* Yvette Shields at the Bond Buyer…
The fate of the lawsuit seeking to block repayment of $14.3 billion of Illinois general obligation debt is in a judge’s hands.
Sangamon County Circuit Court Judge Jack D. Davis II heard oral arguments in his Springfield courtroom Thursday about the case that opponents say is “frivolous” and filed for “a malicious or ulterior purpose.” […]
The two traded swipes over the market impact. “There is damage” to the state from the lawsuit and it “will disrupt the markets” and “it’s going to make borrowing more difficult” if the case moves forward and if the petitioners prevail, [Assistant Attorney General Joshua Ratz] said.
[Daniel Thies, an attorney for the Illinois Policy Institute’s John Tillman] disagreed. “The state’s credit rating is going to be helped…$20 billion of debt will be taken off its books” and there will be a court ruling outlining what is constitutionally allowed in the future. “This will help the state and its ability to borrow.”
* Mark Glennon at Wirepoints…
(T)he actual results for the state, if Warlander were to win, would be far different than some critics seem to think. The state would be destroyed and it’s credit slashed, some are saying.
Nonsense. The state would stop payment on the challenged bonds, indeed freeing up that cash to relieve the budget crunch and ensure that other bonds get paid. Taxpayers would be better off. Only the challenged bonds would be impaired, provided the court’s rationale were limited to those bonds. That’s an important proviso. If the court issued a sloppy or overly broad opinion, many other bonds could become suspect. Regardless, however, the credit rating for bonds to be issued in the future would improve, provided the they are made within the legal limits the court would have laid out in its decision. That point came up yesterday in court.
That’s the part that so many don’t seem to get. It’s the creditworthiness of bonds to be issued in the future that counts. Holders of old bonds are of less concern. They should get what the courts say they have a right to get, and nothing more.
That’s some truly wishful thinking. The state can’t just walk away from bond obligations. If the courts eventually do rule against Illinois (which I seriously doubt, but it’s the courts, so one never knows for sure), Illinois will have to make bondholders whole or undoubtedly face serious consequences with the credit ratings agencies. It can’t just walk away from billions in debt - even with a judicial ruling - and not expect a major downgrade into junk status. After all, most of the same institutions which now hold those old bonds are the ones who will be buying new bonds.
* Back to Yvette…
…Adding… From Glennon…
Rich, the whole point of the suit is to stop payment on just those certain bonds. That’s their specific request for relief. That’s the part that’s wishful thinking because I, like you, think they likely will lose. But if they win you apparently think the state would somehow pay those bondholders anyway. No, the state would be barred from doing that, and the bar would apply only to the challenged bonds. Other bonds and future bonds would benefit, provided, as I said, that the ruling was limited to the challenged bonds. It would be as if a court said you no longer had to make payments on your mortgage because of some claim you had against that lender. Would your credit rating be impaired? No, of course not. It seems very odd to me that you and many of your readers are so concerned about the rights of old bondholders instead of protecting of future bond issues.
This passage is just so goofy it blows my mind…
It would be as if a court said you no longer had to make payments on your mortgage because of some claim you had against that lender.
Poppycock.
The lawsuit is not about the lender. The lawsuit is about the borrower (the state) allegedly making false claims when it borrowed the money. If the state is found in the wrong, bondholders and credit agencies would naturally wonder how many other bonds could be suspect. And that would indeed kill the credit rating.
So, to use Glennon’s logic, if you are busted for borrowing money under false pretenses your credit rating is gonna suffer. He has it all bass-ackwards.
- Name Withheld - Monday, Aug 19, 19 @ 12:49 pm:
Apparently Daniel Thies got early access to the dispensaries ahead of January. That’s the only rationale I can think of for how he things that argument makes sense.
Someone get him a bag of Doritos or something.
- Grandson of Man - Monday, Aug 19, 19 @ 12:50 pm:
“and not expect a major downgrade into junk status”
The name of the game for the IPI is to bust unions or bust the state. They are failing at busting unions so they’re going for junk status.
- Oswego Willy - Monday, Aug 19, 19 @ 12:53 pm:
===It can’t just walk away from billions in debt - even with a judicial ruling - and not expect a major downgrade into junk status. After all, most of the same institutions which now hold those old bonds are the ones who will be buying new bonds.===
Ball game.
The buyers of the bonds, the pool of folks that trade in these, is whom you’re telling the next time bonds are let… “watch out, we may not have to pay y’all”
That’s not helpful,
- Perrid - Monday, Aug 19, 19 @ 12:54 pm:
“I know we stiffed you last time, years after the fact, but this time our word is our bond. I pinky promise. So, can I put you down for one or two billion?”
- Jibba - Monday, Aug 19, 19 @ 12:56 pm:
===The state would stop payment on the challenged bonds, indeed freeing up that cash to relieve the budget crunch and ensure that other bonds get paid. Taxpayers would be better off.===
The legal world is almost as full of fantasy as the political world. And Warlander still makes their bank on the credit default swaps.
- Chicago Cynic - Monday, Aug 19, 19 @ 1:00 pm:
“…And Wirepoints agrees.”
Of course they do. Wirepoints is on an ideological crusade. As I asked on Friday, why does anyone take their “analysis” seriously? Glennon is a right wing crusader and has been for decades. And the connections to IPI are well known.
There are organizations that are ideologically driven but still push legit analyses. Think CTBA on the left and Truth in Accounting on the right. Wirepoints is not one of them.
- Chicago Cynic - Monday, Aug 19, 19 @ 1:02 pm:
And how can anyone take any of these plaintiffs at face value now that we know they stand to financially benefit if these bonds go bust? The sooner they get thrown out of court the better.
- Henry Francis - Monday, Aug 19, 19 @ 1:05 pm:
Too bad Theis isn’t arguing before Judge Smails.
“I’ve sentenced boys younger than you to the gas chamber. Didn’t want to do it. I felt I owed it to them.”
- Hamlet's Ghost - Monday, Aug 19, 19 @ 1:15 pm:
== The state’s credit rating is going to be helped…$20 billion of debt will be taken off its books. ==
The judge lacks jurisdiction to invalidate obligations owed to people not party to the litigation. The quoted statement is so full of baloney it isn’t close enough to even be described as wrong.
- Bertrum Cates - Monday, Aug 19, 19 @ 1:17 pm:
On a scale from one to Arduin, this one clocks in at about a Filan.
Please explain to me how ignoring a $14.3 billion obligation in order “to relieve the budget crunch and ensure that other bonds get paid” is fiscally conservative.
- NotRich - Monday, Aug 19, 19 @ 1:25 pm:
why didn’t Rauner take Tillman with him to Florida??
- Steve - Monday, Aug 19, 19 @ 1:26 pm:
-Please explain to me how ignoring a $14.3 billion obligation -
This is an attempt to shut down government spending via the ability to borrow money.
- Necessary - Monday, Aug 19, 19 @ 1:27 pm:
I don’t understand what the point of discussing the “reason” this lawsuit was filed, or what the “outcome” on credit ratings might be. Those have absolutely no impact on the subject of the case… whether these bonds were done legally/constitutionally. The rest is not relevant to a ruling.
- Oswego Willy - Monday, Aug 19, 19 @ 1:27 pm:
===This is an attempt to shut down government spending via the ability to borrow money.===
No.
“This is an attempt to shut down government”
- Oswego Willy - Monday, Aug 19, 19 @ 1:29 pm:
===I don’t understand what the point of discussing the “reason” this lawsuit was filed, or what the “outcome” on credit ratings might be. Those have absolutely no impact on the subject of the case… whether these bonds were done legally/constitutionally. The rest is not relevant to a ruling.===
“Who benefits?”
It’s germane, to the political and to why one might file.
But, that’s up to the judge…
- walker - Monday, Aug 19, 19 @ 1:30 pm:
“”On a scale from one to Arduin, this one clocks in at about a Filan.”"
Clever.
- Skeptic - Monday, Aug 19, 19 @ 1:32 pm:
So if I stop paying my Discover bill, I’m actually making Discover a stronger company?
- Bertrum Cates - Monday, Aug 19, 19 @ 1:32 pm:
= The rest is not relevant to a ruling. =
You’re not fooling anyone with that pseudonym, John.
- Bertrum Cates - Monday, Aug 19, 19 @ 1:36 pm:
= So if I stop paying my Discover bill, I’m actually making Discover a stronger company? =
I believe by this logic, ignoring the credit card bill makes you financially stronger because you can pay some other other bills on time.
“Forget it. He’s rolling.”
- SpfdNewb - Monday, Aug 19, 19 @ 1:36 pm:
-So if I stop paying my Discover bill, I’m actually making Discover a stronger company?-
Don’t be giving anyone ideas. That’s like saying “Trade Wars are easy to win(banned punctuation)”
- Lester Holt’s Mustache - Monday, Aug 19, 19 @ 1:37 pm:
==why didn’t Rauner take Tillman with him to Florida??==
It’s hard enough for republicans to pretend they’re actually concerned about “Illinois policy” when their sole focus is making their political donors richer, now you want them to try doing it from Florida? Sheesh, cut these guys some slack
- SAP - Monday, Aug 19, 19 @ 1:39 pm:
Clearly, IPI is trying to free up cash so the State can meet its Constitutionally-mandated pension obligations.
- Shytown - Monday, Aug 19, 19 @ 1:52 pm:
At what point does wirepoints have to change its status to a partisan organization?
- Anyone Remember - Monday, Aug 19, 19 @ 1:57 pm:
“On a scale from one to Arduin, this one clocks in at about a Filan.”
Bertrum Cates for the win!
- JS Mill - Monday, Aug 19, 19 @ 2:10 pm:
Funny how they fail to mention their short position on Illinois bonds and the fiscal benefits from a ruling in their favor.
But they are doing this for the rest of us…
- Mark Glennon - Monday, Aug 19, 19 @ 2:42 pm:
= So if I stop paying my Discover bill, I’m actually making Discover a stronger company? =
The correct comparison is this: If a court says you don’t need to pay Discover because of some particular claim you had against Discover, does that make your credit stronger?
- Rich Miller - Monday, Aug 19, 19 @ 2:44 pm:
===does that make your credit stronger? ===
Apples and horsemeat.
If you think the state’s credit is rated exactly the same as your personal credit, you should probably think again.
- Rich Miller - Monday, Aug 19, 19 @ 2:45 pm:
=== If a court says you don’t need to pay Discover because of some particular claim you had against Discover===
Also, this is a false comparison. The lawsuit is about the borrower taking out loans on allegedly false pretenses. The creditors - the bondholders - did nothing wrong. You need to think more.
- Hamlet's Ghost - Monday, Aug 19, 19 @ 3:20 pm:
=== “The lawsuit is about the borrower (the state) allegedly making false claims when it borrowed the money. If the state is found in the wrong, bondholders . . . ” ===
. . . would have numerous legal theories on which to demand immediate repayment in full.
If the state gave false assurances, the remedy isn’t to cancel the debt, it’s to accelerate the debt for immediate payment.
- Demoralized - Monday, Aug 19, 19 @ 3:40 pm:
Apparentlty Mr. Glennon is ok with stiffing people what they are owed. And furthermore, he says we can stiff them and our credit rating gets better? Only in bizarro world do you not pay something and get a better credit rating. If the court were to rule against the state they would be ruling on the basis that the state issued the bonds illegally. And Mr. Glennon thinks that helps the state’s credit in the future? Baloney. If I were a bond buyer why would I have any faith in a state who was busted for illegally issuing bonds?
- Mark Glennon - Monday, Aug 19, 19 @ 3:40 pm:
=== “The lawsuit is about the borrower (the state) allegedly making false claims when it borrowed the money. If the state is found in the wrong, bondholders . . . ” ===
Rich and Hamlet’s Ghost, this is about what happens IF the plantiff’s win, which means the state is ordered to stop paying. That’s the whole point of their lawsuit. That’s the assumption you seem to be forgetting. Whether the bondholders did anything wrong (they didn’t) so they should get paid, or whether the bondholders have numerous legal theories for trying to get the bonds paid (they do) are different matters that contradict the assumption. You seem to be accepting what the state and some muni pundits say, which is that even if the claims in the lawsuit are sound the state will take care of bondholders somehow anyway. But that’s really just saying you are assuming the plaintiffs will lose.
- Sonny - Monday, Aug 19, 19 @ 3:44 pm:
If Wirepoints has any credibility before can we just write them off completely now? Lordy.
- Madame Defarge - Monday, Aug 19, 19 @ 3:51 pm:
Has anyone looked to see the amount of these bonds that are held by public pension funds? Assume a default doesn’t make them more solvent. But maybe according to some it does!
- Not a News Gazette Fan - Monday, Aug 19, 19 @ 3:53 pm:
Every Sunday, NG readers in Champaign-Urbana must swallow the Wirepoints propaganda hook, line and sinker. The editor and publisher apparently want readers to think Wirepoints and their master, IPI, are mainstream.
It will be very interesting to see how the NG spins this. Or, perhaps they’ll just continue to sweep it under the rug.
- Da Big Bad Wolf - Monday, Aug 19, 19 @ 3:58 pm:
Mark Glennon
lol.
- Oswego Willy - Monday, Aug 19, 19 @ 4:03 pm:
Dear Mark Glennon,
This isn’t Wirepoints or The Onion, however, your comedy does indeed write itself.
Thanks for the laughs,
OW
- Skeptic - Monday, Aug 19, 19 @ 4:16 pm:
“You seem to be accepting [that] the state will take care of bondholders somehow anyway.”
I don’t see how it could be any other way. Either the State wins and pays the bonds with the interest, or the State loses and (essentially) refunds the money to the bondholders. Having the bondholder’s money go *poof* just doesn’t seem to be anything that’s legally possible.
- Mark Glennon - Monday, Aug 19, 19 @ 4:18 pm:
=Only in bizarro world do you not pay something and get a better credit rating.=
Among the scariest aspects of our financial crisis is how naive so many are about how credit, insolvency and bankruptcy work. Court authorized debt reduction improves credit.
- Oswego Willy - Monday, Aug 19, 19 @ 4:20 pm:
The state is neither insolvent or bankrupt
- Anonymous - Monday, Aug 19, 19 @ 4:40 pm:
=If the state is found in the wrong, bondholders and credit agencies would naturally wonder how many other bonds could be suspect.=
Rich, you either didn’t read what I wrote or have chosen to ignore it. I firmly emphasized that I was talking about a case where the court’s rationale was limited to those bonds. I also said that a proper opinion would be used by future bondholders for assurance — they would stay within whatever lines the court laid out. That would provide more certainty for all parties.
- Mark Glennon - Monday, Aug 19, 19 @ 4:41 pm:
That Anonymous above was me.
- Excitable Boy - Monday, Aug 19, 19 @ 4:53 pm:
- how naive so many are about how credit, insolvency and bankruptcy work. Court authorized debt reduction improves credit. -
What’s scary is that hedge fund types think bankruptcy and stuffing lenders is “fiscally conservative”.
It may have gotten you rich, but outside the world of high finance, out here in the real world, it ain’t something to aspire to.
It’s breathtaking how willing some of you one percenters are to publicize your distorted worldview. Can’t you just go relax on a yacht somewhere?
- City Zen - Monday, Aug 19, 19 @ 5:05 pm:
==Has anyone looked to see the amount of these bonds that are held by public pension funds?==
TRS’ portfolio holds around 12% in US bonds, the majority of which are rated A or higher.
- Morty - Monday, Aug 19, 19 @ 5:09 pm:
And the connections to IPI are well known.
Mark has repeatedly assured my that they have no connections- even though 2/3rds of their named staff just transfered over from IPI
No connentions, I say, Sir
- Morty - Monday, Aug 19, 19 @ 5:10 pm:
Mark’s a practical joker Rich. I’m sure he was just pulling your leg.
- Mark Glennon - Monday, Aug 19, 19 @ 5:37 pm:
=Mark has repeatedly assured my that they have no connections=
No, Morty, I’ve never denied who I’m proud to work with — two of their former people who left there a year and a half ago, which is clear on our site. We get no funding from them, and don’t answer to them or anybody else, contrary to the endless lies you see in these comments. I’ve taken no comp from Wirepoints since I started it nearly 7 years ago. Nor has Ted since we joined up.
- Demoralized - Monday, Aug 19, 19 @ 7:30 pm:
==Among the scariest aspects of our financial crisis is how naive so many are about how credit, insolvency and bankruptcy work. Court authorized debt reduction improves credit.==
You know what’s scarier? A person who believes that. You should really quit because the more you talk the bigger the fool you become
- Eire17 - Tuesday, Aug 20, 19 @ 6:58 am:
Judge Davis is a bright guy. He stops this nonsense in its tracks. He is right to take the time to write a solid reasoned ruling as he knows it will be appealed.