody’s Investors Service that lifted its rating from junk to investment grade for the first time since 2015. The previous month, Fitch Ratings had raised the city’s credit by one level to BBB with a positive outlook.
“While it’s too early to gauge the impact of any new administration’s fiscal policies and financial management, Chicago’s ‘BBB’ rating and positive outlook hinge upon the city sustaining its commitment to maintaining high budget reserves and actuarial pension funding,” Michael Rinaldi, a senior director for Fitch, said in an email.
Chicago is continuing to recover financially from the pandemic, with revenue growing and budget shortfalls shrinking since the worst of 2020 and 2021 partly thanks to to federal aid, according to Sarah Wetmore, acting president of government fiscal watchdog the Civic Federation.
“There are still a number of issues the city faces going forward, including still high levels of violence, a public transit system struggling with reliability issues and decreased ridership as well as substantial projected budget deficits in coming years once federal pandemic funding runs out,” Wetmore said.
Read original article:
https://www.bloomberg.com/news/articles/2023-03-02/chicago-s-next-mayor-vallas-or-johnson-will-face-financial-challenges?sref=dlv6Ue8o
Belle Haven Investments Named "Manager of the Decade" Five Times by PSN Informa
Quarterly PSN Top Guns List published by Zephyr identifies best-in-class separate accounts, managed accounts, and managed ETF strategies
RYE BROOK, N.Y., Feb. 22, 2023 /PRNewswire/ -- Belle Haven Investments has three strategies that have each been awarded Top Guns Manager of the Decade distinction for the 10-year period ending Q4 2022.
Muni PLUS was awarded Manager of the Decade in the Municipals Universe. Taxable PLUS was awarded Manager of the Decade in both the Core Fixed Income and US Fixed Income Universes for the fourth consecutive year. Taxable Ladder PLUS was awarded Manager of the Decade in the Core Fixed Income Universe for the third consecutive year and for the first time in the US Fixed Income Universe.
Muni PLUS is Belle Haven's flagship, actively managed separate account strategy that invests in tax-exempt municipal bonds. Taxable PLUS and Taxable Ladder PLUS are actively managed separate account strategies that invest in taxable municipal bonds, corporate bonds, agencies and treasuries.
Additionally, several of Belle Haven's separately managed account strategies received the following designations for the fourth quarter of 2022:
Taxable Ladder PLUS – 4 Stars – Core Fixed Universe
Taxable Ladder PLUS – 5 Stars – Core Fixed Universe
Taxable PLUS – 4 Stars – Core Fixed Universe
Taxable PLUS – 5 Stars – Core Fixed Universe
Taxable PLUS – 6 Stars – Core Fixed Universe
3-17 Year Ladder – 1 Stars – Intermediate Maturity Universe
3-17 Year Ladder – 1 Stars – Municipals Universe
3-17 Year Ladder – 4 Stars – Municipals Universe
Cash Management – 3 Stars – Less than 1 Year Mat Universe
"It is quite an honor to have our strategies recognized as top performers in their respective universes." said Matt Dalton, CEO & CIO of Belle Haven Investments. "We believe our disciplined approach and focus on long-term risk-adjusted returns have and will continue to allow us to produce compelling results for our clients."
Through a combination PSN's proprietary performance screens, the PSN Top Guns List ranks products in six proprietary categories in over 75 universes based on continued performance over time.
Belle Haven Investments' Muni PLUS, Taxable PLUS and Taxable Ladder PLUS strategies were all named Top Gun Manager of the Decade, meaning these strategies had an r-squared of 0.80 or greater relative to the style benchmark for the latest 10-year period. Moreover, the strategy's returns were greater than the style benchmark for the latest 10-year period and also standard deviation less than the style benchmark for the latest ten-year period. At this point, the top ten performers for the latest 10-year period become the PSN Top Guns Manager of the Decade.
Top Guns 1-Star Criteria: Product had one of the top ten returns for the quarter in their respective strategy.
Top Guns 3-Star Criteria: Product had one of the top ten returns for the three-year period in their respective strategy.
Top Guns 4-Star Criteria: Product had an r-squared of 0.80 or greater relative to the style benchmark for the recent five-year period. Moreover, the strategy's returns exceeded the style benchmark for the three latest three-year rolling periods. The top ten returns for the latest three-year period then become the 4 Star Top Guns.
Top Guns 5-Star Criteria: Product had an r-squared of 0.80 or greater relative to the style benchmark for the recent five-year period. Moreover, the strategy's returns exceeded the style benchmark for the three latest three-year rolling periods. Products are then selected which have a standard deviation for the five-year period equal or less than the median standard deviation for the peer group. The top ten returns for the latest three-year period then become the 5 Star Top Guns.
Top Guns 6-Star Criteria: Product had an r-squared of 0.80 or greater relative to the style benchmark for the recent five-year period. Moreover, the strategy's returns exceeded the style benchmark for the three latest three-year rolling periods. Products are then selected which have a standard deviation for the five-year period equal or less than the median standard deviation for the peer group. The top ten information ratios for the latest five-year period then become the 6 Star Top Guns.
The complete list of PSN Top Guns and an overview of the methodology can be located at https://psn.fi.informais.com/. Registration is required.
About BELLE HAVEN INVESTMENTS
Belle Haven Investments is an independent money manager specializing in separately managed taxable and tax-exempt portfolios since 2002. The firm is uniquely committed to serving Consultants and Advisors along with the Institutions, Foundations, Family Offices and High Net Worth individuals whom they represent. The team's expertise and focus in the fixed income asset class has resulted in award-winning strategies. Belle Haven is a Registered Investment Advisor with the Securities Exchange Commission (SEC). For more information, please visit www.bellehaven.com
About PSN
For nearly four decades, PSN has been a top resource for investment professionals. Asset managers rely on Zephyr's PSN to effectively reach institutional and retail investors rely. Over 2,800 firms, 285 universes, and more than 21,000 products comprise the PSN SMA database showing asset breakdowns, compliance, key personnel, ownership diversity, ESG, business objectives and strategy, style, fees, GIC sectors, fixed income ranges and full holdings. Unique to PSN is its robust historical database of nearly 40 Years of Data Including Net and Gross-of-Fee Returns. For more details on the methodology behind the PSN Top Guns Rankings or to purchase PSN Top Guns Reports, contact Margaret Tobiasen at Margaret.tobiasen@informa.com. Visit PSN online to learn more.
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https://www.prnewswire.com/news-releases/belle-haven-investments-named-manager-of-the-decade-five-times-by-psn-informa-301753509.html?tc=eml_cleartime
A Small Catholic College's Closure Hints at More to Come
A Small Catholic College's Closure Hints at More to Come
By Allison Nicole Smith
January 24, 2023 at 1:06 PM EST
Economic strains that have pushed a number of colleges and universities to the brink show no signs of stopping, with Holy Names University in Oakland, California, the first to default on its debt in 2023.
The Roman Catholic school with fewer than 1,000 students defaulted on a $49 million loan, according to a Jan. 3 filing, after the almost 155-year-old institution announced it would be closing its doors at the end of the academic year.
The closure is likely a harbinger of what’s to come as S&P Global Ratings has warned less selective, regional institutions will struggle in the new year. Growing competition, falling enrollment trends and higher expenses could weaken credit quality. At the same time, waning risk appetite ahead of a looming recession means struggling schools’ access to the $4 trillion municipal-bond market could be limited.
“It boils down to a supply and demand issue,” said Lisa Washburn, managing director at Municipal Market Analytics. “We’ve just got too many seats for too few students. Add to that rising costs and a pandemic, and some schools just become uneconomical to run.”
With a projected decline in US high school graduates, it’s an issue more universities are facing. But the pain is especially apparent at small, religious colleges with high acceptance rates.
Georgian Court University, a Catholic school in New Jersey, was downgraded into junk by Moody’s Investors Service Thursday, citing declining enrollment and strained revenue. Presentation College, a Catholic institution in South Dakota, announced plans to close early last week. And Birmingham-Southern College, a liberal-arts school affiliated with the United Methodist Church, is asking for $37.5 million to keep its doors open.
Rising costs, exacerbated by the pandemic, have contributed to Fitch Ratings’s “deteriorating” outlook on the higher education sector. In 2020, Holy Names reported operating losses of $8.6 million, followed by $4.2 million in 2021. However, the university was already struggling in 2019 when it tapped the municipal-bond market for $49 million to pay off old debt and fund capital expenditures.
Tuition at Holy Names — a predominately-Hispanic and Black university, where roughly half of students qualify for Pell Grants — costs about $52,000 a year, including meals and housing.
A five-year plan initiated in 2019 intended to boost enrollment, but only 943 students were enrolled this past fall, missing projections by nearly 40%. Spring enrollment was even worse after the university said in November it was looking to merge with another school to cover expenses. Only 449 students enrolled.
Ultimately, Holy Names did not find a suitor — in what appeared to be a difficult search, according to a Dec. 14 letter by student body president Ruby Mayne to the board of trustees. The university missed multiple deadlines for an update to students, resulting in “rampant rumors” and “a scramble to meet transfer deadlines.”
Moreover, its failure to merge with another school highlights how vulnerable smaller colleges are in an oversaturated market, said Dora Lee, director of research at Belle Haven Investments.
About $687 million of outstanding debt sold for US colleges and universities has defaulted or has payments at risk, according to data analyzed by Bloomberg.
“The fact that it wasn’t assumed by another higher-ed facility shows that while we do expect mergers and acquisitions, merging your way out of these problems might not be an option for a lot of these small colleges,” Lee said. “In this high-interest rate environment, the closure of Holy Names is a theme that we expect to continue.”
Neither Holy Names nor Preston Hollow Community Capital, the majority bondholder, responded to requests for comment.
— With assistance by Nic Querolo and Trevor Rowe
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https://www.bloomberg.com/markets/fixed-income?sref=dlv6Ue8o