Municipal Bonds Debt Analysis – August 2021
Below is a recap of our municipal bonds debt analysis from the week ending Aug. 13, 2021. Primary market opportunities exclusive to Reorg’s municipal offering took the top spots this week while core, distressed coverage continued to expand the overall universe.
KIPP NYC Public Charter Schools tapped the bond market for $243m in funding to construct two new charter schools in the Bronx and purchase a third. Aggressive demand drove spreads tighter than price talk and the deal priced a week early.
Sanctuary LTC LLC waded into the primary market for a new $554m revenue bond that it tried to issue last year, but pulled because of market volatility. It’s back again with a new underwriter, replacing Truist with Hilltop Securities as lead left. Despite the frothy market, Reorg pointed out that the buyside might snub the deal again because of high leverage and weak occupancy.
Woodloch Towers is a good example for why the buyside is weary of senior care. Bondholders led by Preston Hollow won a $52.6 million judgment against obligor Senior Care Living VI LLC and its guarantor, Mark Bouldin, in a state court action. It’s a positive outcome for bondholders, but another anecdote depicting an increasingly ugly sector.
Speaking of ugly, Chicago released an updated budget in which it reported a slightly smaller deficit of 17% of revenue, instead of 28%. That this qualifies as good news for the Windy City during a time of unprecedented federal support shows how long it will take for Chicago to get its finances in order. Reminder: Chicago, the third largest city in the US, is still junk-rated.
Rounding out the top five municipal bonds debt analysis for the week ending Aug. 13 was Moody’s downgrade of Rhode Island Convention Center Authority, or RICCA, to A1 from Aa3. This is a great example of how municipal high yield is different from corporate high yield: for Muniland, it’s all about the sector.
Moody’s reason for the downgrade was succinct: a convention center is a single purpose, non-essential facility. The revenue stream backing over $200M in debt are lease payments from the state. If the state ever decides to end payments for non-essential services, RICCA would be at the top of the list. This is where a municipal credit analyst has to assess “willingness” versus “ability” to pay debt service.