Joseph Krist

Publisher

joseph.krist@municreditnews.com

______________________________________________________________________

ISSUE OF THE WEEK

Rather than focus on one new bond issue, we think that it is more appropriate for a pure opinion piece in this space. We recognize that our view may not be unique but it should be expressed nonetheless. For those of us who care about municipal credit from the investment standpoint or the policy standpoint, the tax reform package expected to be enacted this week borders on the pathetic. There is no reform here. It may be 1,000 pages, excruciatingly detailed and complex but it is not reform. One’s politics have nothing to do with the fact that the plan is at its core an effort to massively shift the tax base away from the corporate sector and onto the individual. Specifically, it is designed to shift the burden to the wage earner.

It would be one thing if there had been a clear electoral mandate to make such a change. We are not relitigating the 2016 here. It is clear that what those who voted for the current regime in the White House and in Congress did not vote to increase the individual tax burden. They did not vote to make wage income less attractive. They did not vote to make it harder for state and local government to provide the services they demand. And so, one does not have to be an old hippie retread to think that moneyed corporate interests managed to put one over on the working class this time.

If one is honest and looks at how ownership and management are compensated, there is no way to honestly argue intellectually that this plan will lead ownership and management to take their increased disposable income and shift it to the employee. Enlightened self interest, the bedrock of capitalist philosophy for over 200 years, dictates that ownership and management will enhance their own positions by increasing the value of their equity. That directly conflicts with trickling down the benefits of lower taxes on corporate income.

So where does this leave municipal credit? Certainly not better off. The package’s combination of reduced revenue demands, likely slowdowns in the growth of federal revenues (Kansas, e.g.), serious capital needs, and less and more expensive health insurance, create a potentially toxic brew of financial and economic pressures for state and local government. States will likely be at the forefront with the exact impact on individual governments below that level depending on the responses we see on a state by state basis.  

So we would expect the response to be much more reliance on revenue enhancements (tolls, fees, and the like) to make up for the negative impact of tax policy. That is before the expected attack on entitlements which the current majority has been virtually drooling at the thought of. Regardless of whether one thinks that entitlements need to be cut, the fact is that any successful effort will initially reduce incomes and tax bases especially in areas currently experiencing economic weakness (rural, formerly manufacturing centers, and areas depending on jobs requiring lesser skills and education). None of this is good for municipal credit.

TAX REFORM?

One would have thought that when the Congress gave birth to this bill, it would have looked much different than it does. Even stadium finance seems to have survived the attack on municipal bonds. It’s important to separate municipal bond impacts from the impact on state and local credit. We wish that we could be sanguine on the latter. The fact is that now that the dust has settled, there are clear losers in this process.

The biggest loser appears to be New Jersey. As a state characterized by a real estate market reliant on certain specific high income industries, aging demographics, and an inordinate reliance on local property taxes, the Garden State is particularly vulnerable to the loss of the SALT deduction. The demographic aspect is a concern as older populations typically waver in their support of property taxes for education.

With the limit of deductibility at $10,000, many residents will see a substantial increase in taxes as the result of this “reform”.  We suspect that residents will insist on a halt to steady increases in property taxes and will also look for a slowdown in spending growth. This will clash with a need to maintain the education system and help the State to deal with its ongoing pension issues. So the potential for difficult politics and finances really dampens the fiscal outlook for the entire range of tax backed credit in New Jersey.

Without a real yield premium, we see little advantage to owning New Jersey paper for other than New Jersey residents.

MILEAGE TAXES GET A BOOST

A four-month study in Colorado enlisted 150 drivers to evaluate the prospect of calculating state transportation funding based on the miles they drive.  CDOT released results Tuesday from its Road Usage Charge Pilot Program, which was conducted from December 2016 through April of this year. More than 90 percent of participants thought the system, which let drivers record and report their mileage manually or with a device plugged into their car, was accurate and easy to use.

And 81 percent of participants said a road usage charge is a “fair funding method” to address the glaring needs of a state. Colorado’s 22-cent gas tax last got a boost 26 years ago. The taxes are not indexed to inflation, so as prices for concrete and other construction materials rise, there is no equivalent rise in the value of the levy at the pump. CDOT estimates that it will see a $1 billion-a-year budgetary shortfall for the next 10 years, largely because an expected decline in gas taxes.

Concerns reflected in the survey included privacy.  Many drivers uncomfortable about the government knowing where they might be headed on any given day. So CDOT gave pilot program participants the option of reporting their mileage the old-school way — by snapping a picture of the odometer and submitting it online. For drivers comfortable with a plug-in data device, CDOT doesn’t track where people go — it just wants to know mileage. It works with a third-party data collection vendor, which destroys the information drivers send in after 30 days.

CDOT imposed a theoretical 1.2 cents-per-mile charge during the pilot program. Fuel-efficient vehicles that pay little tax at the gas pump will end up paying more under per-mile charge, while gas-guzzling SUVs will pay less. CDOT determine when a Colorado driver has left the state and is no longer on its road system. But trying to track and charge an out-of-state motorist for use of Colorado roads is a far harder proposition.

The state relies on 75 percent of its road construction and repair budget coming from the federal government, Lewis said, and the lack of funding is showing in the conditions of the state’s roads. As of June 2016, Colorado’s population had grown by 53 percent since 1990, while lane miles on the state’s highways only increased by 2 percent in the same time frame.

The $2.2 billion CDOT is looking to secure includes the $1.8 billion price of adding express lanes to the entirety of north I-25 — from downtown Denver to the Wyoming border — as well as an additional $400 million needed to add express lanes south of that project’s target area through Denver.

GATEWAY TUNNEL FINANCE AGREEMENT

Gov. Chris Christie and New York Gov. Andrew Cuomo announced commitments to fund 100 percent of their respective share of the new Gateway tunnel. The agreement for a combined $5.5 billion states that the State of New York will contribute $1.75 billion with NJ Transit committing $1.9 billion and the Port Authority contributing $1.9 billion. The federal government agreed to fund 50 percent of the project. Gov. Cuomo will propose in the state’s forthcoming executive budget an appropriation each year over a 35-year period to pay debt service on a $1.75 billion fixed-interest loan to the Gateway Development Corp. with a 35-year term under the US DOT’s Railroad Rehabilitation & Improvement Financing (RRIF) program.

The Port Authority, at the direction of the two governors, committed $2.7 billion in its ten-year capital plan, adopted in early 2017, for Gateway. This includes the Port Authority’s approximately $300 million commitment for the Portal North Bridge Project – another urgent element of the Gateway Program.  The remaining $2.4 billion is being dedicated to the new Gateway tunnel – which will net $1.9 billion towards construction after USDOT fees and accrued interest during construction.

New Jersey Transit will use fare surcharges to fund its portion of the Garden State’s share. It will initiate a per-trip fare increase for rail customers of 90 cents beginning in 2020. The cost would increase to $1.70 in 2028 and $2.20 in 2038.

The $12.7 billion Gateway Hudson Tunnel Project consists of three elements: (i) a new two-track tunnel, (ii) the Hudson Yards Concrete Casing and (iii) the rehabilitation of the existing Amtrak North River Tunnel. The commitments announced today include $1.9 billion by NJ Transit, $1.75 billion by the State of New York and $1.9 billion previously committed by the Port Authority of New York and New Jersey Board of Commissioners. Together these commitments totaling $5.55 billion fully fund 100 percent ‎of the local share for the most urgent, time sensitive elements of the Project: the construction of a new tunnel and the Hudson Yards Concrete Casing which total $11.1 billion of the $12.7 billion construction cost.

There is however, one huge caveat to this whole discussion. The Trump Administration is claiming both a higher cost estimate and that there is no formal agreement for Federal funding. Trump wants to scrap the grant program the states applied to and handle Gateway in its infrastructure initiative, which it plans to unveil next month. We try not to be too political but this situation highlights how incredibly stupid and shortsighted Chris Christie’s decision not to participate in the initial plan when it had a chance to actually was.

FARE INCREASE IN CHICAGO

It’s been nine years since the Chicago Transit Authority last voted to increase fares for public transportation users. The CTA did so on Wednesday as part of its 2018 budget. Starting January 7, the cost of a single fare bus ride on a Ventra card will go up from $2.00 to $2.25 and “L” and cash bus fares from $2.25 to $2.50. The cost of 30-day passes will increase from $100 to $105. All other fares and passes, including those for students, will remain the same. Free rides will remain free.

Starting January 7, the cost of a single fare bus ride on a Ventra card will go up from $2.00 to $2.25 and “L” and cash bus fares from $2.25 to $2.50. The cost of 30-day passes will increase from $100 to $105. All other fares and passes, including those for students, will remain the same. Free rides will remain free. The increase is designed in part to replace reduced funding from the State of illinois. The Civic Federation, a fiscal watchdog group, opposes the budget, which, they say, in addition to the fare hikes, relies on unrealistic expectations and short-term borrowing to make ends meet. The CTA’s budget must still be approved by the Regional Transit Authority. Once that happens, the fare hikes will go into effect on January 7. And it’s not just the CTA. Hit by the same cuts in state funding, Metra and PACE have already approved their own fare hikes for 2018.

TEXAS FOLLOWS THROUGH ON REDUCING THE ROLE OF TOLLS

After the Governor expressed a strong view against any additional use of tolls as a source of funding for highway expansion, the State awaited a decision from the Texas DOT regarding its Unified Transportation Program. Now that decision is in with implications for long term road development.

The Texas Transportation Commission has effectively removed plans to add four managed toll lanes on I-35. The commission, which is the governing body for the Texas Department of Transportation, approved an amendment to its 10-year planning document called the Unified Transportation Program that did not include managed toll lanes on I-35 in the Austin area or on I-635 in Dallas. The 2018 UTP now has no projects with any tolled elements.

Both the Governor and his Lieutenant Governor consistently pressured the Commission over not using propositions 1 and 7 funding on projects with tolled elements. The commission opted to side with the state’s top leadership instead of local officials. On Oct. 30, TxDOT announced a plan to add two managed toll lanes in each direction on I-35 from RM 1431 in Round Rock to SH 45 SE near Buda. Just a few weeks later on Nov. 16, Abbott and Patrick notified the transportation commission that they do not support TxDOT using propositions 1 and 7 money on projects that have tolled elements.

WATER WAR UPDATE

In the past we have cited a number of situations regarding various disputes over efforts to establish water rights on behalf of municipalities. These have included privatizations, public purchase of water systems, and the occasional legal battle. One of those stories involved a small northern California lumber town. The City of weed and its major economic entity a lumber company were embroiled in a dispute over who owned a spring which provided the community of 2700 residents with their drinking water.

The lumber company that it intended to retain its exclusive right to the water forcing the City to find another source for its residents. a group of residents sent a letter to the district water office asking to clarify the ownership of the municipal water. They also convinced the Weed City Council to back their request. Roseburg responded by suing the residents and the Weed City Council.

Attorneys for the individual residents asked a Superior Court Judge to dismiss the suit against the individuals on the grounds that it violated their freedom of speech. The lawyers invoked a California law that allows defendants to strike down lawsuits meant to silence criticism, cases known as strategic lawsuits against public participation, or SLAPP suits. Last week the judge ruled in favor of the residents.

The answer to the question of who owns the water is yet to be determined but now the effort to overpower the residents has been moved aside so that the merits of the ownership issue can be determined.

MERRY CHRISTMAS

After all of this good news it seems somewhat inconsistent to do so but we do wish our loyal readership a very Merry Christmas and a Happy New Year. 2017 was a year of consistent growth in our readership and we appreciate your loyalty and interest. And so, we will take a bit of a break at this special time of year and come back the first week of January to help to guide you through what we believe will a most challenging year in the world of municipal credit. Enjoy your families, be careful travelling, and enjoy the good feelings of the season.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Joseph Krist

Publisher

___________________________________________________________________________________________________

ISSUE OF THE WEEK

$934,015,000*

Composite Issue

PARTNERS HEALTHCARE SYSTEM

REVENUE BONDS 

Some eleven months after having its rating outlook revised downward to negative, Partners Health returns to the market with a significant debt issue and an outlook revised to stable. It’s Moody’s Aa3 remains based on “multiple factors including Partners’ significant scale and leading market presence in eastern Massachusetts combined with a national and international draw for high acuity and complex patients to the system’s two academic medical centers. Further undergirding the rating is Partners’ large research organization that helps the organization attract high caliber physicians and researchers and supports the system’s large fundraising operations.”

The outlook has been revised to stable based on Moody’s expectation that operating performance at the provider division will largely return to historical levels in FY 2018 and that the insurance division will generate roughly breakeven results. The assumption is the provider division will generate a roughly 2% operating margin and that the insurance division will generate roughly breakeven results. The outlook could be changed again to negative if these targets are not met throughout the year or if the acquisition currently being contemplated results in material financial dilution or other challenges.

Partners Health is Massachusetts General Hospital (MGH), Brigham Health (parent of Brigham and Women’s Hospital and Brigham and Women’s Faulkner Hospital), NSMC HealthCare Inc. (parent of North Shore Medical Center), Newton-Wellesley Hospital, Partners Continuing Care (parent of several non-acute service providers, including the Spaulding Rehabilitation Hospital Network), Neighborhood Health Plan, Partners Medical International and Partners HealthCare International. Partners also controls Partners Community Physicians Organization which is a management services organization that supports an integrated managed care strategy and administers its physician network. MGH is the sole member of The General Hospital (commonly referred to as Massachusetts General Hospital), Cooley Dickinson Health Care Corporation, McLean HealthCare, Martha’s Vineyard Hospital, Nantucket Cottage Hospital and Wentworth-Douglass Hospital.

Partners is considering the integration of the Massachusetts Eye and Ear facility which is located adjacent to Mass General. Partners is holding out for insurers to bring Mass. Eye and Ear up to rates received by Partners’ top teaching hospitals. This would likely address Moody’s dilution concerns. If completed, the merged entities would control 45 percent of all ear, nose and throat visits and day surgery in Massachusetts and 36 percent of ophthalmology care.

__________________________________________________________________________________________________

TAX REFORM IMPACTS STADIUM DEBT BEFORE IT TAKES EFFECT…

The potential impact of tax reform limitations on stadium and arena financing has begun even before the legislation is enacted and signed into law. This week a financing for the Louisville Arena Authority’s Project Revenue Bonds was amended to alter the nature of a private operator’s role in the deal to ensure that the transaction retained its tax exemption.

Specifically, the contract with AEG Management (AEG) originally included a $1.5 million annual minimum contractual guarantee from AEG Management to Louisville Authority Arena (LAA). This guarantee has been removed to eliminate the risk that the bonds could lose their tax-exempt status for having too much private use revenue. The contract was amended to state that if the $1.5 million target is not met for two consecutive years then LAA and AEG will endeavor, but are not required, to work together to remedy the shortfall within two or three months or reduce the future $700,000 annual payment made to AEG to make up the difference.

This change lowers the cash flow certainty under this AEG contract because if the contract becomes uneconomical for AEG for several years, the contractual requirement to remain is weak, especially given AEG paid funds to LAA for capital and thus would be paid out if their contract was eventually terminated by LAA.

A new debt service schedule was issued and is notably lower than the prior one with the smallest decline being about $2 million in one year with a higher decline in debt service costs in all other years, which improves the resiliency of the structure. The lower debt service also offsets any potential loss of revenues from the AEG contract.

Issues like this are all part of the mix of challenges facing stadium finance planners going forward. We are looking to see how Las  Vegas structures its plan for a new Raiders facility and how San Diego approached a facility designed to attract a Major league Soccer franchise and redevelop the Qualcomm Stadium area.

…WHILE IN ST. LOUIS THE BLUES GET THEIR DEAL AFTERALL

This week the NHL’s St. Louis Blues scored a huge goal in their effort to get the City of St. Louis to supply public funding for a renovation of the Scottrade Center, their downtown St. Louis home. St. Louis Comptroller Darlene Green followed court orders Tuesday and turned over her signed copy of a $64 million stadium financing agreement. In August, Ms. Green had refused to approve  an agreement because in her view it was injurious to the City’s credit.

The Blues filed a motion in St. Louis Circuit Court saying Green violated an order from Nov. 27 to sign the agreement. Clearly the Comptroller was unhappy with the outcome. “The Comptroller does not comply with this finance agreement voluntarily. As she has stated, this financing agreement is not in the best interest of city taxpayers; it draws upon the city’s general fund for repayment and may harm the city’s credit.”

The exact form of how the City will come up with the funding is now uncertain given the pending ban on tax exempt private activity bonds expected to be included in the tax reform package awaiting Congressional approval. The agreement does contemplate the issuance of debt to be secured by City revenues. The Court said nothing in the city charter gives the comptroller “the discretion to refuse to countersign the financing agreement based on her belief that the expenditure is imprudent.”

A separate lawsuit against the deal was also settled after the Comptroller’s agreement was reached. The plaintiffs in that suit contended the public-private partnership it amounted to an unconstitutional gift of public money to primarily benefit private interests. Blues President and CEO Chris Zimmerman said the Blues will now turn their attention to the Missouri Legislature to secure millions of dollars in additional public financing for future phases of Scottrade Center renovations. A bill to secure state funding has been pre-filed for the 2018 session, Zimmerman said.

During a Blues broadcast we heard on Saturday, the team has been influenced by amenities offered in new arenas which have been opened by other teams. He made those comments from the new Little Caesars Arena in Detroit. Since the 1960’s, St. Louis had lost three other professional sports franchises to other cities – the NBA Hawks, and the NFL Cardinals and Rams.

SCRANTON PARKING P3 CONTINUES TO UNDERPERFORM

In an effort to help the City of Scranton avoid bankruptcy earlier in the decade, a decision was made to enter an agreement to turn over the operation of the city’s parking system operator. ABM Parking Systems now has the daily control and management of all five of Scranton’s parking garages and nearly 1500 parking meters under a 45-year lease concession agreement.

Recently, Standard and Poor’s announced that it had lowered the rating on debt issued and secured by system revenues to BB- from BB+. It referenced the parking system’s materially weak financial performance, erosion in liquidity, and reliance on factors outside of the concessionaire’s control that we believe considerably influence the parking system’s financial performance, liquidity, and ability to fund the project’s capital requirements.

A negative outlook was assigned reflective of an expectation that coverage may remain below the rate covenant over the near term and a view that outside capital (which has yet to be secured) may be necessary to stabilize cash flows from operations over the two-year outlook period.  The move highlights the point that private operation is not always a panacea when the underlying economics of an area supporting a particular project financing are weak. It is an important point to keep in mind when evaluating any project, whether it be publicly or privately managed.

MEAG AND GEORGIA POWER EXPECT VOGTLE GUARANTEE PAYMENT

The owners of the expansion facilities at the Vogtle nuclear plant have moved one step closer to at least some financial relief due to the suspension of the two unit expansion at the long standing generating facility. The U.S. Department of Energy (DOE) has issued the final approval needed for Georgia Power’s new agreement with Toshiba, the parent company of former primary Vogtle contractor Westinghouse, to receive all remaining scheduled payments from Toshiba in the amount of approximately $3.2 billion by Dec. 15, 2017. Georgia Power’s proportionate share of the payments is approximately $1.47 billion.

To date, the Vogtle co-owners (Georgia Power, Oglethorpe Power, MEAG Power and Dalton Utilities) have received $455 million in total scheduled payments from Toshiba under the parent guarantee for the Vogtle project – a structure which was put in place to protect Georgia electric customers as part of the original contract.

On August 31, Georgia Power filed a recommendation with the Georgia Public Service Commission (PSC) to continue construction of the Vogtle nuclear expansion supported by all of the project’s other co-owners. The recommendation was based on the results of a comprehensive schedule, cost-to-complete and cancellation assessment launched following the Westinghouse bankruptcy. The Georgia PSC is reviewing the recommendation to move forward and is expected to make a decision regarding the future of the Vogtle 3 and 4 project as part of the 17th Vogtle Construction Monitoring (VCM) proceeding.  That process continues this week.

Recognizing that completing the Project in the absence of the EPC Agreement will entail different risks and may require additional decision-making points for the Owners, the Owners agreed to revise the Project Ownership Participation Agreement to establish additional conditions that will require Owner approval.

MORE TAX REFORM DRIVEN ACTIVITY

Two major airports are in the market this week for just under $2 billion of refunding debt in advance of tax reform legislation which would end this financing tool and possibly eliminate capital development projects at airports.

Phoenix will issue nearly $500 million of junior lien debt while Philadelphia will issue the balance. Houston will offer $135 million of soon to be eliminated special facilities bonds for its anchor tenant United Airlines. They are examples of just what sort of damage the proposed limitations could do to efforts to modernize the nation’s air transport infrastructure. You know, the stuff candidate Trump called third world. Now that he is a President without any policy expertise, he advocates policies which would stymie achievement of his stated goals. Go figure!

There are also, in addition to our issue of the week, another six hospital issues scheduled for sale this week before tax provisions which are feared to interfere with tax exempt hospital bonds are voted on.

BACK TO WORK ON THE OKLAHOMA BUDGET

The special session of the Oklahoma Legislature ended in mid-November during which 194 measures were proposed. Out of those 194 bills, a total of four became law—though one of those four successful measures—the budget bill—was line-item vetoed by Governor Mary Fallin.

When the special session began, the state was facing a potential budget shortfall of $215 million. By the end of the session, that number had been brought down to $118 million, though if no new revenue bills are passed soon, that number could balloon to $600 million by 2019. Lawmakers rejected a total of almost a billion dollars’ worth of additional revenue over the next two years.

Now with just over two months before the 2018 legislative session is due to begin, Oklahoma Gov. Mary Fallin called lawmakers to their second special session the week before Christmas in hopes of raising revenue to patch a $111 million budget gap in the current fiscal year.

The governor reports there is still a need for additional revenue to address the loss of funding and also to fund a pay raise for the state’s teachers. She believes lawmakers will need to find a plan that will raise around $800 million. Fallin’s office reports that $509 million of the 2018 fiscal year budget is one-time funds and future obligations. The state will face a starting deficit of approximately $700 million in 2019.

Joseph Krist

Publisher

________________________________________________________________

ISSUE OF THE WEEK

Trinity Health is one of the largest not-for-profit healthcare systems in the U.S. and represents the May 2013 merger of Trinity Health and Catholic Health East. The system operates over 90 hospitals in 22 states across the U.S. and is headquartered in Livonia, Michigan; the number of states will decline to 21 following the planned divestiture of its New Jersey hospitals. All debt of the legacy organizations are secured on parity through Master Trust Indenture dated October 3, 2013. Trinity Health may not withdraw from the Obligated Group.

The Credit Group consists of Members of the Obligated Group and the Designated Affiliates. The Designated Affiliates include the majority of the hospitals except for the New York facilities and Mercy Chicago. The Obligated Group pledges to cause the Designated Affiliates to pay, loan or otherwise transfer to the Obligated Group such moneys as are necessary to pay amounts due on the bonds. Pledge of revenue derived from the operation of all facilities of the majority of the Designated Affiliates, including rights to receivable accounts and health care insurance receivables.

Like many large hospital systems in the Affordable Care Act environment, Trinity has used a strategy of expansion and consolidation to amass a diverse stream of revenues from a multiplicity of jurisdictions and reimbursement environments. This has allowed Trinity to achieve higher margins and absorb the costs of integration as well as strategic divestitures from less favorable markets like New Jersey.

Now Trinity is taking advantage of what is apparently the last available window to restructure some of its significant municipal bond debt on a tax exempt basis. The system will issue some $1 billion of bonds through four state agencies with a significant portion of the proceeds being applied to refinancing. The issue serves as one of the prime examples of issuance driven at this time by impending tax reform legislation rather than the absolute best case savings which could drive such a transaction.

__________________________________

TAX REFORM DRIVING SOME FAMILIAR NAMES TO MARKET FOR ONE LAST SHOT

The provisions in tax reform which would limit advance refundings are driving all manner of historically familiar names to the market for one last ride into the refunding sunset.  The Successor Agency to the Redevelopment Agency of the City of San Jose (CA) will refund some $1.6 billion of its debt. Those who have ridden through the various ups and downs of this credit from its growth in the 90’s and early oughts right through the crisis years after the financial crisis will see their patience rewarded. A non investment grade senior living project in Massachusetts (New Bridge on the Charles) will refund nearly $240 million of debt. Kentucky’s Louisville Arena Project  checks off two boxes as it refunds an arena deal.

More standard names in terms of investment grade credit quality pursuing refundings include transportation offerings like the PA Turnpike Commission, the Tampa Hillsborough Highway Authority, and the Central Florida Expressway Authority. The electric utility sector will see the Sacramento Municipal Utility District, and the Omaha Public Power District all bring refunding offerings to market.

In addition to refundings, a number of sectors to be restricted under proposed tax reform will rush to market. They include several senior living projects, privatized student housing in Chicago, multifamily housing, and private university and charter school financings. It is a measure of the impact on financing options that such a diverse range of issuers is rushing to meet the end of year deadline.

INFORMATION IS STILL A PROBLEM IN PUERTO RICO

Timely information on the Commonwealth’s revenue collections has always been a problem for investors and guarantors. Even the pressure to restructure however, has not seemed to have altered this unfortunate characteristic. Ambac Assurance Corp., which insures some $1.35 billion in Puerto Rico Sales Tax Financing Corp. (Cofina) bonds, has asked the U.S. District Court to allow it to examine the collection of the sales and use tax (IVU buy its Spanish acronym) under Bankruptcy Rule 2004 so it can evaluate restructuring proposals for the in-court bankruptcy process underway.

In a recent filing Ambac said “Without the information sought, Ambac cannot participate meaningfully in the process of advancing these Title III cases towards successful plans of adjustment,” the insurer said. “Ambac accordingly seeks an order from this Court compelling the [Financial] Oversight Board, AAFAF [Spanish acronym for Fiscal Agency and Financial Advisory Authority], the Commonwealth, and Cofina to produce this information.” The Federal Rule of Bankruptcy Procedure 2004 states that the court may order the examination of any entity.

A Federal Magistrate has scheduled a hearing for Dec. 14 to determine whether the Ad Hoc Committee of General Obligation Bondholders and bond insurers are allowed a discovery process into the state of the government’s finances. Their request had previously been denied without explanation, but after new urgent motions were filed, the judge chose to schedule a hearing. In addition to the Ad Hoc Group, insurers Ambac Assurance Corp., Assured Guaranty Corp., Assured Guaranty Municipal Corp., the Mutual Fund Group and the National Public Finance Guarantee Corp. are requesting discovery.

WHILE ECONOMIC ACTIVITY REMAINS IN DECLINE

The Fiscal Agency and Financial Advisory Authority  and the Government Development Bank (GDB) published its Economic Activity Index (EIA) for August, which reflects a 1.9 % drop when compared with the same month last year. It highlights the hurdles Puerto Rico faced before it was ravaged by Hurricane Maria. The latest numbers have August ending with an EIA of 121, while for the same month last year, the indicator was at 123.4. The last time the index saw an uptick compared with the prior year was in December 2013.

The four main indicators that make up the EAI are the total non-farm payroll employment, cement sales, gasoline consumption and electric power generation. Total non-farm payroll employment for August averaged 868,000, a 1.2% decrease compared with August 2016. The preliminary estimate of gasoline consumption for August was 81.3 million gallons, for an annual decrease of 2.9%. Electric power generation for August averaged 1,862.7 million kilowatt-hours (kWh), an annual reduction of 1.1%. The indicator includes petroleum, natural gas, coal and renewable energy sources supplied by utility-scale solar photovoltaic generating capacity, two wind farms and landfill gases sources.

The only positive number was for cement sales which for August totaled 1.02 million bags, an annual increase of 0.5%.

DAN GILBERT EXTENDS HIS INFLUENCE IN DETROIT REVIVAL

He has become the single largest commercial property owner in downtown Detroit and along with the Illitch family has been among the most prominent drivers of downtown Detroit’s recovery. Now Mr. Gilbert is participating in a land swap deal which is seen as facilitating development while helping Wayne County realize its long held goal of a new criminal justice complex. The county and Gilbert are moving closer to an agreement on building a new criminal justice center in exchange for the unfinished jail site on Gratiot near Interstate 375 in the city’s Greektown district.

The announcement came about 10 days after Detroit’s City Council approved a land swap deal with Wayne County that will enable Rock Ventures to build a $520 million criminal justice complex on city-owned land near I-75 and Warren in exchange for the existing jail site. The county announced it had reached an agreement with Rock Ventures on the land swap in October. The land swap still requires approval from the 15-member Wayne County Commission and the Wayne County Land Bank Board, which owns the property for the new proposed jail site. In addition, the county needs to get approval from Internal Revenue Service to use bonds for the jail at another site.

Gilbert submitted to Wayne County a plan to build a criminal justice complex for the county with a 2,280-bed jail that will cost at least $520 million at the other site. Gilbert and Detroit Pistons owner Tom Gores have announced their desire to build a 25,000-seat Major League Soccer stadium on the jail site as well as retail and residential units, a hotel, covered parking and plazas.

ARE OPIODS THE NEXT TOBACCO FOR THE STATES ?

Purdue Pharma LP has acknowledged in writing that the maker of the opioid painkiller Oxycontin is in “negotiations’’ with state attorneys general over lawsuits accusing the company of creating a public-health crisis with its mishandling of the drug.  A letter was written to Ohio’s Attorney General in response to his decision to withdraw from a multistate probe of the drug maker by 41 of his fellow attorneys general. It is the first time an opioid maker has disclosed negotiations with state attorneys general who are seeking a big tobacco-style multibillion-dollar payout to cover the costs of drug epidemics in their states.

The Ohio Attorney General has executed an agreement that he says preserves his state’s legal claims while the investigation and negotiations were conducted. A report by the Council of Economic Advisers, or CEA says that The epidemic cost the American economy $504 billion in 2015, which was the equivalent of 2.8 percent of gross domestic product that year.

The Purdue letter to the Ohio AG says “As you know, we have been working on an expedited basis with more than 30 state attorneys general as part of a bipartisan multistate process to resolve serious issues.’’ It states further that “It is uncontroversial that the multistate process is the best and fastest way for states to get resources to address this crisis.’’  Opioid manufacturers are facing an estimated 60 lawsuits filed so far in federal courts across the country from cities and counties. Purdue Pharma LP is proposing a global settlement in an attempt to end state investigations and lawsuits over the U.S. opioid epidemic.

Purdue’s lawyers raised the prospect with several southern-state attorneys general who haven’t sued the company. Not every state participated in the Master Settlement Agreement with the tobacco industry which produced a $245 billion payout and led to the massive tobacco securitization sector in the municipal bond market.  Opioid makers argue in court filings that states and local governments are barred from suing because opioids are regulated by the FDA. The FDA regulates efficacy but does rule on the overall marketing strategies of manufacturers.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.