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*** UPDATED x1 *** Spooking the markets

Tuesday, Jul 2, 2019

* I’d wager that this is just exactly the sort of overreaction that the plaintiffs may have been hoping for. Yet another misleading piece from Bloomberg

Joe Mysak, Bloomberg News’s foremost expert on the $3.8 trillion municipal-bond market, has a saying about Puerto Rico: It was technically “in” the market for state and local government debt, but not “of” it. That is to say, for a number of reasons, it has always been considered an outlier.

Indeed, munis are off to a blistering pace in 2019, with mutual and exchange-traded funds focused on the debt on track to pull in a record amount of cash this year. Investors are buying even though a closely watched gauge of relative value would suggest the bonds are a screaming sell. Never mind that at the start of the year, a federal oversight board argued that more than $6 billion of Puerto Rico’s general-obligation bonds should be declared null and void because issuing them in the first place breached the island’s constitutional debt limit. It’s just an outlier, after all.

Or is it?

John Tillman, the CEO of conservative think tank Illinois Policy Institute, and Warlander Asset Management’s Eric Cole, a protege of Appaloosa Management’s David Tepper, are teaming up in an effort to invalidate a whopping $14.3 billion of Illinois debt on the grounds that the state’s pension bond sale in 2003 and securities issued in 2017 to pay a backlog of unpaid bills were in fact deficit-financing transactions prohibited by the constitution.

Except, as we discussed yesterday, the Illinois Constitution does not explicitly or even implicitly bar this sort of borrowing.

* I mean, the constitutional passage in question is only 88 words long. Even people from New York can handle that

State debt for specific purposes may be incurred or the payment of State or other debt guaranteed in such amounts as may be provided either in a law passed by the vote of three-fifths of the members elected to each house of the General Assembly or in a law approved by a majority of the electors voting on the question at the next general election following passage. Any law providing for the incurring or guaranteeing of debt shall set forth the specific purposes and the manner of repayment.

That’s the specific passage referenced in Tillman’s legal filing. You tell me where it prevents bonding to pay off old bills because I sure as heck don’t see it.

*** UPDATE *** The markets were indeed spooked…



Bloomberg should be so proud.

- Posted by Rich Miller        

25 Comments
  1. - Grandson of Man - Tuesday, Jul 2, 19 @ 9:49 am:

    I don’t see it either. It’s bunk.

    The destructive IPI has been thwarted by the 2018 election and AFSCME, but it won’t give up. When you have your billionaire donors’ money to burn and are delusional ideologues this is what you do.


  2. - TheInvisibleMan - Tuesday, Jul 2, 19 @ 9:51 am:

    what are the odds this becomes exhibit one in the future for a Vexatious litigation finding against the involved lawyers?

    I honestly think if IPI keeps on this path, that is where they will end up. Just another ruined career in their wake to them. But I’d be careful if I was a lawyer and was approached by them for a case.


  3. - Norseman - Tuesday, Jul 2, 19 @ 9:52 am:

    Time for the Governor’s office to talk to Bloomberg about their misinformation.


  4. - Demoralized - Tuesday, Jul 2, 19 @ 10:02 am:

    John Tillman does not give a hoot about the State of Illinois. He is interested in tearing the state down. The more I think about his nonsense the more angry I become. Can we please stop referring to the Illinois Policy Institute as anything but a hack organization? Because that’s what Tillman and his organization is. Hacks.


  5. - Not a Billionaire - Tuesday, Jul 2, 19 @ 10:09 am:

    I would look into who was trading Illinois munis.


  6. - Oswego Willy - Tuesday, Jul 2, 19 @ 10:12 am:

    Yesterday, the governor’s office had this response to Tillman.

    ===John Tillman and Bruce Rauner’s old buddies are back to playing dangerous games with our finances so they can keep up their quixotic quest to drive Illinois into bankruptcy.===

    I called it lazy, but let me clarify my thought to that;

    “quixotic quest to drive Illinois into bankruptcy.”

    On its face, yeah it answers the bell, but where I think, and still do, it’s lazy is the quixotic quest aspect needs that slamming, and hard, that the outcome is… an impossible dream.

    Why all this? The response itself leaves open the dream, an impossible one, but not the legal impossibility as complete.

    A rhetorical response to the “legal” actions with that request to the court, you get folks spooked.

    An impossible dream stifled isn’t a legal impossibility stomped.

    Now let’s see how this plays out.


  7. - SpfdNewb - Tuesday, Jul 2, 19 @ 10:19 am:

    SEC needs to get involved, this could be construed as insider trading. Especially if Tillman et al are profiting of the frivolous lawsuit.


  8. - Pundent - Tuesday, Jul 2, 19 @ 10:24 am:

    When an asset management fund attempts to invalidate a bond sale it’s not for the good of the state, it’s for the good of their pockets.

    Tilman’s idea of “governing” is manipulating public institutions to further his economic interests. Whether that’s stripping unions of their power or driving up bond yields. Any legitimate reporter would be asking the “why” behind any of his actions.


  9. - Lester Holt’s Mustache - Tuesday, Jul 2, 19 @ 10:39 am:

    Lawsuit for political purposes, but hey why not take a shot? They didn’t beat JB at the ballot box, and know they likely won’t beat him next time unless state finances are an even worse mess than they were when he took office. Tillman probably knows this filing won’t work, but if there’s even a chance he can damage the state economy - and by extension, Pritzker - it’ll be worth it in the long run. Right now he’s practically shut out of state government and no one really listens to him anymore, so Tillman has nothing to lose by filing this lawsuit.


  10. - 312 - Tuesday, Jul 2, 19 @ 11:02 am:

    Or, as we’ve seen on the national level… Why let the facts get in the way of a good argument? Proves that the IPI folks have been listening to Faux News.


  11. - Nonbeliever - Tuesday, Jul 2, 19 @ 11:05 am:

    Various groups of any political persuasion will try to litigate almost anything. Obviously this bogus attempt is just that- bogus.

    The usual trick is to judge shop and find one that you believe might agree with you.


  12. - Steve - Tuesday, Jul 2, 19 @ 11:09 am:

    Rich’s headline is quite relevant . I think the long run goal here is to make it difficult for Illinois to issue debt . That’s one way to limit spending.


  13. - Smitty Irving - Tuesday, Jul 2, 19 @ 11:14 am:

    Demoralized -
    Helps me reduce tension by calling them the Illinois Propaganda Institue.


  14. - Steve - Tuesday, Jul 2, 19 @ 11:18 am:

    This is what their strategy might be in the long run. The “San Diego” situation with the SEC .

    https://www.sec.gov/news/press/2006/2006-191.htm


  15. - Punent - Tuesday, Jul 2, 19 @ 12:24 pm:

    =I think the long run goal here is to make it difficult for Illinois to issue debt.=

    These guys seem more like opportunists to me. I don’t think limiting the state’s ability to issue debt does much for them. But if they can create further questions on the quality of that debt it serves to drive up the returns. It’s no different than the nonsensical comments on bankruptcy. And if it muddies the water enough to defeat the graduated impact tax all the better.


  16. - RNUG - Tuesday, Jul 2, 19 @ 12:41 pm:

    == I think the long run goal here is to make it difficult for Illinois to issue debt. ==

    No, just more expensive.

    Yesterday I asked why. Now that I have mulled on it overnight, I think it is all about hedging bets. A lot of economists think a downtown is coming, probably sooner than later. If that happens, as an investor it would be nice to be sitting on a bunch of guaranteed high interest Illinois bonds.


  17. - Anyone Remember - Tuesday, Jul 2, 19 @ 1:39 pm:

    Steve -
    Any proof what is in the CAFRs or bond prospectuses is incomplete / inaccurate / fraudulent?


  18. - Looking Down the Road - Tuesday, Jul 2, 19 @ 1:45 pm:

    IPI and the lawsuit aside, I believe that investors would be wise to seriously consider the downside risk of municipal bonds of financially challenged entities. “Full faith and credit” doesn’t seem to be impressing the courts when pensions on the line. Maybe that is the way it should be, but investors need to consider the risks. Especially for pension obligation bonds that shift the risk to the bondholders.


  19. - Stuntman Bob's Brother - Tuesday, Jul 2, 19 @ 2:07 pm:

    ==I think the long run goal here is to make it difficult for Illinois to issue debt . That’s one way to limit spending==

    If Governor Tax-Hike is successful on the progressive front in 2020, why in God’s name would the state “need” to acquire new debt without retiring older, more expensive debt going forward? If that’s not the case, then the Governor’s proposed rates are not adequate, as someone here (cough, cough) has pointed out numerous times. This needs to be IL’s last trip to the tax well for a long, long time.


  20. - RNUG - Tuesday, Jul 2, 19 @ 2:51 pm:

    The SEC really does need to examine all the buyers and sellers of IL bonds for ties to the the group’s behind the motion to file a lawsuit.


  21. - Al - Tuesday, Jul 2, 19 @ 2:56 pm:

    Price movement is good news for Citadel.


  22. - Pundent - Tuesday, Jul 2, 19 @ 2:58 pm:

    RNUG - Agreed. Obviously reporters seem to be oblivious as to why Tillman and Cole might do this. There’s no reason why the SEC needs to be.


  23. - Soccermom - Tuesday, Jul 2, 19 @ 3:49 pm:

    RNUG –You’re absolutely right. This is price manipulation.


  24. - sewer thoughts - Tuesday, Jul 2, 19 @ 4:16 pm:

    I mean…I am a buyer?


  25. - Morty - Tuesday, Jul 2, 19 @ 7:56 pm:

    “why in God’s name would the state “need” to acquire new debt without retiring older, more expensive debt going forward?“

    Because if the state’s credit outlook improves the state could refinance other debt at a better rate?


Sorry, comments for this post are now closed.


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