(Feb. 11) -- Holders of record as of Feb. 15, 2008, will receive a distribution on Rosamond Community Service District A.D. No. 1990-2 Bonds.
The March 3 payment will cover the regularly scheduled interest payment due next month. In addition, the defaulted principal due on Sept. 2, 2005, will be paid off in full. The cusip for the principal being paid off is 776802BL3, and those 2005 bonds must be turned in to trustee U.S. Bank.
There will be almost $6 million of bonds still outstanding after the upcoming payment (including the defaulted 2006 principal).
Efforts continue to collect on the other badly delinquent parcels.
(Dec. 17) -- (Update: One of our subsequent print editions in 2008 explained how these delinquent taxes were brought current.) Ashby USA, LLC, missed a special tax payment that was due December 10 in connection with Temecula Public Financing Authority CFD No. 03-02, according to a release from the authority. The special taxes back $51.25 million of Mello-Roos bonds sold in 2006.
All other owners in the district, except for one, told the authority they have made their Dec. 10 special and property tax payments, the release said. The authority cautioned that it can't verify this information from Riverside County records because the data isn't updated yet to reflect December payments.
The problems surrounding Ashby USA have already been detailed in the Bond Advisor's past print editions. The authority's release also said that Riverside Construction Co. has sued the developer and others to collect about $5 million for work in the district. The construction company has worked as a general contractor on bridge improvements
(Dec. 13) -- (Update: Our print editions in 2008 explained which bonds were paid in full and why, along with other news tied to this bankruptcy. Subscribe now for more news on California's vast municipal bond market.) The Valley Health System voted in favor of a Chapter 9 bankruptcy filing. We can only hope, in the long run, that this will be a positive step for righting the ship as long as the system in no way impairs the standing of municipal bonds it supports.
It won't surprise us, however, if bondholders are asked for some sort of amended terms to help give the health system added breathing room. One source told us that institutional holders with a stake in the bonds have hired a lawyer to assist in negotiations.
Even in bankruptcy, it is possible that the system's sale of the Moreno Valley Community Hospital will proceed as planned. However, that bears watching. This sale was agreed to in the event voters rejected the sale of the whole system, as they did in November. Sale proceeds will pay down some of the system's debt.
There was no question that VHS faced intense fiscal pressure (see story about Fitch to the right). An investor sold the health system's 5/15/2023 certificates of participation on Dec. 11 for 83 cents on the dollar; as recently as Nov. 30 an investor sold them for 97 cents on the dollar. The secondary-market bid for the debt could drop even lower until it becomes clearer how a reorganization plan will unfold.
It is crucial that the trustees for the municipal debt assert the rights of investors who financed this system. There are two muni issues (revenue bonds and COPs) outstanding.
Regarding the COPs (1993 Refunding Project), page 11 of the official statement notes that the foregoing pledge of District Revenues "may be subordinated to the interest and claims of others in several instances." As one example where the pledge "may" be subordinated, number (v) lists "federal or state bankruptcy laws that may affect the enforceability of the Trust Agreement or pledge of District Revenues." We aren't saying that such a clause will be a factor in this instance, but we also can never predict whether a lawyer will test certain legal theories in a bankruptcy case. We will know soon enough.
(Dec. 20) -- (Update: Our print editions in 2008 explained why the situation has changed, and why some bonds could represent bargains. Subscribe now for more news on California's vast municipal bond market.)The decision by S&P to downgrade ACA will create a lot of confusion in the muni market. Keep in mind also that several banks still are looking at ways to salvage ACA, which is driven by self interest as much as any concern for the insurer itself.
What do we mean by confusion? Well, S&P has cut some ACA-insured bonds to their underlying rating. One Inglewood redevelopment agency bond is BBB+, a mobile home project is BBB, and on and on. But a lot of ACA-backed muni bonds are listed as CCC because there wasn't an underlying rating to point to. But are they really CCC? No, many of them have been current on payments and aren't in trouble at all. But since S&P didn't have a fallback "underlying" rating to cite, they are just listed as CCC.
Individual investors who don't understand this process better go back to the brokers who sold the bonds and ask them, "What do I own?" By that we mean you need to find out how the real security backing the bonds is performing.
The jury is still out on ACA rescue efforts, and if the company is kept alive as a going concern it still might be there to cover any missed principal and interest payments on munis. But in reality most of the muni projects it insured probably are going to remain current on their payments. ACA still had to exercise discipline when it insured these projects. While the underlying credit might in reality be a borderline "junk" bond on the municipal rating scale, that doesn't mean it will miss debtholder payments. It does mean the security is riskier than higher-quality munis and the performance of the project needs to be tracked, based on whatever financial statements are available.
Some of the journalism out there isn't going to help. A Los Angeles Times story, compiled from wire reports, quotes one person as saying the ACA downgrade could spark a "municipal borrowing crisis." Such a broad statement, taken out of context, could be misconstrued. Be careful about interpreting some of these quotes.
***** Breaking News (May 7) -- Vallejo's City Council voted unanimously to file for bankruptcy protection after the city failed to devise a longer-term financial fix by April 22. The material below and our March edition discussed certain things to consider if you hold some of Vallejo's debt. Smart issuers know they have to re-enter the muni bond market in the future and will try to avoid burning existing investors, but a restructuring or refinancing proposal is always possible to buy some short-term relief.
***** Breaking News (Mar 4) -- An emergency agreement has been approved to avoid bankruptcy. See our March print edition for an update on stupid trades to avoid in these situations. Understand the debt you own and check for financial guarantees, or letters-of-credit on variable-rate debt.
***** (Feb. 27) -- In a 45-page disclosure release about its debt, the City of Vallejo had this to say only in case it files for bankruptcy: "It is the city's intention to continue paying debt service on its outstanding water revenue bonds and assessment district bonds and for the Redevelopment Agency to continue to pay debt service on its outstanding tax allocation bonds." On page 9 of the release the notice says "Staff will seek deferral of certain debt and other obligations through court petition that will enable the City to maintain a core level of services through June 30, 2008." It doesn't specify what type of "debt" is involved. *****
The City of Vallejo's progress on talks with public employee unions allowed a vote on March 4 that provides temporary relief. More progress is needed by Apr. 22 on a longer-term fix. The city is in a bind because revenue is dropping and it provided benefits to police and fire employees that are projected to generate deficits.
Standard & Poor's had put the city's debt on a watch for possible downgrade until it is clear whether Vallejo will pursue a Chapter 9 bankruptcy filing. Vallejo's Series 1999 COPs are backed by a motor-vehicle intercept and carry bond insurance. Vallejo also has water revenue and Sanitation and Flood Control District wastewater system COPs outstanding. All this debt, to varying degrees, could be classified as "special" revenues that are not immediately affected by the bankruptcy filing. (The Series 1996A and 1999A water revenue bonds and a PFA A.D. No. 61 also carry bond insurance. The wastewater COPs might not have bond insurance, at least according to S&P's release.)
Vallejo might have other debt outstanding as well, so investors need to check on the specific bonds (including the type of security, the bond insurer, etc.). Savvy investors will probably buy any insured bonds being dumped at fire-sale prices because they would expect the debt to be money-good. (Even Orange County covered its bonds during bankruptcy.) Lease debt can face more scrutiny (and carry more risk), but a city can ill-afford to burn investors. Each bankruptcy is different. The city also might seek a restructuring of the debt to provide more breathing room.
(April 18) -- A delinquency rate of 44.63% in the special tax installment due in December caused Elk Grove CFD No. 2005-1 (Laguna Ridge) to use other funds to help cover the March 1 bond payment, according to a disclosure release. The affected CUSIPs run from 287272CPI to DF2, with a 7-12-2007 issue date. (Other bonds for this Mello-Roos district appear unaffected.)
The city used part of the bond proceeds that had been earmarked for public improvements to help cover the March bond payment. This was done in lieu of making a draw on debt service reserves.
A substantial portion of the delinquency is linked to developer Reynen & Bardis Communities, Inc., and to a lesser extent, to Corinthian Homes and Cambridge Homes, the release said.
(May 1) -- This is a story you will not find in our May print edition, mainly to avoid any confusion. The developer (Empire Homes) of the Anaverde master-planned community in Palmdale recently filed for bankruptcy protection. Obviously the current housing market is one problem. A lender for Empire apparently controls the developer's former Anaverde interest.
Remember, however, that some development in this big project has been completed. What we haven't sorted out is whether the bankruptcy filing has broader implications.
For example, in one 2005 bond deal tied to the Anaverde planning area, the affected lots already were in the hands of merchant builders before the current downturn. So one needs to keep those facts separate from the more recent events unfolding on other land in the broader master-planned community. There is a lot of land in the project that has nothing to do with a specific bond area.
(Sept. 11) -- Fitch Ratings lowered the rating on $11 million of Aromas-San Juan Unified School District Bonds to BB+ from BBB-minus. Fitch cited deficit spending and an "extremely weak financial position" in making the downgrade. The district has been making some spending reductions and is also seeking ways to save money on its unrated certificates of participation, Fitch said. Subscribers will receive full updates as the situation unfolds and, as usual, a savvy and sophisticated investor probably could benefit from taking advantage of any panic selling at low prices.
(June 11) -- (Update: We subsequently explained that certain city bonds were paid off in full, even as some over-hyped media reports raised fear about the future.) Our June print edition explains in detail why most of Vallejo's debt should be paid during bankruptcy. The city manager's budget proposal for fiscal 2009 (beginning July 1) says that "we are negotiating with our credit enhancement providers with two objectives: significantly reducing our debt service costs and allowing us to avoid defaulting on our debt obligations." Our June print edition explains why this comment would only apply to certain city debt (general fund COPs) and not to other bonds.