Archive for September, 2012

West Penn Alleg…

September 28, 2012

West Penn Allegheny Health System (WPAHS) canceled a deal with Highmark for $475 million.  According to the affiliation agreement proposal, which was announced in June 2012, West Penn and Highmark were going to become a single new nonprofit organization.  West Penn’s decision was largely based on their disapproval of Highmark’s plan to restructure the company through Bankruptcy.  West Penn is actively looking for new partners. West Penn took a $100 million loan from Highmark that it is now refusing to repay as they believe Highmark to be in breach of the affiliation agreement.  Highmark denies this allegation.

Voting is Open for the 2012 All-Star Municipal Analysts Program!

September 27, 2012

Smith’s Research and Gradings has been providing recognition for the achievements and fine work of municipal professionals since 1992. Smith’s Municipal All-Star Program is the only program that consistently and prominently provides recognition in the municipal space. The awards ceremony will take place December 4, 2012 at Bayard’s in New York City.


Go to to register and vote

Connecticut Municipal Lobby Seeks Financial Reform

September 26, 2012

The Connecticut Conference of Municipalities (CCM), a lobby representing 149 of Connecticut’s cities and towns, is pushing for municipal finance reform this campaign season. They claim while cities and towns are responsible for providing the majority of public services in the state, the statutory limits on local sources of revenue have led to an over-reliance on the property tax. Connecticut Towns and Cities rely on the property tax for 72% of municipal income while most of the rest comes from state aid.  Connecticut is more dependent on property taxes to fund local government and PreK-12 Education than any other state in the nation. According to the CCM this is caused by chronic state underfunding of education.

Their proposed solution includes;

– Increasing state revenue sharing through the municipal revenue sharing account (funded by the state sales tax and real estate conveyance tax);

– Increasing the payment In lieu of taxes (PILOT) reimbursement rates to 100% for private hospitals and colleges (currently 35%) and state-owned property (currently 27%);

– Eliminate unfunded and underfunded mandates like the minimum budget requirement.

According to the CCM, these proposals will ease the burden currently placed on Connecticut residents paying property taxes.  This may become particularly pertinent with the state of the housing market in Connecticut. The median home price in Connecticut fell 8.2% from Q2 2011 to Q2 2012. In towns like Brookfield and Darien, the declines have been much more dramatic with 22.4% and 19.6% declines respectively over the same period.  With such drastic declines in home values, the expected property tax revenues will also decline which will exacerbate the revenue problem faced by Connecticut’s cities and towns.

Tempest in a Teacup: BofA ML Reports On Municipal Default and Bankruptcy Totals

September 26, 2012

Default watch: Year-to-date through 19 September 2012, $1.69bn in total outstanding par value of municipal bonds have entered into debt service payment default for the first time. Muni bonds in monetary default represent 0.65% of total issuance YTD and 0.045% of total munis outstanding, compared with 0.84% and 0.065%, respectively, for the full year 2011.

Bankruptcy watch: There have been nine Chapter 9 filings year-to-date through 17 September 2012. Although each municipal bankruptcy proceeding has a life and time of its own, the pre-pendency plan is becoming that much more important. In the case of San Bernardino, the plan frames what the remaining important considerations will be.

Fitch Says Potential Longshoremen’s Strike Won’t Hurt Ports’ Ratings

September 26, 2012

Fitch Ratings has published a new special report titled ‘East Coast Port Strike: Credit Implications’. The report provides an update on labor issues affecting East Coast ports as well as a brief analysis of the expected credit impact of a strike or work stoppage.

The International Longshoreman’s Association (ILA) coastwide master contract, which governs containerized cargo on the U.S. East Coast, was set to expire on Sept. 30, 2012. In response, the industry made preparations for the first possible East Coast work stoppage to occur since 1977. However, a 90-day extension of the contract was announced on Sept. 20, 2012 following two days of negotiations aided by mediators from the Federal Mediation and Conciliation Service (FMCS). Going forward, negotiations will continue to be under supervision of the FMCS.

While the potential remains for a work stoppage at the end of the 90-day extension period, Fitch expects port credits to remain resilient in the face of a strike. Contingency plans at potentially affected ports have envisaged 10-15% cargo diversion over a month or so of stoppage, which is well below throughput losses modeled in Fitch’s rating case scenarios for ports. This fact, combined with the levels of liquidity maintained by ports and the fixed rental payments generally seen as the main source of revenues for ports in the container business, serves to minimize the credit impact expected from any future work stoppage.

Fitch Launches National Ratings for India

September 25, 2012

Fitch Ratings today launched a new brand for its existing National ratings business in India: ‘India Ratings & Research Pvt Ltd’ (India Ratings). A wholly owned subsidiary of the Fitch Group, India Ratings is dedicated to the local Indian market and focused exclusively on National-scale, domestic credit ratings.

National ratings in India will no longer be assigned under the Fitch Ratings name, and all Indian National-scale ratings previously assigned by Fitch Ratings have been transferred to India Ratings.

International ratings of Indian banks, corporates and other entities will continue to be assigned under the Fitch Ratings brand and reflect Fitch’s global policies and procedures.

“We believe issuers, investors and other market participants will benefit from this move as it will sharpen the focus of the group’s analytical coverage, increase transparency, and allow us to keep abreast of domestic and international regulatory changes. We are very excited by opportunities in the Indian market and are committed to investing and growing our business there.” said Brett Hemsley, Head of Fitch’s Asia-Pacific operations.

India Ratings will continue to rate instruments such as bank loans, bonds, debentures, and structured transactions on the National-scale for the Indian market, using the same criteria and global best-practice standards, building on Fitch’s reputation in India for quality and integrity. Moreover, with its dedication and focus on the Indian market, India Ratings will be better placed to serve the needs of local investors, issuers and regulators.

Atul Joshi, Managing Director and CEO of Fitch Ratings India, will serve in the same role heading up India Ratings.

“Launching a purely India-focussed brand for our National ratings business is an exciting milestone for us. By clearly separating the branding of each business we can continue delivering global standard, International ratings under the Fitch brand, while India Ratings can focus on the needs of domestic ratings users and regulators.” said Mr. Joshi.

Housing Affordability Spread and Foreclosure Rates

September 25, 2012

Over the past two decades, SMITH’s Research & Gradings has witnessed the boom and bust cycle of stocks, housing/real estate, and commodities.  Joe Kenny, SMITH’s Gradings Analyst, took a look at the data for housing as part of an ongoing critical self-examination process.   “After compiling census data on the median national home price and median household income we utilized regression analysis to characterize the relationship between these data points and the corresponding foreclosure rates,” Mr. Kenny said.  “Our analysis showed that between 1997 and 2010, the spread had very little impact in affecting foreclosure rates.”

However, as he further analyzed the years following the collapse of the housing bubble, he found a much stronger correlation between the Housing Affordability Spread and the rate of foreclosure. He explained,“Between the years 2006 and 2010 there was a negative correlation between the foreclosure rate and the spread. Thus as the spread decreased over the course of these years, the foreclosure rate increased from 0.99 to 4.60.”

Indeed. The jump in foreclosure rates is an outcome (lagging indicator) of the real estate market.  Mr. Kenny’s research has raised an important question about what is a leading indicator of a rebound in housing.