Sunday, March 15, 2009

now this will be a case study for the financial engineers

Think the problems with the PWSA bond issue are convoluted? I caught this via Mike M's post on Blog-Lebo who caught this via the South Hills' Upper Saint Clair finds bank to remarket bonds. Looks like the are caught up in two distinct issues making this more complex than the PWSA problems in the news. The decline in the credit rating of the bond insurer is causing problems for the interest rate swap they used to finance a community recreation center of all things?!

Even if I could I am not even going to try and explain. This really is more convoluted than any of the other things in the news of late. I worried once that the bonds used to finance the SEA bonds would be impacted by a decline in the credit rating of it's bond insurer FSA. Then there is the news of the the PWSA's recent bond suffering from different issues related to the complexity of the interest rate swaps and rarely encountered 'renewal risk'. What I can figure of the problems in UC, the issues at hand are both of these two things at the same time: the decline in the bond insurer's credit rating is forcing the banks to decline continuing their remarketing role. That just wasn't part of the equation when anyone priced these bonds.

Reading the story of USC's problem with a $32 million dollar bond (nice community center I hope?).... I just can't help but wonder why or why not there are not similar problems with the $313 million SEA bonds for the new arena which were also insured by FSA. The devil is in the (many many) details so just to be clear I am just asking the question. But either way there has to be news in this. Either the SEA has a problem that has not made the news, or it's news in itself that somehow they are threading the needle and avoiding the problems bond issuers in similar situations are facing more and more.


Just for the uber finance wonks out there... there is news that that the SIFMA ARS index is being phased out. (Don't ask). While it's not the same as the SIFMA Municipal index that is important to the SEA bonds, the whole point of these indices is that they are supposed to be there forever and are crucial to some of the deals being talked about. The fact that one can disappear has some implications worth thinking through.


Anonymous MH said...

A bit off topic, but you've mentioned Vallejo before, so I thought I'd bring the following link to your attention.

Tuesday, March 17, 2009 8:51:00 PM  

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