Mish opines Philadelphia is effectively bankrupt ? Mayor Nutter's closed door meetings exposed ! And while everyone was focused on Detroit , one has to ask how many other cities are hitting the wall too ?

http://globaleconomicanalysis.blogspot.com/2013/04/muniland-disclosure-problem.html

Wednesday, April 17, 2013 2:17 PM

Muniland Disclosure Problem; Philadelphia's Closed-Door Two-Day Schmoozefest Backfires With Unwanted Publicity

I received several emails regarding my post Philadelphia, 5th Largest City in US is Effectively Bankrupt; Mayor Holds Closed Meeting With Wall Street to Discuss Asset Sales.

The emails were from disgruntled people hoping to leave the area for the usual complaints: unions, schools, crime.

One reader sent a link to a Philly.Com article by Joseph N. DiStefano titled Philly effort to keep well-known troubles quiet wins new attention. 

 Philadelphia's closed-door two-day schmoozefest with 100 bond underwriters and other would-be lenders keeps generating unwelcome publicity for the nation's brokest big (million+ resident) city.

"Retail investors own about 50 percent of municipal bonds directly and another 20 percent through mutual funds. If the media is not allowed to attend the [Philadelphia debt] conference, then retail is at a distinct disadvantage," scolds Cate Long for Reuters.

Muniland Disclosure Problem

The link to Cate Long's article was broken (it may be fixed now as I notified DiStefano), but I traced it to Muniland has a disclosure problem.

 There is a glaring gap in regulation – called Regulation Fair Disclosure – when it comes to protecting municipal bond investors. It appears that issuers may be in the habit of giving material nonpublic information to preferred institutional investors, while making retail and non-preferred investors sit out in the cold. Exhibit number one is the treatment of media members who have petitioned to attend the City of Philadelphia bond investor day scheduled for this Thursday.

Philadelphia Inquirer’s editor, William Marimow, said that the issuance of new bonds is public business. But what about all the retail investors who own Philly bonds? Retail investors own about 50 percent of municipal bonds directly and another 20 percent through mutual funds. If the media is not allowed to attend the conference, then retail is at a distinct disadvantage.

Dribbling out information to select bond investors is a terrible way of building a broad base of support for a municipal issue. All investors want transparency. When they don’t get it they will pass on buying a bond or demand a lower price and higher yield.

My guess is that issuers like Philadelphia and Puerto Rico are afraid of what enterprising reporters and bloggers can unearth about how they manage their public finances. But it’s the people’s finances. When you do it in dark places, sloppy things like “insufficient documentation” seem to happen. Open up to all investors and show muniland that you have nothing to hide.

My guess is Cate Long's guess is correct. By attempting to hide the facts and/or placate institutions, the city just made matters worse.

DiStefano continues ...

 "Sam Katz, the former [muni bond] adviser who now chairs PICA, the state board overseeing city finances, said investor conferences were typically designed to permit candid conversation" between city officials and bond buyers and sellers:"You might want to say something to them that you don't want to say publicly."

Still, "where the city's headed is very much the public business," and the public would be better served if the meeting were televised, Katz added.

By closing the meeting, the city and its advisers have managed to draw more attention to its problems. It doesn't help sell bonds, especially to small and retail investors, when news accounts result in up-country investment advisors like Mish Shedlock, of Sonoma, Calif.-based Sitka Pacific Investments, telling his clients that Philadelphia "is effectively bankrupt" and likely to default, that city borrowing costs are "likely to soar," and that "the city is nothing but a walking zombie now."

Maybe Katz is right: Let the public watch. Better to bore potential retail bond investors, than leave them to be alternately starved and terrorized.

I had no particular focus in watching Philadelphia. I do now, and so do fellow bloggers thanks to the inept closed-door schmoozefest with mayor Michael Nutter.

This is not a question of boring retail bond investors; it is simply a question of telling the truth, not making one set of statements to bond underwriters and another set of statements to retail investors.

I do not play the muni bond market at all, long or short, but it's worth repeating that what happened in Stockton, California is not likely to stay in Stockton or even the state of California.

It's time Philadelphia face the truth about what needs to be done. One-time selling of assets and closed-door meetings that give the appearance of hiding something is not even a start.

Mike "Mish" Shedlock

and....






http://globaleconomicanalysis.blogspot.com/2013/04/philadelphia-5th-largest-city-in-us-is.html

Tuesday, April 16, 2013 11:38 PM

Philadelphia, 5th Largest City in US is Effectively Bankrupt; Mayor Holds Closed Meeting With Wall Street to Discuss Asset Sales

You know a city is in deep trouble when its mayor invites Wall Street but not the press and not private citizens to a closed meeting to discuss the future, including a sell-off of city assets.

Philadelphia Mayor Michael Nutter, whose municipality has the lowest credit rating of the five most-populous U.S. cities, did just that.

My translation: Philadelphia is bankrupt. However, that easily discernible fact will of course be denied until it officially happens.

Please consider Philadelphia Holds Closed Meeting With Wall Street 

 Philadelphia Mayor Michael Nutter, whose municipality has the lowest credit rating of the five most-populous U.S. cities, will address investors at a conference financed by underwriters and closed to the public and the press.

The invitation bills tomorrow’s meeting as a chance to hear “Philadelphia leaders and investors discuss building the city’s future.”

Philadelphia is hoping to attract investors for the city, which is rated three steps above junk by Standard & Poor’s. The city and its authorities have $8.75 billion in outstanding debt as of September, according to bond documents. Philadelphia’s pension system is 47.6 percent funded this year, the documents say.

Tours of city assets are set for the second day of the conference, including the Philadelphia Gas Works, the largest municipally owned natural-gas utility in the U.S. The city plans to hire a broker to steer the sale of the system, which may fetch as much as $496 million, according to Lazard Ltd. (LAZ)

Sam Katz, chairman of the Pennsylvania Intergovernmental Cooperation Authority, created in a 1991 state law that oversees the city’s finances, said that with the conference being held locally, it “certainly created some concern on the part of people that it should be made public.”

He’s more troubled, however, by the fact the school district isn’t on the agenda, he said. Facing a $304 million deficit, school officials have asked the city for $60 million and the state for $120 million.

“The school district’s in a crisis,” Katz said. “They’re the same tax base.”

Philadelphia officials facing a $1.35 billion spending gap over five years voted in March to shut 9 percent of its public schools.

Philadelphia, 5th Largest City in US is Bankrupt

It does not take a genius to figure out what is going on here. Philadelphia is bankrupt. Without even seeing the details, it is safe to assume untenable union wages and pension benefits are at the heart of it all. A 47.6% funded pension is rather telling in and of itself.

Gutless Mayor Michael Nutter does not even have the decency to let the public or the press hear what is going on. Instead he invited Wall Street to a private tour of Philadelphia's assets, hoping to sell assets and stave off the inevitable.

What fundamental issues is Nutter solving?

Pensions? No
Schools? No
Union Salaries? No
Bloated Payrolls? No
Benefits? No

Instead of inviting Wall Street to a private tour, Nutter ought to be inviting the press and private citizens to a press conference to declare the city's bankruptcy.

We've been down this path before, most recently in Stockton, California. Here are some Stockton Bankruptcy Articles to consider in case you are not familiar with the story. 

Most relevant to Philadelphia is a ruling the Stockton Bankruptcy is Valid, City Acted in Good Faith. The judicial ruling means bondholders are at risk, and the city will not be forced to raise taxes to pay off creditors.

Also see CalPERS Pension System in the Crosshairs of Stockton Bankruptcy Dispute.

With those rulings, Philadelphia's cost of borrowing is likely to soar. Regardless, the city is nothing but a walking zombie now. The end is at hand.

Mike "Mish" Shedlock