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Phoenix LXVI: Get Your Kicks On Thread LXVI

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Old
12-03-2012, 06:31 PM
  #401
Whileee
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Originally Posted by barneyg View Post
Just to clarify, the Moody's report linked by Thomas L was the January 20, 2012 report when the city's general rating was downgraded from Aa2 to Aa3. But Sonny Munshi's Twitter quote by Whileee is for the November 30, 2012 downgrade (which hasn't been linked on this board I believe).

For those scoring at home, that's 2 more notches down the rating scale, from Aa3 to A2. And a negative outlook to boot.
Remember the good old days when Skeete was painting scenarios that showed that keeping the Coyotes with the big Jamison AMF would actually help them restructure their debt?

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12-03-2012, 06:37 PM
  #402
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Those guys at Moody's sound like real killjoys. Didn't they include any of the glowing reports from Clark that this deal will turn Westgate into a financial juggernaut that will fill Glendale's coffers for years to come?
To funny Whilee...

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12-03-2012, 06:40 PM
  #403
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Remember the good old days when Skeete was painting scenarios that showed that keeping the Coyotes with the big Jamison AMF would actually help them restructure their debt?
And now he said he don't recommend the deal, even after his re-negotiation

Maybe he's back to economics VS clarkonomics... As a city manager, he is better to get COG well informed for the decisions to take.

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12-03-2012, 06:51 PM
  #404
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Originally Posted by barneyg View Post
Just to clarify, the Moody's report linked by Thomas L was the January 20, 2012 report when the city's general rating was downgraded from Aa2 to Aa3. But Sonny Munshi's Twitter quote by Whileee is for the November 30, 2012 downgrade (which hasn't been linked on this board I believe).
Holy crap, this is a total indictment. They downgraded ALL of the city's bonds, including the sewer and water bonds.

Quote:
Rating Action: Moody's downgrades Glendale, AZ's G.O. rating to A2, senior excise rating to A2, subordinate excise to A3, transit excise rating to A2, street and highway rating to A2; outlook is negative; water and sewer ratings downgraded to A1 and outlook is stable
Quote:
The downgrade of the city's water and sewer enterprise revenue ratings to A1 primarily reflects city management's recent practice of borrowing the enterprise's available liquidity in times of fiscal stress, namely to support a recent payment owed to the NHL.
Quote:
STRENGTHS

- Management's willingness to temporarily increase in the city's general sales tax levy rate

- Adoption of significant expenditure reductions amid a recessionary environment

- Still large tax base relative to many peers nationally

CHALLENGES

- A substantially weak financial position compared to rated peers

- Repayment of sizable long-term loans from several enterprise funds to the general fund that supported payments owed to the NHL

- Commitment to fund substantial long-term payments to the prospective buyer group of the NHL's Phoenix Coyotes for managing the city-owned and financed Jobing.com Arena


WHAT COULD MAKE THE RATINGS GO UP (REMOVAL OF THE CITY'S NEGATIVE OUTLOOK)

- Substantially improved operating performance, including positive and sustainable general fund reserves

- Significant growth in revenues pledged to the city's various excise debt obligations

WHAT COULD MAKE THE RATINGS GO DOWN

- Continued deterioration of the city's financial position

- Substantial, additional tax base declines

- Increased debt burden, including additional leveraging of the city's various excise tax revenues

- Sizable declines in revenues pledged to the city's various excise-type debt obligations

- Continued reliance on liquidity from enterprises to support general operating requirements

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12-03-2012, 07:29 PM
  #405
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I believe the payment was made from one of the enterprise funds, to be repaid from the general fund over 25 years starting in 2015 (similar arrangement to last year).

Yay Glendale. Some interesting Chapter 9 case law to come out of this.
As with the FY2011 payment, this would be a GF expenditure and an interfund transfer (i.e. not a revenue) --

Quote:
The large budget variance seen in the Transfers category is due to the Arena Management payment continuing to be held in escrow as negotiations for the sale of the Coyotes finalize.
So the $20M payment still in escrow is the reason why it's not an expense yet.

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Originally Posted by Whileee View Post
Remember the good old days when Skeete was painting scenarios that showed that keeping the Coyotes with the big Jamison AMF would actually help them restructure their debt?
I forgot to say -- to add with Thomas L's details above, this report comes as Glendale is set to refinance roughly $250 million in bonds on 12/12/2012, most of which are now rated A3 (i.e. 1 notch above lower-medium grade, 4 notches above junk bond).

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12-03-2012, 07:35 PM
  #406
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Holy crap, this is a total indictment. They downgraded ALL of the city's bonds, including the sewer and water bonds.
It's perfectly logical. Since if the City goes bankrupt ALL bonds are more or less going in the shredder to a certain degree.

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12-03-2012, 08:29 PM
  #407
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The Moody`s downgrade has far reaching ramifications on the city`s ability to finance its future operational and infrastructure needs for many years to come. Given the strong likelihood of continued economic weakness both locally and nationally, the city has basically f--ed itself for the forseeable future. Should GJ somehow gain ownership (not likely) this cty will be the textbook example of how not to run city government. Sadly, this Glendale version is a microcosm of what is unfolding in DC where the Democrats seem to have been drinking the same Kool aid as the COG Council. All while the Beaz is relaxing on some South Seas island, laughing at the complete and utter ineptitude of this group of morons. I feel for the new Mayor , he has been left with a bare cupboard , a bunch of corrupt city administrators and somehow an electorate that does not see the importance of over turning this vote by referendum. God save the city of glendale, wrote a Moody`s analyst.

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12-03-2012, 09:17 PM
  #408
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It's perfectly logical. Since if the City goes bankrupt ALL bonds are more or less going in the shredder to a certain degree.
well unless there are some bonds with specific assets backing them, but I don't think thats the case

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12-03-2012, 09:36 PM
  #409
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Why isn't clarkonomics 101 at work here?

downgrade?downgrade, I didn't order no stinkin' downgrade.

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12-03-2012, 09:43 PM
  #410
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well unless there are some bonds with specific assets backing them, but I don't think thats the case
it's the case with the sewer bonds and that's why their rating is (1 notch) better than the general bonds, though Moody's didn't like how the city used the sewer & water cushion to pay the NHL in FY2011. some of the subordinate excise tax bonds (such as those up for refinancing next week) would default first and are therefore rated lower than the general city rating.

everytime those news pop up we inevitably see a bunch of references to bankruptcy. I want to stress that bankruptcy is still very much a low-frequency event, even in these times, and that there are large US cities whose bonds currently have similar ratings (Philly's debt is also A2). the first-order impact of rating downgrades, as mesamonster correctly pointed out, is the increased cost of borrowing, which makes any long-run projections dicy. in figurative terms, in the past 3 years the COG has gone from Platinum cardholder status to "don't worry, you can still borrow from the corner bank" to loan shark territory. bankruptcy is still a very uncertain prospect but next week's bond issue will show how bad things can become.

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12-03-2012, 10:00 PM
  #411
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Originally Posted by barneyg View Post
it's the case with the sewer bonds and that's why their rating is (1 notch) better than the general bonds, though Moody's didn't like how the city used the sewer & water cushion to pay the NHL in FY2011. some of the subordinate excise tax bonds (such as those up for refinancing next week) would default first and are therefore rated lower than the general city rating.

everytime those news pop up we inevitably see a bunch of references to bankruptcy. I want to stress that bankruptcy is still very much a low-frequency event, even in these times, and that there are large US cities whose bonds currently have similar ratings (Philly's debt is also A2). the first-order impact of rating downgrades, as mesamonster correctly pointed out, is the increased cost of borrowing, which makes any long-run projections dicy. in figurative terms, in the past 3 years the COG has gone from Platinum cardholder status to "don't worry, you can still borrow from the corner bank" to loan shark territory. bankruptcy is still a very uncertain prospect but next week's bond issue will show how bad things can become.
I think we are now seeing why Skeete finally decided that this was not a good deal for Glendale. The upcoming budget processes are going to be brutal. I can almost hear Clark saying, "yeah, but we'll soon have a few more tenants at Westgate".

Meanwhile, you can almost hear the guys at Moody's shaking their heads and saying, "man, that gang in Glendale just doesn't get it."

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12-03-2012, 10:01 PM
  #412
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Admittedly, Bonds and Ratings are not my strength. So, what impact does this have on the CoG's phase II approach of refinancing their debt?

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12-03-2012, 10:02 PM
  #413
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Holy crap, this is a total indictment. They downgraded ALL of the city's bonds, including the sewer and water bonds.
It doesn't read very well at all. The visionaries might be in a bit of trouble here.

Quote:
Originally Posted by barneyg View Post
in the past 3 years the COG has gone from Platinum cardholder status to "don't worry, you can still borrow from the corner bank" to loan shark territory. bankruptcy is still a very uncertain prospect but next week's bond issue will show how bad things can become.
I really enjoy reading your posts Barney. I learn more every time I read your messages. Thanks.

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12-03-2012, 10:15 PM
  #414
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Admittedly, Bonds and Ratings are not my strength. So, what impact does this have on the CoG's phase II approach of refinancing their debt?
The worse your rating the more expensive it is for you to borrow. So they will pay more at A2 as opposed to AA3. The other problem is that with the negative outlook (which means that they could downgrade it again at any point) the market may demand an even higher rate than A2 normally would.

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12-03-2012, 10:20 PM
  #415
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The worse your rating the more expensive it is for you to borrow. So they will pay more at A2 as opposed to AA3. The other problem is that with the negative outlook (which means that they could downgrade it again at any point) the market may demand an even higher rate than A2 normally would.
Also, there is the uncertainty associated with the tax exempt status of munis as well.....

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12-03-2012, 10:52 PM
  #416
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Also, there is the uncertainty associated with the tax exempt status of munis as well.....
oh really? That comes up from time-to-time, what are they planning/discussing now?

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12-04-2012, 04:24 AM
  #417
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Originally Posted by barneyg View Post
everytime those news pop up we inevitably see a bunch of references to bankruptcy. I want to stress that bankruptcy is still very much a low-frequency event, even in these times, and that there are large US cities whose bonds currently have similar ratings (Philly's debt is also A2). the first-order impact of rating downgrades, as mesamonster correctly pointed out, is the increased cost of borrowing, which makes any long-run projections dicy. in figurative terms, in the past 3 years the COG has gone from Platinum cardholder status to "don't worry, you can still borrow from the corner bank" to loan shark territory. bankruptcy is still a very uncertain prospect but next week's bond issue will show how bad things can become.
I still always come back to the busted general obligation bond issue in January.

http://online.wsj.com/article/BT-CO-...come&mg=id-wsj

Unfortunately the offering memorandum is not posted on Glendale's finance webpage. However, given their trouble in marketing this small refinancing deal indicates that the market sees them as a greater default risk than does Moody's or S&P. Indeed, credit ratings are meant to be relatively stable through the credit cycle when compared to approaches that incorporate market views.

Even raising yield 20 bps, which is a very significant amount in the current interest rate environment, they were unable to issue any of the longer duration debt. This is ridiculous given the yield starved investors out there. Ultimately it is the market's view of default risk that matters, since it is the market participants rather than the rating agencies who provide the city funds.

It will be interesting to see how their 12.12.12 GO and excise tax bond issue goes, especially whether they can issue at an A spread versus BBB or worse. I would not be surprised if the latter were to come to pass.

So to default risk: I agree that it is still a remote likelihood, but it is clearly less remote than it has been in the past. Default rates do increase exponentially rather than linearly however. (For those who are interested, historical default rates are on page 11 http://www.moodys.com/researchdocume...cid=PBC_140114 investment grade municipal bonds have a 0.08% default incidence while speculative grade - or BB and below - have a 7.94% default incidence... of course experience for 2012+ may differ from the 1970-2011 period)

I am concerned about strategic default risk, especially considering that a significant amount of their financial obligations would be related to the direct subsidy of a major league sports franchise. Muni market participants in general have become more concerned about strategic defaults.
http://www.reuters.com/article/2012/...82J15920120320
http://www.insurancejournal.com/news.../20/240179.htm

I am also concerned about their pension and OPEB obligations. At the end of FY11 they were very significantly underfunded and I doubt there will be any significant funding anytime in the next five years. In five years however we will be well into the baby boom retirement, so those funds will begin to experience significant cash outflows. I think it's quite possible the city will have to choose whether it will walk on the hockey subsidy or its retirees.

Why I'm especially interested in this year's financial report is to see the obligation for post retirement medical benefits. These wee last valued in FY09 at just over $100 million, completely unfunded and off balance sheet (Glendale is no different than any other municipality in this regard... all municipalities were forced to value these obligations for the first time in 2009). I believe they have to revalue them again in FY12.

It looks like there could be a lot of action for Glendale this December. Unfortunately I'm quite busy at work right now

Quote:
Originally Posted by aqib View Post
oh really? That comes up from time-to-time, what are they planning/discussing now?
Removal of muni's tax exempt status is one of the ways that has been proposed to raise revenue in the "fiscal cliff" discussions.

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12-04-2012, 07:27 AM
  #418
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Unfortunately the offering memorandum is not posted on Glendale's finance webpage. (...)
It will be interesting to see how their 12.12.12 GO and excise tax bond issue goes, especially whether they can issue at an A spread versus BBB or worse. I would not be surprised if the latter were to come to pass.
I'm not sure what's up with that issue. It's not part of the city's debt management plan, where they expected to issue about $10-20 million per year in bonds over the next 5-7 years, and none of the outstanding issues were up for refinancing.

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I am also concerned about their pension and OPEB obligations. At the end of FY11 they were very significantly underfunded and I doubt there will be any significant funding anytime in the next five years. In five years however we will be well into the baby boom retirement, so those funds will begin to experience significant cash outflows. I think it's quite possible the city will have to choose whether it will walk on the hockey subsidy or its retirees.

Why I'm especially interested in this year's financial report is to see the obligation for post retirement medical benefits. These wee last valued in FY09 at just over $100 million, completely unfunded and off balance sheet (Glendale is no different than any other municipality in this regard... all municipalities were forced to value these obligations for the first time in 2009). I believe they have to revalue them again in FY12.
OPEB and pension funds have been getting a bad rap for messing up GM, NYC and San Diego's balance sheets but they are really textbook cases of poor financial planning and corporate (municipal) governance. They're showing up in Glendale too, how surprising.

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Removal of muni's tax exempt status is one of the ways that has been proposed to raise revenue in the "fiscal cliff" discussions.
I haven't followed the debate but that sounds like a measure with a high political cost (investors & municipalities really won't like it) for a relatively small economic benefit.

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12-04-2012, 11:43 AM
  #419
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The large budget variance seen in the Transfers category is due to the Arena Management payment continuing to be held in escrow as negotiations for the sale of the Coyotes finalize.
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Originally Posted by barneyg View Post
So the $20M payment still in escrow is the reason why it's not an expense yet.
interesting. leaving their $20M just sitting there unclaimed.

and it's tied up in the purchase negotiations? even more interesting.

i wonder what the NHL is thinking. a) bettman has been too busy to saunter over to the ATM to make a withdrawl? b) when the team leaves, bettman will generously forfeit the money back to glendale? c) the bankers are still picking themselves up off the floor laughing at joyce's "stop payment" and havent gotten around to sending the NHL its money?

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12-04-2012, 11:46 AM
  #420
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Is the Gong Show known as a COG council meeting televised tonight? MOD


Last edited by Fugu: 12-04-2012 at 12:10 PM. Reason: no need for the pot shots
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12-04-2012, 12:05 PM
  #421
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Is the Gong Show known as a COG council meeting televised tonight?
Dunno. It's a workshop not a meeting. Anyway, here's the RM audit report. I have not reviewed.

http://www.glendaleaz.com/Clerk/agen...120412-W05.pdf

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12-04-2012, 12:08 PM
  #422
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It defies my creative imagination how Troy and his fellow fans can not understand the downside of last Tuesdays vote! Time will be the great equalizer as news from the Christmas season audit begin to echo through the chambers occupied by the delusionals. Reality will hit these imbeciles hard, if the moody`s move is not enough to shake them the realization that the city is clinging precariously to bankruptcy will. Say Carrie start cueing the GWI attack, time to strike some of the worst civic management decisions ever seen in our lifetime!

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12-04-2012, 12:27 PM
  #423
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It defies my creative imagination how Troy and his fellow fans can not understand the downside of last Tuesdays vote! Time will be the great equalizer as news from the Christmas season audit begin to echo through the chambers occupied by the delusionals. Reality will hit these imbeciles hard, if the moody`s move is not enough to shake them the realization that the city is clinging precariously to bankruptcy will. Say Carrie start cueing the GWI attack, time to strike some of the worst civic management decisions ever seen in our lifetime!
The CoG sure knows how to give new meaning to the term: Going for broke

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12-04-2012, 01:37 PM
  #424
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So I havent been following the entire situation closely but should this deal fall through with Jamison what happens if the league trys to move the team? Arent their still agreements from the original arena construction that legally hold them in Glendale? Or does anybody really know the specifics of those agreements?

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12-04-2012, 02:09 PM
  #425
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Dunno. It's a workshop not a meeting. Anyway, here's the RM audit report. I have not reviewed.

http://www.glendaleaz.com/Clerk/agen...120412-W05.pdf
So, if I'm following this correctly, the City of Glendale, fresh off flushing $320 million down the toilet in the JIG lease scam, has to do the following, to patch up a series of errors, miscues, bad decisions and shady dealings:

(1) Transfer $1 million to $1.4 million from the general obligation fund to the Workers Compensation Trust Fund by Dec 31, 2012 to restore the fund to 55% confidence level required by state law.

(2) Transfer $489,000 from the general obligation fund to the Risk Management Trust Fund to reverse the inappropriate practice of having 3 full time employees' salaries paid out of the trust fund for the past few years.

(3) Account for the three risk management employees' salaries going forward out of the general fund instead of the risk management fund, which will basically necessitate additional budget cuts.

(4) Explain why they didn't have a licensed risk management consultant for a 29 month period between Sep 2009 and Feb 2012, even though one is required by state law.


Keep up the good work, Glendale.

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