Municipal Market Update November 16, Matthew A. Spoerndle Senior Managing Director Phone: (203)

Transcription

1 Municipal Market Update November 16, 2017 Matthew A. Spoerndle Senior Managing Director Phone: (203)

2 Muni Market Update - Topics WHERE TO BEGIN??? Regulatory Environment Market Rates and data Updated Credit Ratings Information Connecticut Specific Items of interest TAX REFORM 2

3 Interest rates Fed Funds 10 year Treasury Municipal Market Data (MMD) Yield curves Muni/Treasury spreads Recent CT Sales data 3

4 Fed Funds Rate Next Fed Meeting 12/13/17 4

5 1 year Muni Interest Rate Market is building in expectations of higher Fed Funds Rate 5

6 10 Year Treasury v MMD 6

7 AAA MMD Yield Curves (last 12 Months) Peak (2.58%) Current (2.0%) Election Day (1.71%) 7

8 Muni to Treasury Ratios 8

9 Listing of CT Bond Sales since Election (1 st half) 9 DATE BORROWER AMOUNT LENGTH TAX RATING(S) RATE 12/8/16 WETHERSFIELD 8,800, YRS Non-BQ NR/AA+/NR 3.05% 12/15/16 SUFFIELD 9,100, YRS BQ NR/AA+/NR 2.73% 1/12/17 GREENWICH 40,000, YRS Non-BQ Aaa/AAA/AAA 1.70% 1/25/17 CLINTON 14,000, YRS Non-BQ Aa2/NR/NR 3.12% 2/1/17 SOUTH WINDSOR 11,860, YRS Non-BQ NR/AA+/NR 2.64% 2/2/17 WEST HARTFORD 17,000, YRS Non-BQ Aaa/AAA/NR 2.62% 2/15/17 REDDING 19,695, YRS Non-BQ NR/AAA/NR 2.92% 2/22/17 CHESHIRE 17,500, YRS Non-BQ NR/AAA/AAA 2.82% 3/8/17 NEWTOWN 5,090, YRS BQ NR/AAA/NR 2.67% 3/9/17 NEW LONDON 10,770, YRS Non-BQ NR/A+/NR 3.22% 3/29/17 MIDDLETOWN 19,000, YRS Non-BQ NR/AAA/NR 1.92% 4/11/17 NEW MILFORD 13,940, YRS Non-BQ NR/AA+/NR 2.36% 4/12/17 WATERTOWN 1,075, YRS BQ NR/AA+/NR 2.10% 4/26/17 WILTON 8,650, YRS BQ Aaa/NR/NR 2.34% 5/4/17 BERLIN 4,665, YRS BQ NR/AA+/NR 1.90% 5/9/17 HADDAM 6,480, YRS BQ NR/AAA/NR 2.57% 5/9/17 WESTPORT 6,900, YRS Non-BQ Aaa/NR/NR 2.45% 5/11/17 NEW CANAAN 9,300, YRS BQ Aaa/NR/NR 2.56% 5/17/17 WINDSOR 5,950, YRS BQ NR/AAA/NR 2.53% 5/17/17 LEDYARD 16,300, YRS Non-BQ NR/AA/NR 2.63% 5/18/17 BRISTOL 21,130, YRS Non-BQ Aa2/AA+/AAA 2.55% 6/6/17 SIMSBURY 10,940,000 9 YRS Non-BQ NR/AAA/NR 1.58% 6/6/17 ROCKY HILL 28,950, YRS Non-BQ NR/AA+/NR 2.49% 6/27/17 ORANGE 4,400, YRS BQ NR/AAA/NR 2.55%

10 Listing of CT Bond Sales since Election (2 nd half) 10 DATE BORROWER AMOUNT LENGTH TAX RATING(S) RATE 6/29/17 FAIRFIELD 12,885, YRS Non-BQ Aaa/AAA/AAA 2.74% 6/29/17 OXFORD 8,300, YRS BQ Aa2/NR/NR 2.48% 7/6/17 STAMFORD 25,000, YRS Non-BQ NR/AAA/AAA 2.68% 7/6/17 STAMFORD 5,000, YRS Non-BQ NR/AAA/AAA 1.89% 7/11/17 BURLINGTON 6,085, YRS BQ NR/AA+/NR 2.70% 7/11/17 DANBURY 18,000, YRS Non-BQ Aa1/AA+/AAA 2.69% 7/18/17 NORWALK 35,000, YRS Non-BQ Aaa/AAA/AAA 2.28% 7/27/17 VERNON 4,400, YRS Non-BQ Aa2/NR/NR 2.30% 7/27/17 ENFIELD 30,000, YRS Non-BQ NR/AA/NR 2.59% 8/1/17 LITCHFIELD TWN 2,535, YRS BQ Aa2/NR/NR 2.30% 8/2/17 GUILFORD 7,000, YRS Non-BQ NR/AAA/AAA 2.58% 8/17/17 EAST LYME 3,200, YRS BQ Aa2/NR/NR 2.63% 8/17/17 TRUMBULL 9,060, YRS Non-BQ NR/AA+/AA+ 2.56% 8/29/17 DARIEN 12,460, YRS Non-BQ Aaa/NR/NR 2.54% 8/30/17 EAST HAMPTON 7,105, YRS BQ NR/AAA/NR 2.38% 9/6/17 ESSEX 6,000, YRS BQ NR/AA+/NR 2.43% 9/7/17 BRANFORD 15,000, YRS Non-BQ NR/AAA/NR 2.05% 9/26/17 GROTON 21,965, YRS Non-BQ NR/AA-/NR 2.67% 10/11/17 CANTON 3,825, YRS BQ NR/AAA/NR 2.58% 10/11/17 WOLCOTT 11,300, YRS Non-BQ NR/AA/NR 2.83% 10/19/17 STONINGTON 20,000, YRS Non-BQ NR/AA+/NR 2.57% 10/25/17 MILFORD 18,735, YRS Non-BQ NR/AA+/NR 2.69% 10/31/17 NORTH HAVEN 7,500, YRS Non-BQ NR/AAA/NR 2.78% 11/2/17 NEW HARTFORD 3,915, YRS BQ NR/AA/NR 2.72% 11/7/17 RSD #6 2,045, YRS BQ Aa3/NR/NR 2.96%

11 State of CT Budget Impasse Prolonged / Painful budget process Finally ending with veto-proof majority signed into law on October 31 st Delay lead to significant uncertainty Liquidity crunch for some issuers Initial Draconian Cuts ($400MM+) to Municipal Aid ended up being ~$30MM+ and ~flat for FY2019 Teacher pension burden shift to Munis? Initial proposal for 1/3 rd of costs was removed BUT, you can t un-ring a bell. More to come. School construction withholding up to 11% from 5% State Fiscal Pressures going forward are still significant and we are not out of the woods Capital Asset Trust to help backfill Pension Liability?? 11

12 Rating Information 12 Measurement of issuers willingness and ability to pay obligations Municipal bonds traditionally among safest investment class The state of CT continues to have many strong credits Ratings have been relatively stable over the years Recalibration of mid-2010 was a major market shift CT State fiscal problems are impacting Local issuers credit profiles Need to continue to strengthen your credit profile where ever you can!

13 CT Impact to Locals 13 These items are out of the local s control S&P Lowered Institutional Framework to Strong from Very Strong Bond issues from CT have stigma rising spreads potentially Hartford Contagion Effect will they avoid bankruptcy? Default? Restructure all outstanding Debt? Impact on other fiscally-stressed issuers Lowest rating of any capital city in the US

14 CT Impact to Locals BAM is currently not offering to Insure CT Local issuers because of State s issues will we see more issues insured? Assured? S&P placed 9 issuers on Credit-watch negative Moody s put 29 credits on Review for Downgrade and another 29 on Negative Outlook and has not removed them with the adopted budget.. State of CT GO Ratings: (May issue) A1/A+/A+/AA- 14

15 Ratings Action in CT Moody s 10 Local Issuer Downgrades Hartford to Caa3 No upgrades Aaa 17 13% Aa % Aa % Aa % A1 11 9% A2 0 0% A3 1 1% Baa1 4 3% Baa2 1 1% Baa3 1 1% Caa3 1 1% 128 S&P 9 put on CreditWatch Negative in Oct. (now 6) Hartford to CC No upgrades. AAA 29 29% AA % AA 23 23% AA- 7 7% A+ 6 6% A 2 2% A- 1 1% BBB+ 0 0% BBB 1 1% BBB- 0 0% CC 1 1% 101 Fitch 1 local Upgrade (Waterbury!) Only downgrade to State AAA 14 50% AA+ 2 7% AA 3 11% AA- 2 7% A+ 3 11% A 1 4% A- 2 7% BBB+ 1 4% BBB 0 0% BBB- 0 0% CC 0 0% 28 15

16 CT Rating Allocation 16

17 Tax Reform 11/2/17- House Ways and Means (Tax Cuts and Jobs Act H.R. 1) : 1. Termination of private activity bonds 2. Repeal of advance refunding authority 3. Repeal of tax-credit bonds 4. Prohibition on professional sports stadiums (eff. 11/2/17) 5. Individual tax rates 6. Business tax rates 7. Repeal of alternative minimum tax Effective date of January 1, 2018 (retroactive?) 17

18 Tax Reform (cont) Senate Finance Committee s Version: Full repeal of SALT (vs 10k cap) Mortgage Interest Deductibility Stays ($1MM v. $500k on new) Corporate Tax rate to 20% - not until 2019 (vs 2018) Keeps 7 tax brackets (vs 4). Top from 39.6% to 38.6% No change to Stadium Bond Financing Adds repeal of Health Insurance mandate Private Activity Bonds likely to remain intact Tax Exempt Advance Refundings still on the chopping block Ultimately, House and Senate would have to agree on a Bill 18

19 Other Key Items to Watch TAX REFORM! Bank Demand for Muni Debt Increased Investor outreach? Federal Budget Debt Ceiling Consolidation Pennsylvania Full Property Tax Exemption? Puerto Rico Additional Defaults / bankruptcy filing 19

20 Questions? 20