SPECIAL NOTE: THE ITEMS BELOW THIS INTRODUCTION HAVE BEEN REMOVED. THE "TROUBLED BONDS" PAGE WILL FEATURE NEW UPDATES AND MORE DETAIL AFTER A SITE UPGRADE IN FEBRUARY 2011.

Updating Troubled Bonds: Some Warnings on Using "Disclosure"

(2010) -- The Bond Advisor's list of troubled bonds always has included a long preface on the usefulness, or lack thereof, of information on troubled bonds. It is in this spirit that we provide the updates below. We were a primary source of information and updates on troubled municipal bonds during the early 1990s downturn (some of those bonds remain troubled today). We plan to do the same in the future, even though there is now more required "continuing disclosure" about troubled bond issues. It is one thing to say a bond is in trouble what has happened in the past. It is quite another to talk about possible outcomes and remedies down the road. For now, at least, this "free-to-the-world public page will include short summaries about deals that are running into trouble. Our future subscriber-only section (and print editions) will talk about possible outcomes and remedies whenever possible. Here are several warnings about the material below: First, just because there has been a draw on the reserve fund doesn't always mean a bond will default (meaning a missed principal and/or interest payment. Some will, some won't. Smart investors gather a lot more information before they make trading decisions based on reserve draws alone. Sometimes these draws are a red flag, other times they get cured within a few months. Second, a lot of other "material" factors can be disclosed along with draws. One of the items, below, mentions a reserve draw, but it also talks about a relatively large redemption of existing bonds. Again, a smart investors wants all that information, not just a part of it. Third, trading prices about "troubled" bonds don't always tell a complete story. Both smaller and large investors can make mistakes in this area, but the mom-and-pop types are often the ones selling very low when "bad" information gets released. Sometimes it isn't so dump to get out at 70 cents on the dollar if the same bond is trading at 30 cents on the dollars years later. But we have seen a lot of situations bailed at 30 cents on the dollar, only to see the same bond double or triple in price down the road (or even get refinanced at par). Four, continuing disclosure also means a lot of other information can get released about muni bonds, ranging from IRS audits to changes in trustees, etc. Some of it might be material to trading prices, some of it isn't. We have saved a lot of investors grief, for example, by explaining why IRS audits of an issuer didn't change the tax-exempt status of the bond. Five, the updates below are just a small snapshot of complicated bond issues. We mention these developments because they're considered relevant to some investors. However, this information is just a starting point to consider. You need to look at delinquency rates, who is delinquent, etc. Having said all that, we conclude with Six: Municipal bond investors who value principal protection above all else have plenty of ways to avoid getting into trouble. Initial buyers of munis that get into trouble should have been sophisticated in the first place, and they better be sophisticated if they want to dabble in the secondary market for this debt. (There are rare exceptions when a so-called "safe" muni bond defaulted, but the key word is "rare.)

SPECIAL NOTE: THE ITEMS BELOW THIS INTRODUCTION HAVE BEEN REMOVED. THE "TROUBLED BONDS" PAGE WILL FEATURE NEW UPDATES AND MORE DETAIL AFTER A SITE UPGRADE IN FEBRUARY 2011.