Monday, October 25, 2010

Pension Parking Parsing

I had a big long rambling post on general parking/pension issues, but it just isn't in me to post.  Reading about the latest round of rumblings on the fifth floor had be wondering how we wound up in this state.  Council-mayor relations have occassionally been bad in the past. Intra-council relations have sometimes gone off the deep end with members swearing at each other in session.  So maybe things today were sedate in comparison. 

Some things really need commenting on though.  Bram tweets that the administration presented some idea that if a bond was issued against future parking revenues, that there was a potential for the parking authority to default with a result of the bond holders taking posession of city parking assets.  If Bram passed that on accurately, then folks should know that that is basically false.  Default on a revenue bond really can't result in foreclosure against public assets like that.  Skipping legal wonkery, it just isn't the way things work. Purchasers of a revenue bond have claims against future revenue streams, not the underlying assets. It would be extraordinary, and certainly not required for the bonds to have a mortgage pledge in their prospectus. The concept of wall street types winding up as owners of the garages is just not an option.

Beyond that.. like I said I don't have it in me.  We are again down the rabbit hole Downtown and who knows where we will emerge when all is said and done. 

OK, I can't resist one really fundamental comment.  Seems to me that the whole presentation today by the mayor was that this bond issue plan wouldn't work and it was based on some math saying a bond would be issued at 5.5% if tax-exempt and 7.5% if not tax-exempt.  Are those rates for real?  I don't think any muni bond rates are that high these days are they?  Would make for some very different math if those rates are incorrect.    I really need my Bloomberg box back. 

Speaking of bond rates... us 3 public finance wonks may have noticed that bond  insurer Assured Guaranty had its bond rating dropped today... Methinks a few big public bonds locally have bond insurance issued by Assured Guaranty.  Oh, nevermind. 

Yeah... my original post was still longer than all of that.

8 Comments:

Anonymous BrianTH said...

The thing is that the parking authority has no ability to tax, and would have no guarantees from any authority able to tax, and no mortgage--so if it doesn't get the planned net revenues from operating the parking assets, that would be that. And it already has a good chunk of debt.

So this isn't exactly the normal municipal bond situation, and maybe it wouldn't be surprising if it got more of a high-yield corporate type rate.

Tuesday, October 26, 2010 7:34:00 AM  
Anonymous Anonymous said...

Brian

I read Burgess' powerpoint on the Council-Controller plan. He seems to believe that if based on Council's rate structure and the debt service calculations that there will be a shortfall for almost 20 years. He goes on to say that the Oty itself would have to be a guarantor, putting the taxpayers on the hook.

Wall Street won't end up with the assets, we will just pay twice for them.

Tuesday, October 26, 2010 7:51:00 AM  
Blogger C. Briem said...

I'd quibble and point out the PPA has one of the most secure revenue streams in town given the nature of Downtown parking... but it is irrelevant. PPA generally borrows at AAA ratings. Likely with bond insurance, but no matter, they are getting the best rates.. the argument that they don't have the backing of the city for their revenue bonds would be as true for all the SEA debt.. or URA debt... never seems to be an issue.

http://emma.msrb.org/MS234122-MS209430-MD407201.pdf

What good is it for the city to guarantee PPA debt. City's underlying debt rating has to be lower than the PPA's? What value added would it be to get the city's backing in some form?

Tuesday, October 26, 2010 7:56:00 AM  
Anonymous BrianTH said...

But has the parking authority ever tried to borrow so much before? Moreover, the parking authority would be depending on successfully raising rates and generally operating the assets it is buying at a higher net revenue level than they are currently operating. I suspect it has never borrowed on such a magnitude for such a project before.

I'd also dispute the security of the revenue stream, given the long term we are talking about. A lot could happen to disrupt expected revenues in that time frame, and the lender would also be counting on the parking authority--which is controlled by politicians--prioritizing getting those revenues over whatever other policy concerns may arise.

Anyway, I guess if this plan goes anywhere, we shall see what rates they actually have to pay. But I know that as a lender, I wouldn't just be applying whatever rating their existing debt has gotten--I'd be reworking the whole thing.

Tuesday, October 26, 2010 9:09:00 AM  
Anonymous MH said...

If the rates are too high, it is a good sign that Pittsburgh is about to go broke regardless. In which case, three cheers for not monetizing something that couldn't be stripped by a bankruptcy court otherwise.

Don’t forget what Rex Kramer said, “Municipal bonds Ted, I'm talking double A rating. . .the best investment in America.” Don’t make him wrong.

Tuesday, October 26, 2010 9:49:00 AM  
Blogger C. Briem said...

are parking revenues less secure than the gaming revenue from the Rivers Casino that the SEA is relying on to pay off the arena debt? and a much bigger bond at that.

Tuesday, October 26, 2010 10:18:00 AM  
Anonymous BrianTH said...

I don't really know enough about the SEA to comment in depth on their finances, and in particular I'm not sure what the terms on the Rivers contribution are, and what would happen to that contribution in a reorganization of Rivers (assuming it failed).

But I think the SEA is also getting a RAD contribution for some of its stadium/convention-center debt, which is tax money, plus a state casino tax contribution (more tax money), plus something from the Penguins. And didn't the state Department of General Services guarantee some of the bonds pursuant to the lease deal? I thought that is why the state was going to bail the SEA out, back when they had the variable-rate/bond-insurer-downgrade problem.

Doesn't seem apples to apples to me.

Tuesday, October 26, 2010 12:56:00 PM  
Anonymous MH said...

If the casino gets in too much trouble, they've got a great big parking garage that will soon by linked to downtown by the absurd rail/elevator car mongrel called the "T".

Tuesday, October 26, 2010 1:48:00 PM  

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