Most individual investors stay focused on generating income and couldn't care less about "total return" analysis that dominates the general media.
But, as 2007 draws to a close, should you think about selling municipal bonds at a loss? Subscribers can read our November edition for a reason to do so, and some ideas on why the strategy can make sense all year long, not just now. If you don't subscribe, do so now to get investing ideas all year long!
Owners of tax-exempt bonds that financed nonprofit hospitals will no doubt be interested in this news. California is allowing many hospitals more time to pursue improvements that strengthen buildings against earthquake risk. This will give hospitals a few more years beyond the original 2008 date, which was set after damage caused by the big Northridge quake. The mandate has caused concern for hospitals that already are financially struggling. Although the change provides more breathing room, it still doesn't provide an answer to the question some struggling hospitals face: How will we pay for this? Maybe the reprieve will help some of them find a way to meet the delayed standards. (If a big quake damages hospitals in coming years, you can imagine the second-guessing that will occur over delayed fixes.)
(Sept. 19) -- California legislators agreed to re-craft a budget to avoid a veto by Governor Arnold Schwarzenegger. The deal might end a delay that saw 80 days pass in the new fiscal year before state officials could pass a budget. The new plan does drop a stupid gimmick of raising withholding on taxpayers and refunding it later to help "close" a $15 billion deficit. The budget still includes the usual smoke and mirrors, and voters must also approve borrowing against lottery revenue and a new process for tapping the rainy day fund. As usual, it pushes problems into the future.
Our advice in September's print edition stands regarding the higher premiums investors should seek on new California bond deals.
(Update: A settlement with the IRS in late July of 2008 removed the cloud over the deal below and many others mentioned in our print editions in recent months.)
Add the $18.74 million ABC Unified School District 2003 General Obligation Refunding Bonds, Series A, to the list. The district said the IRS has made "a preliminary determination" that interest on the bonds should be federally taxable, not tax-exempt. As usual, issuers (if appeals fail) tend to seek settlements to protect the tax-exempt status on behalf of bondholders. The underwriter was Kinsell, Newcomb & De Dios. The bond counsel was Best Best & Krieger.
(Update: Our March 2008 print edition lists a summary of recent developments. This older item is posted as a sample.) Bank of the West in early October started the ball rolling for possible foreclosure on part of the land in Temecula Public Financing Authority CFD No. 03-02 (Roripaugh Ranch) unless a default under a loan agreement was cured.
The "notice of default" pertains to a portion of the land owned by Ashby USA LLC, and states the developer owed the bank $7.74 million as of October 4, 2007, according to a recent notice from the public financing authority.
The district backs about $51 million of bonds. Several updates about the problems affecting the developer have been released since last year.
(Aug. 8) -- A settlement and restructuring announced today for ACA Financial Guaranty could be a big plus for holders of municipal bonds backed by this insurer. ACA, which once provided a single-A guarantee, was downgraded because of exposure to riskier subprime mortgage securities.
"ACA's remaining insurance obligations will consist primarily of traditional financial guaranty insurance written on municipal obligations," Maryland Insurance Commissioner Ralph Tyler said in a statement. "The approved restructuring will provide significant protection to ACA's municipal policyholders. ACA will operate as a runoff insurance company while continuing to insure these obligations." We will discuss this matter more in coming days.
(Aug. 12 update) -- Standard & Poor's kept its CCC rating with "developing implications" on ACA until it can evaluate the settlement discussed above. The "potential" for an upgrade will be considered after further analysis, S&P said.