So this will be a bit circuitous. Some funny blog metrics of late here lead me down an old rabbit hole. Hang on tight.
In the financial news of late is a new spat between the same
Bill Ackman, who has been quite successful himself, with even richer investor
Carl Ichan. They have had some very
public spats some may have caught. This
time the debate is not over MBIA, but a
company called Herbalife. Again, that is
tangential, but the history of Ackman's call on MBIA is in the news as a result
of this new fight. I once found and posted a copy of Ackman's old report on MBIA and have had literally tens of
thousands of hits over the last month to my web site downloading it. I once even had MBIA itself write me over what I put up about their spat with Ackman, even though I really only cared because of their Pittsburgh investment in liens. Noticing the downloads just the other day got me thinking.
update: I had no idea as I typed that, but it turns out coincidentally that MBIA is in the news today with a rather dire financial outlook about its future. That in itself may have some implications for local public finance and any local bonds insured by MBIA. Am too lazy to go look up what debt that may apply too of late, but the bond rating of bond insurers gets imputed into the bond rating of a lot of local bond debt.
So whatever? eh. The
thing is the MBIA's core failure had to do with a lot of interest rate risks
that Ackman pointed out where mispriced at least as far as MBIA was concerned. MBIA basically insured a lot of variable
rate municipal debt and the whole market for variable rate debt was much a
fiction in the end. Bad for MBIA and few
noticed. What other interest rate risks
are out there and closer to home. Some
may remember the story of the
Pittsburgh Water and Sewer Authority's big variable rate bond offering.
Anyone still reading except for Paz?
So. It just got me thinking a bit. We used to talk about all the auction rate debt exposure locally a lot more. When nobody was reading I didn't care so much that I was talking such nonsense. Still, what was one of the bigger auction rate bonds floated locally? That of the Pittsburgh Water and Sewer Authority in 2008. Have not thought about
the state of the PWSA auction rate bond of late. The very very short story is that when the
market for auction rate bonds collapsed the PWSA was in a big big pickle (that
is a technical term) paying 'penalty' interest rates on their sizable bond. Rates way way above the
historically low bond rates regular borrowers were able to get. The folks
who set up the bond, JP Morgan mostly, basically let the PWSA out to dry and
would not back the bond in any way. For
a time I believe PNC actually did PWSA a big favor and came into back up the
bonds. You'll have to trust me because
the actual explanation of all of it is way way too painful to explicate.
Even Paz has given up on me by now.. Maybe Fester is still out there.. is there any nugget of currency in all of
Well. The problem
with the 2008 bond was never really solved, just deferred (deferred being an unfulfilling eupemism for 'kicked down the road'). What I think is too lost in the esoterica is
that the PWSA still has over $350 million in variable rate bond debt it has not been able to convert or refinance into more traditional vehicles.. and over half of the PWSA's variable rate debt is callable in
2013. That would be this year according to my calendar!! and basically I suspect the PWSA has little
plan as to how to deal with it all. All at a time when I think the actual needs
for new capital investment in water and sewer infrastructure are higher than
ever. So pure loss financial costs are
not exactly a happy thought.
.. I swear I did not see this before I typed this all up, but it turns out that the very same PWSA debt is potentially about to be downgraded
. That actually is a news item in and of itself.
In summary: this is bad. and this is big. How big? Whatever the $$ we are talking about it potentially going to cost PWSA, it
dwarfs whatever $$ was actually misused in anything and everything going on down at the police
buread. It is just so so much harder
a story to tell. I bet the ink/$ ratio for the PWSA debt story will never crack a mill of coverage of whatever is going on down at the police bureau's detail office.