CDFA // BNY MELLON DE DEVELOPMENT FIN FINANCE WEBCAST SE SERIES Attracting Investors to Your Bond Deal The Broadcast will Begin at 1:00pm EDT Submit your questions in advance using the GoToWebinar control panel View previous webcast recordings online at www.cdfa.net WWW.CDFA.NET / / WWW.BNYMELLON.COM
Hello! Welcome to the webcast. Katie Kramer Vice President Council of Development Finance Agencies Columbus, OH Are you a CDFA Member? Members receive exclusive access to thousands of resources in the CDFA Online Resource Database. Create your unique login today at www.cdfa.net WWW.CDFA.NET / / WWW.BNYMELLON.COM
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Attracting Investors to Your Bond Deal Panelists David Da id Sa Safer, , Mod oderator Vice President BNY Mellon Matt Pos osner Managing Director Municipal Market Advisors CDFA Training Institute 12 courses in development finance designed for all skill levels. Learn more and register today at www.cdfa.net WWW.CDFA.NET / / WWW.BNYMELLON.COM
Attracting Investors to Your Bond Deal David Safer Vice President BNY Mellon New York, NY What are you reading? Your development finance toolbox isn’t complete without a set of CDFA reference guides. Members save 15% on every purchase. Order today at www.cdfa.net. WWW.CDFA.NET / / WWW.BNYMELLON.COM
Attracting Investors to Your Bond Deal Matt Posner Managing Director Municipal Market Advisors Concord, MA Join CDFA Today Members receive discounts to all CDFA events, including training courses and the National Summit. Join at www.cdfa.net , and start saving today. WWW.CDFA.NET / / WWW.BNYMELLON.COM
Municipal Market Context A Discussion of Market & Current Issues Municipal Market Advisors, Inc. (MMA) Matt Posner, Managing Director June, 2014 MMA The Power of Independence www. mma-research.com
MMA The Power of Independence Bounce Back From Last Year Recent Trends in Fixed Income Yields (%) 3.30 2.80 2.30 1.80 1.30 10YR UST MMA 5% 10yr 2
MMA The Power of Independence Rolling 12-Month Issuance Lowest Since 2002 Municipal 12-Month Issuance v. MMA 10-Year Yield $500 4.50 $450 4.00 $400 Issuance $B's 3.50 Yield (%) $350 3.00 $300 2.50 $250 2.00 $200 $150 1.50 Jan-01 Feb-02 Mar-03 Apr-04 May-05 Jun-06 Jul-07 Aug-08 Sep-09 Oct-10 Nov-11 Dec-12 Jan-14 10yr Municipal Yield Issuance 12-mo (ALL) Page 3
MMA The Power of Independence Wisconsin – Trend Among Larger Issuers? Locked in $278M refunding in 2015 through a delayed draw term loan. Generated $19M in savings or 7%; and complied with refunding/tax rules because of the delayed nature. WI not alone: As much as $50 billion in 2013 alone with as much as $180 billion outstanding. Pros: Issuer-friendly, avoids some regulatory costs, not reliant on bank letter of credit Cons: Lack of disclosure, increases reliance on banks, impact on public finance industry
MMA The Power of Independence Liquidity Severely Constrained Monthly Par Traded ($B) 700 600 500 400 300 200 100 0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Inter-Dealer Trades Customer Sells Customer Buys Page 5
MMA The Power of Independence Market Strength Has Distorted Conditions – Issuers in Best Position MMA Municipal Value Index Indicative 10-yr Spread Evaluated Barclay Index vs. MMA Median May, '08 - May, '14 (Last: -11 bps; H: 16; L -2) 60 Value for Investors Basis Point Spread 40 20 0 -20 Opportunity for Issuers -40 May-08 Jul-09 Sep-10 Nov-11 Jan-13 Mar-14 6
MMA The Power of Independence Reinvestment and the Amount of Outstanding Bonds Municipal Reinvestment as % of Annual Total 2012-2014 15.0% % of Annual Total 10.0% 5.0% 0.0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2012 2013 2014 Source: Interactive Data Corp 7
MMA The Power of Independence Municipal Investor Trends Shifting Change in Net Municipal Holdings, 2012-2014 ($B) 150 100 50 0 -50 -100 2014 -150 2013 -200 2012 -250 Households Money Market Mutual Funds All Banks All Other Funds and ETFs 8
MMA The Power of Independence Bank Security Holdings - Pace of Municipal Ownership Waning Somewhat Annual Growth in Bank Holdings of Municipal Bonds 40% 30% 20% 10% 0% -10% -20% 2q54 1q57 4q59 3q62 2q65 1q68 4q70 3q73 2q76 1q79 4q81 3q84 2q87 1q90 4q92 3q95 2q98 1q01 4q03 3q06 2q09 1q12 9
MMA The Power of Independence But They Are Still Allocating To Municipals Over Other Assets Bank Security Holdings 1Q14: QoQ Growth $B $50.0 $40.0 $30.0 $20.0 $B's $10.0 $0.0 -$10.0 -$20.0 10
MMA The Power of Independence Mutual Funds Last Year ICI Muni Mutual Fund Net Inflows in 2013 ($B) 4.0 20 2.0 0 0.0 Cumulative -2.0 Weekly -20 -4.0 -6.0 -40 -8.0 -10.0 -60 1/2 2/27 4/24 6/19 8/14 10/9 12/4 Weekly Inflows Total Cumulative Inflows 11
MMA The Power of Independence Mutual Funds This Year ICI Muni Mutual Fund Net Inflows in 2014 ($B) $9 $0.0 $7 -$2.0 Cumulative $5 Weekly -$4.0 $3 -$6.0 $1 -$8.0 -$10.0 -$1 1/2 2/27 4/24 6/19 8/14 10/9 12/4 2014 Total Cumulative Inflows 12
MMA The Power of Independence Underlying Credit Conditions Are Improving State Revenues Up 3% in 4Q: Slower than in prior quarters but total revenues are above pre-recession peaks. Local government revenues facing fewer cutbacks from the state; property taxes are likely stabilizing with better real estate values. Rating trends continue to diverge; massive upgrades at S&P. Municipal defaults are much lower by number (higher by dollar value); still concentrated on non-rated and risky-sector issuers. Bankruptcy trends are more about headlines than bankruptcies. Page 13
MMA The Power of Independence Perceptions of Credit Conditions Are Improving Rapidly NLC City Fiscal Conditions Survey, 2013: "Is City Better Able to Meet Fiscal Needs than Last Year?" 80% 72% 60% 40% 20% 0% -20% -28% -40% -60% Better Able Less Able -80% -100% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Page 14
MMA The Power of Independence Municipal Payment Defaults Continue to Subside Issuers Defaulting For the First Time: COUNT 140 120 Number of Issuers 100 80 60 40 20 0 Jan FebMarAprMayJun Jul AugSep OctNovDec 2014 2013 2012 2011 Page 15
MMA The Power of Independence Chapter 9 Remains More About Headlines Than Bankruptcies Debt Affected by Chapter 9 Bankruptcies ($M) 500 450 JeffCo $4.2B 400 Harrisburg Detroit $8.9B (thrown out) 350 300 Connector 2000 250 Stockton 200 150 100 50 0 2/6/07 4/5/07 12/13/07 5/23/08 10/13/08 2/24/09 7/6/09 10/8/09 10/27/09 12/3/09 3/10/10 8/27/10 12/14/10 3/1/11 6/20/11 9/29/11 10/5/11 10/12/11 11/9/11 1/23/12 4/19/12 6/5/12 7/3/12 8/28/12 10/17/12 3/21/13 7/1/13 7/31/13 1/6/14 4/2/14 4/7/14 City/County Special District Page 16
MMA The Power of Independence DC As the ‘X’ Factor Tax Reform On the Radar 60% chance tax-code changed to impact municipal securities over next 5-years Private investment vs. Public Finance New Rules: MCDC Best Execution IRS Price Guidance Bank investments Page 17
MMA The Power of Independence Case Study: Dallas/Fort Worth International Airport Total Debt Service Under Different Tax Scenarios ($B) $760 $752 $750 $740 $730 $720 $710 $702 $700 $690 $680 $670 Tax-Exempt 28% Cap Issuer Cost 18
MMA The Power of Independence Any Questions? Matt Posner mposner@mma-research.com 212-433-5522 To Sign Up For Our Free Issuer report email or call. Page 19
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