“Not even cash-strapped Puerto Rico”
Friday, Feb 5, 2016 - Posted by Rich Miller
* Bloomberg on the CPS bond sale…
After delaying the sale when some investors balked, the district issued 7 percent debt for as little as 84 cents on the dollar, signaling that investors have doubts they’ll be repaid in full. No municipal borrower — not even cash-strapped Puerto Rico — has had to offer such a steep discount on a bond deal of that magnitude since at least the 2008 financial crisis, data compiled by Bloomberg show.
“The only time you’re going to see this big of a discount is when it’s a distressed situation,” said Burt Mulford, a manager of tax-exempt funds in St. Petersburg, Florida, at Eagle Asset Management, which oversees $2.5 billion of munis. He said he didn’t buy the bonds. “The ultimate buyers want to minimize the pain if it stops paying interest, so if they have the bonds at a discount, that would help offset that.” […]
The discounted price on the securities increased the yields — which measure the return after interest payments based on the full face value — to as much as 8.5 percent, about 5.8 percentage points more than top-rated securities. That gap was half a percentage point more than Puerto Rico paid in March 2014, when it sold $3.5 billion of bonds in a last-ditch attempt to stave off insolvency. The island’s bonds have since slipped from 93 cents on the dollar to about 70 cents as it edges closer toward defaulting on the government-guaranteed debt.
With distressed debt, buyers tend to focus more prices because of the risk that interest or principal payments won’t be made.
Oof.
- wordslinger - Friday, Feb 5, 16 @ 11:56 am:
Apparently, “gravitas” doesn’t factor into pricing.
- Slippin' Jimmy - Friday, Feb 5, 16 @ 12:13 pm:
The market has cast its vote.
- wordslinger - Friday, Feb 5, 16 @ 12:15 pm:
It occurs to me that my “gravitas” reference is obscure.
It refers to Sen. Kirk’s endorsement of Emanuel in the run-off last year. His absurd “gravitas” dog whistle was parroted by some of the usual suspects on the blog.
Sun-Times, 3-2-15
“Without mentioning Jesus “Chuy” Garcia by name, Kirk said Emanuel’s challenger lacks the “gravitas with the bond market” to secure Chicago’s mountain of debt and prevent Chicago from going the way of Detroit, which recently emerged from bankruptcy.
“Rahm’s re-election is essential to maintaining the value of Chicago’s debt market. We need a strong capable leader… I would worry about the value of the Chicago debt if Rahm was not re-elected…. It’s a concern if we have some of the less responsible people running against him,” Kirk said.”
Kirk can be whack-a-doo about many things, but he’s at his whack-a-doodlest when it comes to finance. Ask the Chinese.
- @MisterJayEm - Friday, Feb 5, 16 @ 12:19 pm:
“That gap was half a percentage point more than Puerto Rico paid in March 2014, when it sold $3.5 billion of bonds in a last-ditch attempt to stave off insolvency.”
Unless their governor recklessly talked trash about Puerto Rico prior to their bond sale, it’s impossible to make an apples to apples comparison.
– MrJM
- Tone - Friday, Feb 5, 16 @ 12:47 pm:
CPS has no money. It is facing a $1Billion deficit next year. It will not be able to borrow next go round. As it shouldn’t. Rauner’s BK proposal for municipalities is the best option.
- Anon2U - Friday, Feb 5, 16 @ 12:53 pm:
Anyone blaming the Governor for this is daft and has no idea how bonding and the bond markets work. It took decades to get to this insane level of uncreditworthyness.
CPS has been managed into the abyss from a credit and debt risk standpoint. Worse than Puerto Rico. Just sickening.
- Hit or Miss - Friday, Feb 5, 16 @ 12:55 pm:
===The island’s bonds have since slipped from 93 cents on the dollar to about 70 cents as it edges closer toward defaulting on the government-guaranteed debt.===
I would look for the CPS bonds to also decrease in value over both the short and long term. The chances of a default on the CPS bonds is high and increasing by the day. Strong action to solve the financial problems of the CPS. However, politics at all three has and continues to get in the way and is costing the taxpayers dearly.
- cdog - Friday, Feb 5, 16 @ 12:56 pm:
Anon2u, why did the sale have to be delayed?
Could the bond buyers have been influenced by something suddenly from decades ago?
I look forward to your reply.
- cdog - Friday, Feb 5, 16 @ 1:03 pm:
I am still very curious about the potential relationships between the basic obligations of the bond,
any swap markets hedging against the bond,
what bank/ins co is selling the swaps,
whose buying the swaps,
Rauner being in control of the same bond payments, and then not making the payments,
and a bankruptcy of CPS.
(I realize current law does not allow this, but boy wonder is trying very hard to “influence” this election cycle.)
- Anon2U - Friday, Feb 5, 16 @ 1:08 pm:
cdog,
No buyers in the market for the amount and rate CPS was offering.
- cdog - Friday, Feb 5, 16 @ 1:15 pm:
Bloomberg implies the buyers were there.
“After delaying the sale when some investors balked”
- TwoFeetThick - Friday, Feb 5, 16 @ 1:15 pm:
A lot of people are making a lot of money. It seems the plan is working perfectly. Is there any way to find out who purchased these bonds? Is that even public information?
- Anon2U - Friday, Feb 5, 16 @ 1:22 pm:
cdog,
Maybe Google what “balked” means? We are not talking baseball here either.
- TinyDancer(FKA Sue) - Friday, Feb 5, 16 @ 1:37 pm:
Does anyone really believe the governor, self-proclaimed master of the financial universe, doesn’t understand the concept of “headline risk?”
Can you say “sabotage?”
sabəˌtäZH
verb
1. deliberately destroy, damage, or obstruct (something), especially for political or military advantage.
- cdog - Friday, Feb 5, 16 @ 1:52 pm:
Anon2u
I know what the word “balk” means.
You are not catching what Bloomberg was saying. Can’t help ya there.
- Sue - Friday, Feb 5, 16 @ 2:07 pm:
Cdog- CPS delayed sale when it was unable to sell initial amount at acceptsble rates. Reduced size of issue to get it done
- Anon2U - Friday, Feb 5, 16 @ 2:08 pm:
Whatev’s cdog.
It’s pretty clear what Bloomberg is saying here but I’m afraid you can’t see through a rose-colored glasses conspiracy theory to see it.
Enjoy the weekend,
A2U
- cdog - Friday, Feb 5, 16 @ 2:44 pm:
“CPS delayed sale when it was unable to sell initial amount at acceptable rates. Reduced size of issue to get it done”
Exactly Sue. And Anon2u.
The rate that had to be changed at the last minute for some reason.
- Anony - Friday, Feb 5, 16 @ 2:52 pm:
CPS is a city-run operation, no? Isn’t this on Richie and Rahm? I guess to a lesser degree on CTU (although the mayors could just said no and taken the wrath of the unionites)? CPS keeps needing to borrow more money to makes ends meet. That doesn’t work long-term. Long-term, unfortunately, has arrived.
- Tone - Friday, Feb 5, 16 @ 3:06 pm:
CPS is insolvent. It can’t pay it’ bills. Why do you think it took a massive hit in the bond market?
- Tone - Friday, Feb 5, 16 @ 3:07 pm:
As long as Karen Lewis and her CTU henchmen get paid, nothing matters.
- Anon2U - Friday, Feb 5, 16 @ 3:34 pm:
cdog,
In order for a transaction to occur you need both a willing seller AND a willing buyer. Last week there were no willing buyers at the strike price, yield, amount and length of term offered by CPS. Hense no SALE.