Press - Belle Haven Investments

2024 | Pensions & Investments

Best Places to Work in Money Management

December 09, 2024

Belle Haven Investments

Three cool things:

Offers executive coaching for employees who wish to work with an external coach to help hone their skills, navigate challenges and improve performance. Other development activities include job shadowing and/or cross training; leadership workshops; and mentoring.
Emphasizes taking care of mental health by offering semiweekly in-office chair massages, catered daily lunches and an annual subscription to the Calm meditation app. Provides access to professional counseling services through LifeCare program to employees and their dependents.
Promotes social environment through activities such as happy hours, family fun days and in-office ice cream socials during Fridays in the summer. In addition to work milestones and new family members, celebrates every employee’s birthday with their favorite dessert and lunch.

Employees say:

“I am excited to come to work each day as it is a very positive and fun work environment. Everyone works together to help the firm succeed as a team. There are good growth opportunities, and employees are appreciated and recognized for their hard work.”
“The culture and people here make going to work more fun. It’s a pleasure to work in such a collaborative, cooperative environment with a really great group of people. The firm also puts effort into doing fun team events.”
“The firm bends over backwards to make sure the employees are happy, respected and well fed!”

Read original article: https://www.pionline.com/best-places-work-money-management/belle-haven-investments-named-2024-best-places-work-money

2024 | Bloomberg

The Rose Bowl to Refinance Debt With Tax-Free Bonds Ahead of Trump

November 13, 2024

By Maxwell Adler

Managers of the Rose Bowl, the 102-year-old stadium northeast of Los Angeles, head to Wall Street this week to refund taxable Build America Bonds into tax-exempt debt.

The iconic stadium’s municipal guardians are looking to capitalize on favorable market conditions. They also will sidestep any potential tax law changes from the incoming Trump administration that might increase interest costs on bonds from the Obama-era BAB program.

The Pasadena Public Financing Authority is selling about $105 million of lease revenue refunding bonds beginning Wednesday. The negotiated refinancing, led by Stifel Financial Corp. and Raymond James Financial Inc., targets $106.6 million in Build America Bonds issued in 2010 to expand the Rose Bowl’s concourses, build new premium seating and update broadcast facilities.

The sale is part of a series of planned refundings to replace taxable debt sold under the program with tax-exempt securities. BABs were issued in 2009 and 2010, in the wake of the Great Financial Crisis, to provide issuers a cost-effective way to finance infrastructure projects.

The federal government originally said it would cover 35% of the interest costs on the securities but has since lowered that subsidy anywhere from 8.7% to 5.7% through sequestration. Consequently, issuers have endured higher debt service costs.

Subsidy Risk
Following the election of a Republican President and the party gaining a majority in the Senate earlier this month, issuers are concerned about added risk to the direct subsidies that support BABs.

“Scaling back or eliminating the BABs subsidy has been mentioned several times as a potential ‘pay for’ as part of a larger package to extend the 2017 tax cuts,” said Justin Marlowe, a professor at the University of Chicago’s Harris School of Public Policy. “All indications are that the Trump administration intends to push that package as soon as possible.”

Meanwhile, market conditions provide an opportunity for issuers to refinance their BABs, according to Marlowe.

“The 10-year exempt-to-taxable ratio is quite rich - about 68% as of Monday,” he said. “That’s a good opportunity for an issuer to move from taxable to tax-exempt yields.”

S&P Global Ratings assigned the bonds an AA+ rating.

“Setting aside the recent market volatility, we do expect strong investor demand,” said Dora Lee, research director at Belle Haven Investments. “The Rose Bowl name definitely will attract more interest, especially with retail accounts.”

Pennsylvania State University, Florida State University and the University of Memphis all had successful stadium debt sales within the past few months, according to Marlowe.

“And while noteworthy, none of those deals had the brand recognition of the Rose Bowl,” he said.

Read original article: https://www.bloomberg.com/news/articles/2024-11-13/the-rose-bowl-moves-on-from-build-america-bonds-after-trump-win?srnd=undefined&sref=dlv6Ue8o

2024 | Bloomberg

NJ Transportation Agency Raises $3.2 Billion in Muni Sale Surge

October 18, 2024

A New Jersey agency that finances road, bridge and mass transit infrastructure, joined the debt spree spurred by municipal issuers rushing to raise cash before the Nov. 5 US election.

The New Jersey Transportation Trust Fund Authority sold $3.2 billion in tax-exempt and taxable bonds Thursday to refinance its higher cost debt. The authority is fine-tuning its obligations as the state’s finances improve despite a turbulent year for NJ Transit riders who have been bombarded with service meltdowns and disruptions.

The deal comes amid a surge in municipal bond sales, as borrowers seek to lock in financing ahead of a potential uptick in market volatility ahead of the US presidential election. The new bonds are backed by appropriations from lawmakers and carry an A rating from Fitch Ratings and an A- rating from S&P Global Ratings Inc., one level lower than their respective grades on New Jersey’s general obligation debt.

All three credit ratings companies recently upgraded New Jersey debt as a surge in income tax collections following the pandemic and an influx of federal aid helped to stabilize the budget. A recent increase to New Jersey’s gas tax and a new $250 registration fee on electric vehicles will also bolster state coffers.

The state’s pensions are about 40.3% funded as of 2023, an improvement from 33.3% in 2019, according to Fitch.

“They’ve bought down debt substantially and they brought down their pension burden substantially,” said Doug Offerman, a Fitch analyst. “Their liabilities are still a challenge, they’re still elevated for a state, but they’ve made substantial progress.”

To place the bonds, underwriter Bank of America Corp. priced 10-year debt with yields about 69 basis points above the benchmark, according to data compiled by Bloomberg.

The deal features a buyback, also known as a tender, which was recently offered to investors. Such transactions have ticked up in recent years as issuers seize on a stabilizing rate environment, according to Dora Lee, research director at Belle Haven Investments.

“The interest rates have to align to make sense of the refunding. So it’s a very fleeting moment,” she said. Tenders are often used as a refinancing tactic, allowing a municipality to swap out expensive debt for new bonds with lower interest rates.

The offering comes under the support of the Transportation Trust Fund, which was renewed in March, and provides the agency with nearly $9 billion of bonding authority and $1.5 billion in spending. The bulk of that is expected to be spent on aging infrastructure after decades of underinvestment that have continuously upended commutes along the busiest rail corridor in the country.

The reauthorization also boosted annual payments for NJ Transit capital projects to $813 million from about $770 million.

Read original article: https://www.bloomberg.com/news/articles/2024-10-18/nj-transportation-agency-raises-3-2-billion-in-muni-sale-surge?sref=dlv6Ue8o

2024 | Bloomberg

Buffalo Bills Fans Snap Up Stadium Bonds in Tax-Shy New York

September 25, 2024

Buffalo Bills fans, fresh off a blowout win against the Jacksonville Jaguars, just scored another victory — this time in the municipal bond market.

Roughly 100 retail buyers placed orders for debt sold this week which will help finance the construction of a new $1.7 billion stadium for the National Football League team in Orchard Park, New York. Fans in the highest-tax bracket would need to find a taxable security yielding about 7% to compete with the payout on the offering’s 20-year bond. Treasuries would need to offer a yield of 5.83%.

That’s because the debt is exempt from state and federal income taxes, a valuable haven in a state with one of the highest levies in the US.

“For top tax-rate payers in New York, this was hard to pass up,” said James Pruskowski, chief investment officer at 16Rock Asset Management. “This AA-rated credit offered a rare opportunity to lock in high yields without having to take on the substantial credit or liquidity risks typically required in other markets to achieve similar returns.”

The bonds were marketed to members of the Bills’ enthusiastic fan base dubbed ‘Bills Mafia’ known around the NFL for rowdy pre-game tailgates and such loud cheering that’s said to rival jet engines. The retail-order period took place on Monday, allowing mom and pop buyers to have first dibs on the debt before institutional pricing on Tuesday.

Such priority is common in high-tax states like New York or California. In total, about 100 individuals placed bids for bonds, totaling about $2.7 million of orders on the $110 million sale, according to a spokesperson for the Erie County Comptroller.

This year, asset management companies have been touting the attractive yields on tax-exempt muni bonds after considering the value of that tax break. Investors in the highest-tax bracket benefit the most from the exemption. For New Yorkers, the tax-exemption is especially valuable as the highest levy is 10.9% — among the biggest in the country.

Erie County sold debt due in 20 years that was priced to yield 3.45%. It sounds small, but considering the tax break on the debt, the wealthiest New Yorkers snapping up the securities earned yields equivalent to 7.1% on taxable debt, shows an online tool from Eaton Vance, part of Morgan Stanley Investment Management.

For those with a household income of $400,000, the benefit still stands. A similarly-dated US Treasury would need to yield 5.37% to compete with the 20-year Bills’ bond. Currently such debt is trading at a rate of about 4.18%.

The Bills bonds are rated AA by S&P Global Ratings, the third-highest grade available. Though, on the short-end of the curve, the debt priced with yields lower than top-rated benchmark bonds, indicating strong demand for debt that matures in just a few years.

“The heavy demand was a result of a new name coming to market,” said Max Christiana, a portfolio manager for Belle Haven Investments. He also mentioned that a sale by New York City’s water utility didn’t have many short-dated maturities, raising demand for issues that did have that structure.

Read original article: https://www.bloomberg.com/news/articles/2024-09-25/nfl-s-bills-mafia-bonds-show-buying-play-for-tax-shy-new-yorkers?sref=dlv6Ue8o

2024 | Bloomberg

Muni Buyers Pounce on Profusion of Bond Sales Ahead of Fed Cut

September 16, 2024

By Danielle Moran and Martin Z Braun

Municipal bond buyers scooped up an abundance of debt sales last week, eager to lock in higher yields before the Federal Reserve is widely expected to lower interest rates for the first time in more than four years.

States and local governments sold more than $14 billion of debt in the week ended Friday, one of the largest weekly amounts of the year and 79% more than the five-year weekly average, according to data compiled by Bloomberg. Borrowers are rushing to market ahead of potential volatility before the US presidential election in November. Long-term municipal bond issuance is up more than one-third over 2023’s pace.

“These next couple of weeks are basically the last chance to stock up on decent yields,” said Dora Lee, research director at Belle Haven Investments. She said that recent transactions, including one by New York City, garnered healthy demand from investors.

New York City’s Transitional Finance Authority lowered yields one to seven basis points on its $1.5 billion tax-exempt bond deal, as investors place orders for almost three times the amount of bonds available, depending on the maturity, according to a city news release.

Despite the heavy supply, muni prices remained resilient. Ten-year, top-rated muni yields both started and ended the week at a 2.61%, illustrating the strong level of buyer interest. That’s made more impressive because reinvestment demand from coupon and maturing bonds is far lower in September than over the summer when it props up valuations. On Sept. 10, municipal bonds reached their cheapest levels relative to US Treasuries since November 2023, according to data collected by Bloomberg.

“Supply is being absorbed really well,” said Jeremy Holtz, portfolio manager at Income Research + Management. He said that the potential for lower interest rates is a major factor for investors adding cash to muni-bond funds.

Such funds collected about $1.3 billion during the week ended Wednesday, according to LSEG Lipper Global Fund Flows data.

Washington, DC brought $1.6 billion of debt to market on Sept. 10, in a sale that raised money to refinance existing debt and to fund new projects. That transaction received more than $10 billion of orders from 106 different investors, according to Drew Gurley, a managing director at Siebert Williams Shank, which underwrote the transaction. That demand allowed the district to lower yields by as much as 11 basis points, he said.

Sales are expected to drop off this week as governments generally avoid coming to market when the Federal Open Market Committee meets. However, issuance is likely to inch back up with about six weeks until the election. Borrowers have already lined up about $15.5 billion of sales over the next 30 days, according to data compiled by Bloomberg.

“Supply is going to continue to come in very large numbers,” Holtz said. “It’s all about the election and issuers are trying to get ahead of that. Last week was really well absorbed and the big question is whether that’s going to stay.”

Read original article: https://www.bloomberg.com/news/articles/2024-09-16/muni-buyers-pounce-on-profusion-of-bond-sales-ahead-of-fed-cut?accessToken=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJzb3VyY2UiOiJTdWJzY3JpYmVyR2lmdGVkQXJ0aWNsZSIsImlhdCI6MTcyNjU3Njc2MCwiZXhwIjoxNzI3MTgxNTYwLCJhcnRpY2xlSWQiOiJTSldOV0pUMVVNMFcwMCIsImJjb25uZWN0SWQiOiI4MzA4Q0NERkM0RjQ0NzU3OURBQjEwRUU0MEIyNUZCMiJ9.iHAxo0SZAvqrwXU5psry4pwewzwvitntWnF6ALbv3_8&sref=dlv6Ue8o

2024 | Times of San Diego

Financial Panel: Regardless of Who Wins Presidency, U.S. Markets Will Be Fine

September 13, 2024

A panel of financial experts told San Diego investors Thursday that regardless of who wins the presidency, the United States will likely see divided government and financial markets should be just fine.

Shane Lieberman of UBS Global Wealth Management — the sponsor of the event — said that while Vice President Kamala Harris won Tuesday’s debate, and Taylor Swift’s endorsement of her could be a game changer, “Trump is not out.”

Lieberman, who is a senior governmental affairs advisor for UBS, predicted Republicans could easily win the Senate, regardless of who becomes President, but Democrats are likely to flip the House.

“At the end of the day, there’s a good chance of divided government,” he said. “But the markets are OK with divided government.”

Panelist Ben Walker of Dimensional Fund Advisors in Austin noted that financial markets have historically done well under both parties.

“In general, markets have performed well under both Republicans and Democrats,” said Walker, recommending investors should “stick to your asset allocation” whoever wins.

Lieberman, Walker, Stan Sattler of Belle Haven Investments and moderator Mike Ryan, vice chairman of UBS Global Wealth Management, appeared before nearly 100 investors at the Lodge at Torrey Pines.

They presented to similar investor groups invited by UBS in Phoenix and Los Angeles before traveling to San Diego.

Sattler addressed the state of the economy, noting that as a fixed income manager his New York-based firm is “constantly pessimistic.”

“I won’t be bold enough to say that there’s a recession on the horizon. But obviously there is trepidation for us that the economy is going to slow,” he said.

Turning to the election, Sattler said that Tuesday’s debate provided “a lot of clarity on other things, but no policy” that investors could consider.

Read original article: https://timesofsandiego.com/business/2024/09/12/financial-panel-regardless-of-who-wins-presidency-u-s-financial-markets-will-be-fine/?utm_campaign=Brunch%20with%20Belle%20Haven&utm_medium=email&_hsenc=p2ANqtz-9hU9ynwpgJ6ic_IGoMdtDGIFC8iKz5eATps31b0WxWbn6C4wXxUx80HhU8rvI6qUMWAvmGa7hrzw88n5Y9U8aEESwB-Q&_hsmi=324816048&utm_content=324816048&utm_source=hs_email#google_vignette

2024 | Bloomberg

College to Sell Georgia O’Keeffe Art to Pay for Freshmen Dorms

September 11, 2024

By Lily Meier

While US colleges are borrowing billions from the debt market to fund campus upgrades, an Indiana university is taking a unique route: selling a Georgia O’Keeffe painting.

Valparaiso University received court approval last month for its contentious plan to sell three works of art from its Brauer Museum of Art collection, most notably “Rust Red Hills” by the famed modernist painter, that’s estimated to be worth as much as $15 million. It intends to use the proceeds to finance renovations for freshman dormitories, expecting these upgrades to cost between $12 million and $20 million.

The maneuver comes as the university, much like its peers, is contending with a decline in enrollment. Several other higher-education institutes have embarked on a borrowing spree — selling $23 billion of muni debt so far this year, an increase of more than 100% over the same period in 2023. It’s a precarious situation: if they fail to lure new students, they might have to raise tuition fees for existing ones or risk shouldering a heftier financial burden.

Smaller colleges are stuck in a “catch-22 situation”, where they either can’t make investments to strengthen their programs or don’t have the enrollment to support these improvements, said Dora Lee, director of research at Belle Haven Investments.

In Valparaiso’s case, headcount dropped 26% since 2019, according to the university’s website. Its unusual path to raise money has come with its own complications after it faced backlash from the art world and its own community.

“I think their decision to sell the paintings for dorm renovations kind of points to — I wouldn’t say a last ditch effort — but a desperate attempt to reverse its enrollment declines, which is really the cause of its financial troubles,” Lee said.

The university garnered ire from art institutions over its decision to deaccession the art. It was also sued by two retired professors — Richard Brauer and Philipp Brockington — last year over the matter. Brauer, the first director of the university’s museum and its namesake, said in a statement that he will ask to have his name removed if the paintings are sold. Brockington has since died, his lawyer said.

Valparaiso said it will respect Brauer’s request.

“This has been a difficult decision throughout,” a spokesperson for the school said in an emailed statement, adding that the move to sell is “the best possible future for the Sloan trust, our students, and our university as a whole.”

The university — citing an operating deficit because of declining enrollment — deemed it “impractical and wasteful” to spend on capital improvements needed to securely display the paintings, according to a petition shared by the New York Times. It also said it should be able to sell the pieces because the Percy H. Sloan trust — through which the paintings were acquired — was established with the intention of purchasing conservative art, which two of the paintings it wants to sell are not.

Lisa Washburn, a managing director at Municipal Market Analytics, said the art sale underscores the lack of financial resources currently at the school’s disposal.

“It’s not credit positive to see any organization have to resort to one-time measures in order to be able to fund necessary improvements,” she said.

Read original article: https://www.bloomberg.com/news/articles/2024-09-11/valparaiso-university-to-sell-georgia-o-keeffe-painting-to-renovate-dorms?sref=dlv6Ue8o

2024 | Bloomberg

NYC’s Transit System Faces Another Budget Crisis With Congestion-Pricing Pause

July 23, 2024

By Michelle Kaske

Delaying New York City’s congestion pricing plan forces the Metropolitan Transportation Authority to shelve $16.5 billion worth of capital improvements and likely shatters the transit agency’s balanced budgets through 2027.

Governor Kathy Hochul says she’s going to fix it, though how and when she’s going to piece back together the MTA’s finances is unclear. She points instead to her success last year in boosting a tax on New York City’s largest businesses to pull the agency back from a fiscal cliff.

“This will get resolved,” Hochul said about MTA’s anticipated funding gaps during an interview with Bloomberg News. “I guarantee this will get resolved and I’m going to take care of the riders.”

Hochul’s decision to indefinitely pause a first-of-its-kind tolling initiative that was set to begin June 30 means the MTA — which runs the city’s transit network — won’t get an estimated $1 billion a year. That money was going to modernize a more than 100-year-old system and improve service to help attract more riders. The pause will also squeeze the MTA’s operating budget — which covers day-to-day operations — with increasing expenses.

MTA officials are analyzing the size of that strain and expect to update later this month its multi-year fiscal plan, which will likely include new budget shortfalls.

“Through a situation entirely of the state’s making, they are in a crisis mode right now where they have to come up with long-term funding solutions to get themselves back on track,” said Dora Lee, director of research at Belle Haven Investments LP.

The transit agency isn’t able to enter into new construction contracts until officials determine another funding source. That won’t happen until Hochul and the legislature hash out the state’s next budget, a process that traditionally starts in January.

“Everybody thinks that this is the only path, the only way you can possibly fund the MTA,” Hochul said about the tolling initiative. “We have figured it out in the past without congestion pricing.”

The murky outlook for the MTA’s finances is a far different picture than in 2023, when Hochul and state legislators raised the payroll mobility tax on the city’s largest businesses to help fix the agency’s budget shortfalls, creating balanced spending plans for five straight years.

“I don’t know that we’re going to see five balanced years in July,” said Ana Champeny, vice president for research at the Citizens Budget Commission, a nonprofit organization that analyzes New York City and state finances. “It’s pretty unlikely. The question is how big are those gaps and what’s the solution?”

Congestion pricing would have charged motorists entering into the most crowded part of Manhattan, in an effort to decrease traffic and improve air quality. The revenue would have generated $15 billion to replace subway signals from the 1930s, purchase new train cars, add elevators to stations and extend the Second Avenue subway to Harlem.

To be sure, MTA’s balanced budgets faced risks even before the decision to pause congestion pricing. Farebox collections are $57 million below estimates through May. Additionally, taxes tied to real estate are poised to come in $300 million short this year if that sector continues to underperform, Kevin Willens, the MTA’s chief financial officer, warned last month during a committee meeting. The agency is pushing to clamp down on fare evasion, which is estimated to cost it as much as $800 million this year.

Delaying the tolling initiative adds to those challenges. Instead of selling congestion-pricing bonds, the MTA will need to issue debt repaid through its operating budget sooner than expected. That would accelerate principal and interest payments by as much as $300 million. The agency will also need to resolve an estimated $2 billion of labor costs for the capital plan budgeted with congestion pricing funds.

Overtime and maintenance expenses are expected to increase because workers will likely spend more time repairing aging equipment and train cars that were due to be replaced. It’s possible farebox collections will need to be revised downwards because congestion pricing was expected to boost ridership.

“These are real costs. They are not going away under the current situation,” Neal Zuckerman, chair of the MTA’s finance committee, said. Though, state and city leadership has a track record of supporting the MTA and its financial health, he stressed.

But given Hochul’s sudden reversal on congestion pricing with no funding alternative in place, it’s possible that state assistance may not match all of MTA’s needs, said Belle Haven’s Lee.

“It used to be that they’ll support it, up to a certain level,” Lee said. “That level appears to have significantly dropped given how hasty this decision was.”

Read original article: https://www.bloomberg.com/news/articles/2024-07-23/nyc-s-transit-system-faces-another-budget-crisis-with-toll-pause?sref=dlv6Ue8o

2024 | Bloomberg

Oakland Counts on Coliseum Sale to Close $117 Million Budget Gap

July 17, 2024

By Maxwell Adler

Oakland, California, risks having to slash spending and stall capital projects if officials are unable to close the sale of the city’s soon-to-be defunct pro-sports arena in the next six weeks.

The Bay-Area city is facing a $117 million budget gap this fiscal year and a $175 million shortfall for the next. It’s relying on cash from the sale of the Oakland-Alameda County Coliseum, where Major League Baseball’s Athletics are playing their final season. Yet that deal is far from finalized.

To avoid cuts to city services, Oakland needs cash from the sale to come through by Sept. 1. There isn’t a written purchase and sale agreement and the African American Sports and Entertainment Group — which plans to buy the facility — hasn’t given the city a good faith deposit, according to city council member Janani Ramachandran, who voted against the plan to adjust Oakland’s budget with those funds.

“This was a great financial risk for the city to take,” Ramachandran said in an interview, citing concern that Oakland’s bond rating may be lowered. “It’s irresponsible to incorporate money from a deal that hasn’t happened yet.”

As pandemic stimulus ends and tax receipts come in lower than expected, cities across the US are searching for new sources of revenue in order to avoid cutting services or stymieing infrastructure plans. Los Angeles passed a budget plan earlier this year that cut 1,700 vacant positions and officials in Houston have warned of a fiscal cliff when federal funds run dry. Selling off assets is one option cities have to close funding gaps, but they’re often seen by investors as risky short-term solutions.

“Using an asset sale to plug a budget gap is clearly not sustainable, so the bigger question is how is the city’s leadership approaching the problem so that it’s not an ongoing problem,” said Patrick Luby, municipal strategist at CreditSights Inc.

Spokespeople for the mayor’s office didn’t respond to requests for comment. Neither did representatives for the African American Sports and Entertainment Group.

The Oakland City Council voted on July 2 to pass a $2.2 billion mid-cycle budget adjustment that relies on cash from the city’s 50% share of the stadium to fund essential services like police and fire department operations. The planned transaction is projected to make the city at least $105 million, though final terms are still being negotiated.

The other half of the Coliseum is owned by the Oakland A’s, which is also in talks with the AASEG. The plan would allow the company to redevelop the stadium site with a $5 billion project including new sports facilities, entertainment venues, a hotel and affordable housing.

“Closing a budget gap with sale proceeds isn’t inherently bad as long as the city has a Plan B if the sale doesn’t go through, and a Plan C on how to close next year’s budget gap if revenues don’t recover,” said Dora Lee, director of research for Belle Haven Investments.

If the Coliseum sale is canceled or delayed a “contingency” budget with $63 million of cuts to city services, including public safety, will be implemented.

Oakland has dabbled in marketing its stakes in sports stadiums before. City officials factored in the sale of the National Football League’s Raiders former training facility to help balance last year’s $360 million budget deficit. The auction initially received no buyers. When it did sell months later — the city’s share came in lower than expected.

Read original article: https://www.bloomberg.com/news/articles/2024-07-17/oakland-s-budget-shortfall-hinges-on-sale-of-coliseum-stadium?sref=dlv6Ue8o

2024 | Bloomberg

Pharrell Williams-Backed Surf-Park Project Gets Virginia Beach Funding

May 16, 2024

By Nataly Pak

Virginia Beach tapped the municipal bond market to help fund a surf-park development backed by multi-Grammy award winning artist Pharrell Williams.

The Virginia Beach Development Authority sold about $189 million of debt on Thursday with some of the bond proceeds financing the construction of a 3,500-person entertainment venue, parking facilities and land acquisitions, as well as other projects associated with the development.

The city had pledged some of its own cash to help build the $350 million enterprise called Atlantic Park, which will be anchored by the surf park and includes a multi-purpose event venue, residences, offices, retail space and restaurants. The project’s developer — Venture Realty Group — had tapped muni investors for unrated, high-yield bonds early last year.

“It’s probably the largest public-private partnership the city has done” to boost tourism to the ocean-side enclave, Patrick Duhaney, Virginia Beach’s city manager, said in an interview.

“We hope to be able to bring marquee acts to Virginia Beach,” Duhaney said. “We’re excited about the music venue and the iconic surf park—we’re looking forward that to generate tourism impact in our city.”

Unlike the high-yield debt sold in 2023 that was backed by revenues tied to the project, these bonds are secured by yearly appropriation payments made by the city to the authority, according to offering documents. That insulates investors from risks if the project underperforms.

The offering will have “plenty of investor demand,” according to Dora Lee, research director at Belle Haven Investments. “There’s very little risks involved with this bond because it is backed by appropriations from the city and the city remains very strong financially.”

Virginia Beach boasts an Aaa credit rating from Moody’s Ratings which cited the city’s “diverse and regionally significant economic base that benefits from above-average property wealth and resident incomes.” The appropriation-backed bonds are graded one-notch lower at Aa1 given the risk of annual non-appropriation as well as the “essentiality of some of the projects financed,” Moody’s analysts led by Matthew Jaffe said in a May 1 report.

The city, located close to the border with North Carolina, is a major tourism destination, hosting about about 13.6 million visitors in 2022, according to bond documents. Virginia Beach had collected more than $143.8 million of tax revenue from hotel rooms and restaurant meals during the 2023 fiscal year, the documents detail.

Muni deals funding tourist attractions have a checkered past. The list of defaulted bonds is a long one, including a water park in Edinburg, Texas, and an iron and steel manufacturing-themed amusement park in Bessemer, Alabama.

Recently, more municipalities have sold debt to take advantage of demand for visitors after a pandemic-induced lull. Local governments including Cincinnati, Ohio, and Florida’s Broward Country have doled out hundreds of millions of dollars in bond offerings to prepare for an increased inflow of visitors.

— With assistance from Andrew Harrer

Read original article: https://www.bloomberg.com/news/articles/2024-05-16/pharrell-backed-virginia-beach-development-gets-funds-from-town?srnd=undefined&sref=dlv6Ue8o

2024 | Crain's Chicago Business

Crime, housing issues and cutting red tape: Civic leaders size up Johnson's first term

May 16, 2024

Chicago Mayor Brandon Johnson has issued his own assessment of his first term in office, emphasizing his pro-business bona fides in an interview with Crain’s: “Find another administration that has done more for business in their first year than me,” he said.

A Crain’s-commissioned poll of likely voters, meanwhile, found broad dissatisfaction with the mayor’s performance in the days leading up to the one-year anniversary of his inauguration, with only 28% expressing approval and 57% voicing disapproval of his handling of the job.

On this, the first day of Johnson’s second year, Crain’s asks a handful of civic leaders and business experts to offer their own perspectives — and their own policy hopes for the year ahead.

Keep the momentum going

To the surprise of many, Chicago emerged from the pandemic with several upgrades and a promising financial outlook. These improvements, however, are fragile. Here’s how to keep the momentum going:

Be realistic: Resist the temptation to balance the budget on hopes that a strong economy can delay tough spending decisions. Just a few bad revenue assumptions or an inability to rein in spending can derail years of hard work. Unexpected midyear cuts can also be highly disruptive and erode trust with Chicagoans.

Stand on your own: Pandemic aid supercharged Chicago’s financial recovery, but now is the time for the city to prove that it is able to maintain financial stability on its own. With the current dysfunction in Washington and the state’s own deficits, additional help will be unlikely.

Build a coalition: Mayor Johnson may have won by being an outsider, but now he must build a coalition within the system to govern effectively. Finding solutions to the city’s fiscal problems will require cooperation from all stakeholders regardless of who they voted for.

Every politician wants to leave a legacy. We hope Mayor Johnson’s will be one of fiscal stewardship during a time of uncertainty.

— Dora Lee, director of research, Belle Haven Investments

Read original article: https://www.chicagobusiness.com/opinion/chicago-mayor-brandon-johnsons-first-year-through-civic-leaders-eyes

2024 | Bloomberg

Cornell Joins Ivy League Bond Boom With $1.1 Billion Debt Sale

April 02, 2024

By Sri Taylor

Cornell University is poised to tap investors for more than $1 billion this month, the latest in a boomlet of elite universities selling debt to raise money for new projects on campus.

The school, based in Ithaca, New York, plans to borrow as much as $500 million of taxable bonds set to price April 4, followed by $610 million of tax-exempt bonds the following week, according to preliminary offering documents.

The tax-exempt portion of the sale will finance buildings, classroom facilities, maintenance and other infrastructure on the school’s main campus upstate, while also raising funds for student housing facilities at the Weill Cornell Medicine campus in New York City. The medical school is constructing a new student residence that will expand the scope of the institution’s Upper East Side campus and nearly double the existing student residential living space when it opens in 2025.

The planned sale makes Cornell the latest elite college to tap the bond markets for funds, taking advantage of a lower interest-rate environment compared to where borrowing costs held for much of 2023. Earlier this year, Princeton University sold nearly $1.5 billion of debt and Harvard University sold $750 million of taxable bonds, with plans to tap the tax-exempt market next week, according to data compiled by Bloomberg.

“Tax-exempt rates are low, and then you also have the spring time where you have to line up financing for construction projects for the summer,” said Dora Lee, director of research at Belle Haven Investments. “When rates were high there were issuers on the sidelines, but it seems that we’re at the end of that waiting period.”

Cornell University representatives didn’t respond to a request for comment.

Proceeds from the deal will also partially refinance some of the university’s $2.3 billion of outstanding debt, which includes $407.7 million in operating leases. Last November, luxury real estate giant Sotheby’s leased five floors of its 500,000-square-foot headquarters on York Avenue to Weill Cornell Medicine, which will devote the space to computational and chemical research.

Unlike some schools which are struggling to lure students to campus, Cornell boasts “exceptional demand flexibility and student quality,” according to S&P Global Ratings credit analyst Laura Kuffler-Macdonald in a ratings report. The school received more than 67,800 applicants for admission for the class that started in the fall, of which roughly 5,300 were accepted.

The school’s strong demand and sterling finances — Cornell has a $9.6 billion endowment — helped it score a AA credit rating from S&P. That grade should help boost appetite for the debt, said Daniel Solender, head of municipals at Lord, Abbett & Co.

“Cornell is a very high quality credit that provides diversification that doesn’t come to the market as often, so it should find good demand,” he said.

Bank of America Corp. and Goldman Sachs & Co., the two banks underwriting the deals, both declined to comment.

Municipal bond sales leaped about a third to nearly $100 billion during the first quarter, as issuers seize on lower interest rates and a calm ahead of the 2024 presidential election and uncertainty around Federal Reserve cuts.

Read original article: https://www.bloomberg.com/news/articles/2024-04-02/cornell-joins-ivy-league-bond-boom-with-1-1-billion-debt-sale?srnd=undefined&sref=dlv6Ue8o

2024 | Bloomberg

California to Sell $2.6 Billion of Bonds to Buyers Seeking Shelter

March 21, 2024

By Maxwell Adler and Melina Chalkia

California next week plans to sell $2.6 billion of bonds, the municipal market’s second-largest offering this year, and high demand from eager investors is likely despite the state’s ballooning budget deficit.

New sales of tax-exempt bonds in California have been gobbled up by buyers looking to shield income from the state’s high taxes and to lock in yields before anticipated rate cuts by the Federal Reserve later this year. California, home to more billionaires than any other state and hundreds of thousands of millionaires, levies a rate of at least 13.3% on its highest earners.

The desire for tax-advantaged investments means California bond deals can sell at yields lower than AAA-rated benchmark muni securities. The Los Angeles County Metropolitan Transportation Authority sold $114 million of bonds this week with yields as much as 30 basis points below that benchmark, according to data compiled by Bloomberg.

“The richness of California paper of late just illustrates how starved for supply the market really is,” said Dora Lee, director of research at Belle Haven Investments. “With the anticipation of Fed cuts later this year, there is a feeling that the window is closing to lock in these yields.”

Investors have been willing to look past a big change in California’s budget outlook, which is susceptible to large swings because of a dependence on taxes paid by the wealthiest residents. This budget cycle, Governor Gavin Newsom is working to close a deficit of roughly $73 billion, according to estimates from the state’s Legislative Analyst’s Office. The governor’s budget projects a smaller shortfall.

“California’s tax revenues have been under pressure because the stock market’s been a little weaker and they derive a lot of their income taxes from capital gains,” said Christopher Lanouette, managing director at CIBC Private Wealth Group. “I suspect that if the economy does slow and they need to fill that gap, maybe there’s a potential that they raise taxes.”

Next week’s sale includes $1.3 billion of debt to fund a variety of voter-approved capital projects, including school and hospital construction, improvements to clean water access and disaster preparedness. Additionally, the offering will refinance existing bonds to cut the state’s long-term borrowing costs.

Retail investors will begin placing orders on Monday ahead of institutional pricing on Tuesday, March 26. The bonds will be underwritten by JPMorgan Chase & Co. and Wells Fargo & Co. California’s general obligation bonds are rated Aa2 by Moody’s Ratings, AA- by S&P Global Ratings and AA by Fitch Ratings.

A boost to investor demand may come from President Joe Biden’s latest budget proposal, which calls for sweeping tax increases on corporations and the wealthy.

“Talks of increased taxes to close budget gaps at both the state and federal levels will only make tax exempt securities more attractive in the long run,” said Belle Haven’s Lee.

Read original article: https://www.bloomberg.com/news/articles/2024-03-21/california-to-sell-2-6-billion-bonds-to-buyers-seeking-shelter?sref=dlv6Ue8o

2024 | The Bond Buyer

Citi's exit raises concerns about liquidity in high-yield market

March 21, 2024

By Caitlin Devitt

With the high-yield municipal bond market riding a tide of inflows and new deals in 2024, investors say Citigroup's December exit from the space appears manageable so far, but that the true test will come when flows reverse and the market has to fare without its longtime, go-to liquidity provider.

For a thinly traded market where finding secondary buyers is a frequent concern, the exit of any player would cause worries. But the loss of Citi's large and active high-yield team that underwrote deals, kept the market liquid through its trading desk and provided investors with color and "story bond" analysis could carry an outsized impact on an often-opaque market that's buffeted about by headline risk and interest rates.

"Their team was supportive of buyside players like us, and they made a market in things that they underwrote," said Gilbert Southwell, a senior credit analyst at Allspring Global Investments.

"They were more in tune with the market," he said. "It decreases market makers to the extent that they exist in the high-yield space and that certainly hurts."

Citi's exit capped a year of Wall Street belt-tightening that saw layoffs across public finance. UBS left the negotiated business in October, though the firm has maintained its competitive underwriting and secondary market-making business, including high yield.

"While Citi had ramped down its new issuance activity well before its official exit from the space, just having one less market player is not a good direction for the market to going in," said Dora Lee, director of research and partner at Belle Haven Investments. "The loss of any player in the market is definitely going to hurt liquidity."

Buy-side firms also lost access to credit analysts and traders who are intimately familiar with issuers, many of which are so-called story bonds that require extensive analysis.

"It creates more of a need for buyside firms to do more credit work because Citi's desks are not there to support it," said Tyler Wynn, founder and CIO at Birch Creek.

Citi's ability to bolster the market during times of stress was illustrated during the dislocation during the height of COVID-19 in 2020. Between February and October 2020, the firm traded "up to 25% of the secondary market volume ... providing pricing support and market liquidity," according to an October 2020 presentation. During COVID, the firm was "one of few broker-dealers consistently making a market for high-yield investors," the firm said. In total, from 2017 through 2020, the firm made between 10% and 20% of high-yield market trades, according to the presentation.

Citi provided liquidity across the full muni market, said a banker.

"So when you would run into certain scenarios, like noise in the market, or when the [Silicon Valley Bank] bid lists hit the street, they would quietly come in and provide liquidity," the banker said.

"They were the biggest liquidity provider across the market in investment grade and high yield," they said of Citi. "When the next liquidity crisis happens, who's going to step in?"

So far this year, high-yield investors haven't had to worry. Like investment-grade munis, junk bonds have suffered from two years of outflows and anemic new issuance. But starting late last year the market mounted a recovery, and in 2024 high-yield muni mutual funds have enjoyed 10 straight weeks of inflows per the most recent period, according to LSEG Lipper. High-yield continues to outperform at +1.01% in March and 1.33% in 2024.

Issuance is expected to pick up as well, which will help generate more interest and liquidity, participants said.
The healthy appetite for unrated paper was demonstrated Tuesday with Keybank's pricing of the Suffolk Regional Off-Track Better Corp.'s $349 million, where the long end was 14 times oversubscribed in early pricing. Final pricing showed yields of 5.865% for the 2044 bonds, +250bps over the AAA BVAL yield, and 6.1% on the 2053 bonds, a spread of +249bps.

But during times of selloffs, consolidation and lower capital levels tend to create a more volatile environment, noted Greg Gizzi, Macquarie Asset Management's head of U.S. fixed income and head of municipal bonds. Gizzi added that so far, there has been a "positive response" from remaining players who have stepped up to help fill Citi's void.

Wynn said the loss of a sell-side balance sheet "is at the top of our minds, especially during times of stress, when the dealer community is relied upon to provide liquidity." It remains to be seen how other sell-side firms will absorb the loss of Citi's balance sheet, he said, adding that the buy-side will also need to step in.

"The downsizing of all the balance sheets of the broker-dealer community makes the loss of Citi that much more impactful," said Belle Haven's Lee. "You have smaller balance sheets, so the broker-dealer community can't take on as much risk during times of market stress, and then also you have fewer players, so the players who are still around, they have that much less flexibility to act as shock absorbers for those times."
On the bright side, Wynn said Citi's exit creates opportunities by allowing other sell-side firms to provide liquidity and giving buy-side firms the room to "capture" more trading volume and source bonds they wouldn't be able to otherwise source.

Firms like UBS, RBC, Goldman, Jefferies, Morgan Stanley and Oppenheimer remain active in the space and in some cases are bulking up their teams. HJ Sims and Ziegler remain known for healthcare and continuing care retirement home deals and Piper and D.A. Davidson for dirt deals. Meanwhile, Citi's high-yield veterans are emigrating to other shops as public finance firms are eager to scoop up the firm's employees.

Last week, Stifel announced it had hired Joseph Narens, who was Citi's head of High Yield Municipal Trading & Credit Analytics, to oversee its institutional high-yield trading. Another firm is set to announce this week the hire of a former Citi employee to co-head high-yield trading on its fixed income team, sources said.
Before Citi's exit, Jefferies hired around 10 healthcare bankers from the firm.

Former Citi employees have also been hired a slew of other firms, including Morgan Stanley, J.P. Morgan, Raymond James, Barclays, BofA Securities, 16Rock Asset Management, Truist Financial Corp., Ramirez, Assured Guaranty, Loop Capital Markets and Huntington National Bank.

"The loss of Citi really highlights the over-the-counter nature and the importance of relationships within the muni market," Lee said. "I do expect to see that gap being filled, it's just going to take some time."

2024 | Bloomberg

CommonSpirit Health $3 Billion Bond Sale Draws Strong Demand

March 14, 2024

By Lauren Coleman-Lochner

Investors flocked to a $3 billion bond offering issued for hospital chain CommonSpirit Health, as buyers snapped up both taxable and tax-exempt debt.

Demand on Wednesday reduced spreads on the Chicago-based system’s taxable bonds by as much as 10 basis points from preliminary pricing and on tax-exempt debt by as much as 20 basis points, according to people familiar with the matter.

The yield on tax-free debt maturing in 2054 with a 5.25% coupon dropped to 4.10% from an initial 4.27%, while the yield for tax-exempt debt with a 5% coupon due the same year fell to 3.97% from 4.17%. CommonSpirit saw about $2.2 billion in orders for the taxable bonds and $6.5 billion for the tax-exempt bonds, according to one person.

Investors have been clamoring for state and local government debt, pushing bond spreads lower. On Wednesday, the Dormitory Authority of the State of New York sold roughly $3 billion of personal income tax bonds that were oversubscribed by four-times, according to the state’s budget office. The CommonSpirit bond sale reveals that there’s even appetite for deals in the health-care space, which many investors have shunned as hospitals struggle to regain equilibrium after the pandemic.

“This deal highlights the diversity within health care,” said Dora Lee, director of research at Belle Haven Investments. “There’s a big difference between CommonSpirit, a large A-rated health care name, and standalone hospitals of a similar rating. You can find value in health care if you do your homework.”

The sale boosts hospital borrowing, which is already running well ahead of last year, with $4.7 billion in debt issued so far this year, according to data compiled by Bloomberg. That figure does not include CommonSpirit. Last year, issuance for the sector fell 39% to $11.6 billion as the industry dealt with surging costs and staffing shortages.

CommonSpirit will use proceeds from the debt sale for improvements to some of its hospitals and to refinance existing debt. CommonSpirit had a $1.4 billion operating loss in the fiscal year through June.

It operates 162 hospitals in 24 states, mostly in the West and Southwest. It was formed by the 2019 merger of Dignity Health and Catholic Health Initiatives.

2024 | Bloomberg

Princeton Asks Investors for $660 Million for Campus Upgrades

February 20, 2024

By Skylar Woodhouse
February 20, 2024 at 1:00 PM EST

Princeton University plans to tap the $4 trillion municipal bond market to help finance capital projects on its New Jersey campus.

The Ivy League university, which boasts alumni like Former First Lady of the US Michelle Obama and Amazon.com Inc. founder Jeff Bezos, plans to sell $660 million of bonds that will be used in part to fund capital plans including the building of a new campus featuring hundreds of graduate student housing units, renovations to the school’s main library and updated energy, transportation and technology infrastructure.

Princeton and other elite-universities can invest in such state of the art developments even when institutions of higher education across the country are pressured because they have billions in their endowments and near world-wide name recognition. The school’s impeccable credit ratings, graded the highest possible by S&P Global Ratings and Moody’s Investors Service, means it can borrow cheaply and its debt is often sought after by investors.

“This is one of the most solid credits in the market, and the school is very likely to continue to thrive even as smaller private schools may struggle to attract students,” said Pat Luby, head of municipal strategy for CreditSights.

Representatives for Princeton did not respond for a request for comment.

Princeton has been largely immune to the demographic challenges hitting many smaller colleges across the country. Its student enrollment has increased by 6% since 2019 to about 8,849 students, according to bond documents. Graduate enrollment has seen steady growth since 2019, pushing the university to expand its housing options.

As enrollment climbs, so has applications. For the school year that began this past Fall, nearly 40,000 hopefuls applied for admission and only about 1,780 were accepted. Of those, three-quarters chose to come to campus as first-year students.

The school has a roughly $34 billion endowment and receives about $400 million each year in gifts from alumni and other supporters, according to bond documents.

S&P’s AAA rating is reflective of Princeton’s “extremely strong enterprise risk profile, supported by its exceptional demand flexibility and experienced management team,” said S&P Global Ratings credit analyst Jessica Goldman in a research report evaluating the credit.

The sale is being managed by Goldman Sachs Group Inc. and Bank of America Corp. and is expected to price on Feb. 21, according to investor roadshow documents.

Max Christiana, a portfolio manager at Belle Haven Investments, said that most deals coming to the market are doing extremely well and that demand for new sales remains very healthy.

A portion of the bonds being issued will also help refund outstanding debt. The municipal bond market may soon see more refundings, a once-popular refinancing vehicle used by state and local governments to save money, to pay off older, more expensive debt.

Read original article: https://www.bloomberg.com/news/articles/2024-02-20/princeton-asks-investors-for-660-million-for-campus-upgrades?utm_source=website&utm_medium=share&utm_campaign=copy&sref=dlv6Ue8o

2024 | Bloomberg

S&P Eyes Credit Headwinds for Muni Market in 2024

February 05, 2024

By Skylar Woodhouse and Melina Chalkia

Higher interest rates, inflation and slower economic growth could create headwinds for the US public finance sector, S&P Global Ratings said in a report Friday.

Continuing credit strength has led to growing revenues and expanded reserves, S&P analysts led by Robin Prunty wrote in the report. “However, if local or macroeconomic conditions prevent revenues from keeping pace with expenditure growth, management teams could be pressured to balance budgets while still addressing persistent issues requiring longer-term solutions,” Prunty said.

While federal aid has allowed municipalities to avoid issuing debt in a higher interest rate environment, S&P expects this flexibility to diminish this year. “If interest rates are lowered as expected in 2024, debt issuance may accelerate,” Prunty added.

Outlooks are stable across sectors, with the exceptions of not-for-profit health care, public power and electric cooperatives and mass transit, according to S&P.

S&P has a negative outlook for the mass transit sector, with many agencies across the US running up against budget deficits. In not-for-profit health care, S&P sees a constrained operating environment in 2024 as hospitals continue to face staffing shortages and high labor costs.

“We’re seeing more budget officials grapple with budget shortfalls, many for the first time in office. So, gone are the heydays of surpluses and revenue windfalls,” Dora Lee, director of research at Belle Haven Investments said. “The budget conversations are gonna be a lot tougher.”

Back to the market

The possible headwinds come as municipal-bond investors begin rushing back into the market. For the fifth straight week, capital poured into muni-bond funds, with weekly inflows reaching a two-year high of $1.5 billion, according to LSEG Lipper Global Fund Flows data through Jan. 31.

After dumping more than $120 billion over the last two years, skittish investors have returned to the market in pursuit of higher yields, ahead of interest-rate cuts from the US central bank.

Debt issuance could also start to tick up this year.

“Federal stimulus funds and strong reserves have provided flexibility for many governments and not-for-profit entities to avoid issuing debt in a higher interest rate environment, but we expect this flexibility will be diminished in 2024,” S&P said. “If interest rates are lowered as expected in 2024, debt issuance may accelerate.”

Lee said that issuers have delayed projects for too long and that they can only put them off for so much longer.

“We expect to see more issuers get off the sidelines and tap the capital markets to help with their various infrastructure costs,” she said.

Read original article: https://www.bloomberg.com/news/articles/2024-02-05/s-p-eyes-credit-headwinds-for-muni-market-in-2024?sref=dlv6Ue8o

2024 | Bloomberg

Municipal-Bond Investors Chase Returns Ahead of Fed Rate Cuts

February 02, 2024

By Shruti Singh and Nic Querolo

Investors are rushing back to the municipal-bond market after many spurned it over the past two years.

Capital poured back into muni-bond funds for the fifth-straight week with weekly inflows reaching a two-year high of $1.5 billion, according to LSEG Lipper Global Fund Flows data through Jan. 31. After dumping more than $120 billion over the last two years, skittish investors have been lured back to the market to get higher yields ahead of interest rate cuts from the US central bank. Parametric Portfolio Associates and Bank of America Corp. are among those forecasting positive flows for this year.

“There’s a lot of chasing returns,” said Brian Barney, a managing director at Parametric, who estimates 2024 inflows will reach $40 billion. Municipal rates “are still attractive and there is a little fear of missing out” as inflation subsides and before interest rates begin to fall, he added.

Sentiment turned around mid-November, according to Barney. Mom-and-pop holders — who collectively own the biggest share of the muni market — were among those who returned, snapping up state and local bonds in November and December. Losses in 2023 were erased, lifting returns of the Bloomberg Municipal Bond Index to 6.4% for the full year.

While Federal Reserve Chair Jerome Powell said Wednesday a March interest rate cut was unlikely, bank economists including Bank of America and Goldman Sachs Group Inc. are now predicting the first cut will come in the second quarter. Investors who were scared off from fixed income markets, including muni bonds, by rate volatility amid the Federal Reserve’s aggressive rate hikes will have billions to invest.

“The recent market rally has probably left some people with FOMO and they want to lock in yields before they go down,” said Dora Lee, director of research at Belle Haven Investments.

Muni yields fell across the curve this week, dropping as much as 18 basis points since Monday morning. Despite a slight reversal on Friday, the rally is the biggest since December, according to data compiled by Bloomberg.

Investors are already pouring their January principal and interest payments into munis, Lee said. Plus, in the next 30 days, the amount available to reinvest is poised to outpace new muni supply by $17 billion, according to data compiled by Bloomberg.

January demand appeared strong, with buyer interest outweighing available new bonds, according to Eve Lando, portfolio manager at Thornburg Investment Management, which holds $6 billion in muni assets. Preliminary figures indicate last month’s inflows reached $4.25 billion, but she expects that could inch closer to the 10-year January average of $6 billion.

“Our expectation is that more money will be coming in as people view rates as here to stay, or go down as early as May,” Lando said.

— With assistance from Martin Z Braun and Joseph Mysak Jr

Read original article: https://www.bloomberg.com/news/articles/2024-02-02/muni-investors-with-fomo-chase-returns-ahead-of-fed-rate-cuts?sref=dlv6Ue8o

2024 | Bloomberg

Tower Health’s Turnaround Hits Snag With Failed Hospital Sale

January 31, 2024

By Lauren Coleman-Lochner

Troubled Pennsylvania hospital chain Tower Health is eyeing a turnaround after struggling even before the pandemic hit.

It is essentially undoing the ill-fated 2017 merger that transformed it into a six-hospital system. But its plan hit a snag last week when the sale of its shuttered 171-bed Brandywine Hospital to Penn Medicine fell through.

“In hindsight, management lacked the experience to grow that big that fast,” said Dora Lee, director of research at Belle Haven Investments, adding that the pandemic made integration of systems like patient records more difficult. “They’re trying to turn themselves back to Reading Hospital.”

Despite losing about $1.4 billion since the tie-up, Tower Health has been cash-flow positive for the past two quarters, Kristin Boyd Edwards, a spokesperson for the system, said in an emailed statement. New management was also put in place after CEO and President Sue Perrotty started in early 2021.

“While there is still more work ahead, this consistent upward trajectory is a testament to our effective cost management strategies, expansion of service lines, volume increases and our steadfast commitment to system-wide performance improvement,” Edwards added.

The latest setback is a continuation of what has been a difficult year for the system. There was the dissolution of a previously-announced alliance with Penn Medicine early last year and major credit rating downgrades from Fitch Ratings and S&P Global Ratings.

Last week, Penn Medicine backed out of buying Brandywine Hospital, a facility west of Philadelphia that Tower Health closed in 2022. Penn had planned to use it for veterans’ treatment.

“After an intensive due diligence process, we have determined that we would be unable to build out the infrastructure for the project in the space available on the Brandywine campus and will terminate our letter of intent with Tower to purchase the property,” Penn Medicine said in a statement on its website.

Penn is instead searching for another nearby property, the statement said. “We look forward to continuing our close work with community stakeholders to listen to your ideas and feedback and share plans as these efforts continue.”

Tower said it’s received “significant interest” in Brandywine and “will reengage in discussions with these companies, along with others, to secure a new owner for the property.”

Since 2021, Tower has closed two — Brandywine and Jennersville — of the five hospitals it acquired, and sold Chestnut Hill Hospital in Philadelphia to an alliance of Temple Health, Redeemer Health and the Philadelphia College of Osteopathic Medicine at the beginning of last year. A local health system acquired Jennersville in 2022 and converted it to a primary-care campus.

Tower Health currently operates Reading, Phoenixville and Pottstown hospitals, along with St. Christopher’s Hospital for Children, which it bought in partnership with Drexel University in 2019.

The system has $990 million in outstanding municipal debt, according to data compiled by Bloomberg, including $580 million from 2017. In September, Fitch lowered its rating on Tower Health to CCC from CCC+, indicating a strong chance of default.

Though Tower Health narrowed its loss to about $171 million in the fiscal year ended June 30, Fitch analysts flagged its precarious finances, including eroding liquidity. In its most recent two-notch downgrade to CCC+ of the system, S&P cited significant operating losses expected to continue this year “and a steep decline in unrestricted reserves to a level that we view as highly vulnerable.”

The ratings firms “have noted that we have bolstered our operations through enhancements in revenue cycle management, effective cost control and by successfully right sizing the organization,” Tower Health’s Edwards said. “We are committed to building on this positive momentum.”

Read original article: https://www.bloomberg.com/news/articles/2024-01-31/tower-health-s-turnaround-hits-snag-with-failed-hospital-sale?srnd=undefined&sref=dlv6Ue8o

2024 | Bloomberg

Elite LA Elementary School Seeks $24 Million to Expand Campus

January 29, 2024

By Maxwell Adler

An elite private school catering to Los Angeles’ wealthiest residents is tapping the muni market as it looks to expand its campus and add to its academic offerings.

Curtis School is seeking to raise $24.3 million in revenue bonds through the California Enterprise Development Authority in a sale pricing Feb. 1. The exclusive elementary school plans to use proceeds from the sale to construct the Collaborative Learning and Innovation Center, a 21,000-square-foot, three-level learning space equipped with an engineering lab, a dedicated robotics space, science classrooms and an art studio.

The sale comes amid growing demand for admission to elite institutions from parents who want their kids to receive an exclusive education along with the social and professional network that comes with it.

“On the whole, independent schools have historically benefitted from flexibility in funding options, and private placement bonds have been a popular form of financing for this sector,” said Chase Ashworth, associate director at S&P Global Ratings. “However, we have seen an increase in independent schools pursuing public market bonds recently, following pressures in the banking sector this past year and as banks have tightened under current economic conditions.”

The number of applicants to Curtis, per bond documents, has risen over 21% since the 2018-2019 school year while enrollment has remained relatively stable over the same period of time. However, proceeds from the bond issue aren’t intended to be allocated toward increasing the number of students it educates as the school says it’s operating at optimal enrollment.

“To bring in wealthy parents, schools want to provide whatever the amenity du jour is, whether it’s a climbing wall, a Maker’s Lab or an Arabic language program,” said Emily Glickman, founder of Abacus Guide Educational Consulting. “Long gone are the days of the spartan private school, where students took cold showers and toughed things out.”

Curtis charged $36,124 for admission during the 2022-2023 school year and enrolled 492 students for the current school year. The school’s student-teacher ratio is 16:1 for pupils in grades 3 through 6, and it’s as low as 8:1 for students in its developmental kindergarten program.

Founded in 1925, the elite private school has alumni including Brooklyn Beckham, son of David and Victoria Beckham, and Rob Friedman, former co-chairman of Lionsgate Motion Picture Group, serves on the board of trustees. It also acts as a feeder to elite Southern California prep schools like Harvard Westlake School and Brentwood School.

Investor demand for the bonds is expected to be strong, according to Dora Lee, director of research at Belle Haven Investments.

“Not only will the usual buyers of California bonds be there but alumni have also been known to show their support for their alma maters by buying bonds as well,” said Lee. “There’s a lot of overlap between the buyer base and alumni.”

The 2024 bonds carry an A rating from S&P. The sale is being managed by Stifel.

A representative for Curtis School didn’t respond to a phone call requesting comment.

Read original article: https://www.bloomberg.com/news/articles/2024-01-29/elementary-school-for-la-s-elite-seeks-24-million-to-expand?sref=dlv6Ue8o

2024 | Bloomberg

Even This Wealthy Town Struggles to Run Its Nursing Home

January 23, 2024

By Lauren Coleman-Lochner

Even for one of the wealthiest municipalities in the US, operating a nursing home is a strain.

Greenwich, Connecticut, owns a 121-year-old nursing home. That makes it unusual, since only 5% of nursing homes are government-owned.

The town is atypical in other ways. With one of the highest per-capita incomes in the country, it has long been a locus of wealth and celebrity, evident in services such as three marinas and a public golf course designed by architect Robert Trent Jones Sr.

Its Nathaniel Witherell nursing home, however, like many such facilities across the country, is losing money.

Founded as a contagious-disease hospital in 1903, the 202-bed nonprofit facility offers short-term rehabilitation as well as long-term and memory care. Situated on what the town describes as 24 rolling acres — two miles from downtown — it touts staff turnover that’s a fraction of the national rate. Its kitchen gets its produce from the facility’s culinary wellness garden that was built in 2017 with donor and volunteer contributions.

But Greenwich had to write off $4.1 million in bad debt from the nursing home last year, according to documents for an upcoming $115 million bond and note offering. It still expects to continue funding the nursing home’s operating losses in subsequent general fund operating budgets.

The town reported a general-fund balance of $71.8 million in the current fiscal year.

“It’s only the well-resourced governments that can afford” such endeavors, said Dora Lee, director of research at Belle Haven Investments.

The town is spending about $6 million to $7 million a year on subsidies, though that’s likely to decrease after a new director found some efficiencies, First Selectman Fred Camillo said in an interview.

“So we’re trying to figure out a way to have the best possible service delivered for the residents, but in a way that does it efficiently and doesn’t waste any money,” said Camillo, adding that he had volunteered at the nursing home with his dog, and that his father and other relatives have used the facility.

Curbing Losses
Soaring costs and staff shortages during the pandemic exacerbated longstanding difficulties for nursing homes and hospitals, like insufficient government reimbursements and the difficulty of attracting staff to often-low-paying, tedious jobs.

“Local governments may be questioning whether the economics of running a nursing home are viable given the labor shortage and reimbursement rates,” said Lisa Washburn, managing director at Municipal Market Analytics.

There’s also a lot more pressure on small, single sites, which can’t achieve economies of scale, she said.

Seeking to stem the nursing home’s losses, Greenwich put out a call in 2020 for an outside operator and is negotiating a long-term lease agreement with a chosen operator, according to its recent bond documents.

“I think a lot of people would agree the town is not looking to sell the facility or the land; we’re looking to see if there’s a better way to deliver services,” said Camillo, whose position is equivalent to mayor.

Greenwich’s general-obligation bonds and notes are scheduled to price on Jan. 25 and are top-rated by Moody’s Investors Service. That’s because of its economic might, with per-capita income of about $112,000, compared to roughly $41,000 nationally, even though 8% of its residents live in poverty.

Its location along the so-called Gold Coast, the stretch of affluent Wall Street bedroom communities in Fairfield County, also means it’s also costly, especially for those not earning Wall Street incomes. It has a median housing value of $1.6 million and median rent of about $2,000, according to the Census Bureau.

Read original article: https://www.bloomberg.com/news/articles/2024-01-23/nathaniel-witherell-nursing-home-is-a-strain-for-wealthy-greenwich-connecticut?sref=dlv6Ue8o

2024 | Bloomberg

University of California Taps Bond Market for $1.7 Billion

January 22, 2024

By Maxwell Adler

The University of California will tap the municipal bond market Tuesday as it looks to maximize refunding savings and navigate potential funding deferrals outlined in Governor Gavin Newsom’s budget proposal for the next fiscal year.

The university is slated to issue roughly $1.7 billion of general revenue bonds to fund capital projects and refund previously issued paper. According to preliminary bond documents, $1.59 billion of the bonds will be tax-exempt and $145 million will be taxable — however the taxable series will be exempt from taxation in the state of California.

The 2024 bonds carry an Aa2 rating from Moody’s Investors Service and double-A ratings from Fitch Ratings and S&P Global Ratings. The sale is being managed by Barclays Plc, Bank of America Securities and Jefferies.

Investor demand for the bonds is expected to be strong, according to Dan Solender, head of municipal debt at Lord, Abbett & Co.

“As long as the University of California deal is priced appropriately, it should get a good response for all its bonds,” Solender said. “Given the California exemption and the strong credit, they should be able to get lower yields than a lot of similarly rated bonds around the country.”

In May 2022, Newsom and the University of California announced a multiyear compact agreement that includes annual base budget adjustments of 5% for the university in fiscal years 2023-2024 through 2026-2027. The governor’s “approach will enable the UC to continue its efforts to meet the compact goals to expand student access, equity and affordability, and to create pathways to high-demand career opportunities,” the bond documents say.

Funding for the university system increased about 7.9% during the current fiscal year. But in the face of a projected $37.9 billion budget deficit, Newsom proposed deferring a planned $227.8 million compact investment in the UC system to July 1, 2025.

“No one likes cuts, but it’s important to keep in mind that state funding is only about 10% of revenues,” said Dora Lee, director of research at Belle Haven Investments. “So when you zoom out and look at the whole budget, the cuts will be manageable.”

The University of California declined to comment for this story.

As the largest US public university system in terms of revenue, applications and enrollment, the University of California also operates six medical schools and three national laboratories. In fiscal 2023, it enrolled 289,696 full-time equivalent undergraduate and graduate students.

“We are still in a strong technical environment for municipals with many investors flush with cash to spend and primary supply is just starting to build,” said said Terry Goode, senior portfolio manager at Allspring Global Investments. “Institutional and retail will likely find it attractive based on where existing municipal rates are currently.”

Read original article: https://www.bloomberg.com/news/articles/2024-01-22/university-of-california-taps-bond-market-for-1-7-billion?srnd=undefined&sref=dlv6Ue8o

2024 | Bloomberg

California Lawmakers Eye More Than $100 Billion of Borrowing

January 16, 2024

By Maxwell Adler

California is on the verge of a potential borrowing boom as Democratic state lawmakers draft more than $100 billion of municipal-bond proposals to fill funding gaps for several key legislative priorities.

The proposals include $15 billion of debt to make the state more resilient to climate change, $14 billion to modernize schools and $10 billion for affordable housing. Governor Gavin Newsom last year approved a $6.38 billion bond measure for voters to consider on the March ballot which would fund roughly 10,000 new mental health and substance abuse treatment slots.

Although California doesn’t cap how much money the state can borrow, Newsom’s administration has estimated the state can, at most, take on another $26 billion of bonds without pushing the ratio of annual debt costs compared to general fund revenue high enough to cause credit concerns. California’s debt-service ratio is already expected to rise to 3.2% by fiscal year 2026-2027 from about 2.8% now, according to estimates from the state’s finance department.

“Our expectation is not that they would issue so much debt that it changes their credit rating,” said Karen Krop, senior director of US public finance at Fitch Ratings.

California is rated Aa2 by Moodys Investors Service, AA- by S&P Ratings and AA by Fitch. The state had about $78.5 billion of general obligation and lease revenue bond debt outstanding as of June 30 with another $31.6 billion approved but not yet sold, according state figures.

Though the bond measures currently under consideration by the legislature total more than $100 billion, some of the proposals overlap and are likely to be combined while others won’t make it on the ballot at all. In fact, despite lawmakers in the last legislative session introducing bills totaling more than $114 billion of borrowing, only one was approved and that was the mental health measure.

“We’re not going to put $100 billion worth of bonds on the ballot,” said California Senator Ben Allen, a Democrat who who co-sponsored a climate resiliency bond measure currently making its way through the legislature. “We’re not gonna see three different climate bonds on the ballot.”

An index of California bonds showed yields trading below those of top-rated debt after Newsom earlier this month projected a $37.9 billion deficit in his budget proposal, a gap that is significantly smaller than had been estimated by the state’s fiscal analyst. The yield on California general-obligation bond debt due in 10 years stands at 2.3%, compared to 0.7% in 2021, according to Bloomberg BVAL.

When bonds are approved all the debt isn’t sold at once. The state treasurer borrows in piecemeal over a number of years as the funds are needed. During the last five fiscal years, the state has sold an average of $7.3 billion of general obligation bonds annually, according Treasurer Fiona Ma’s office.

Whenever the tax-exempt debt is sold, it’s expected to be greeted with strong demand by wealthy investors looking to shield some of their income from the state’s high taxes, according to Dora Lee, director of research at Belle Haven Investments.

“Even though the debt-service ratio is expected to increase, it remains manageable especially when you take into consideration the state’s decision to use prior surpluses to pay down pensions and address other long term obligations,” Lee said.

Read original article: https://www.bloomberg.com/news/articles/2024-01-16/california-lawmakers-eye-more-than-100-billion-of-borrowing?utm_source=website&utm_medium=share&utm_campaign=linkedin?sref&sref=dlv6Ue8o

2024 | Bloomberg

Investors Expect Tepid Returns for High-Yield Munis After Stellar Year

January 05, 2024

By Maxwell Adler and Amanda Albright
January 5, 2024 at 12:59 PM EST

Money managers don’t anticipate another banner year for high-yield municipals, one of the best-performing sectors of US debt in 2023.

Junk muni bonds posted a 9.2% advance for the full year, the most since 2019. Returns were buoyed by a lack of high-yield supply and a widespread market rally starting in November.

The market could look different this year if the Federal Reserve cuts interest rates and muni issuers rush to borrow. A slowing US economy also doesn’t bode well for a sector that’s largely made up of nursing homes, tobacco bonds and charter schools, said John Flahive, head of fixed income at BNY Mellon Wealth Management.

“It’s really hard to get excited about the outlook for some of those sectors,” he said.

His concerns were echoed in a recent survey published by Hilltop Securities, which showed that respondents expect the most defaults in senior living this year. About 45% of those responses were from investors in high-yield munis.

Flahive doesn’t see high-yield munis replicating their 2023 performance, saying that the rally late last year was likely a rebound from the drop the sector saw during the bond-market downturn in 2022.

Barclays, meanwhile, anticipates supply ticking up moderately and institutional investors gradually returning to risky muni debt to chase yield. Still, it forecasts mid-to-low single digit returns for high-yield munis in 2024.

“We do not expect a repeat of 9% this year,” said Mikhail Foux, head of municipal strategy at Barclays.

Another catalyst that could impact high-yield performance is the upcoming presidential election, because new economic policies influence portfolio construction, said Max Christiana, portfolio manager at Belle Haven Investments.

Money managers aren’t just lukewarm about high-yield munis. The outlook for broader muni performance has also dimmed after the securities bounced back during the fourth quarter. Some say the debt has become too expensive and advise investors to exercise caution.

There are still some investors more bullish than others about high-yield munis. While some sectors of high-yield could be impacted by an economic slowdown, overall it is in a good position to manage through that, said Jennifer Johnston, director of research for Franklin Templeton Fixed Income’s municipal-bond team.

With interest rates coming down and money sitting on the sidelines, investors will be keen to dive into high yield, she added.

“If money can start to flow into mutual funds and give investment managers the opportunity to put that money to work, that could certainly drive up performance in high yield,” she said.

Those inflows are yet to materialize, with investors yanking about $165 million from high-yield muni funds during the week ended Wednesday, according to LSEG Lipper data. This comes after an $8.7 million outflow from such funds during the week ended Dec. 27.

Overall, investors still recommend prudence given the economic uncertainty ahead.

“Performance in 2024 will certainly hinge on the Fed, and if and when they decide to start cutting rates and how many cuts we will actually see,” said Belle Haven’s Christiana.

Read original article: https://www.bloomberg.com/news/articles/2024-01-05/barclays-bny-mellon-see-tepid-returns-for-high-yield-municipal-bonds?sref=dlv6Ue8o

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