FMSbonds, Inc.’s Municipal Bond Forum is an exclusive opportunity for investors to submit questions and comments on the bond market or to respond to one of our articles.
To participate, just send us an e-mail. Be sure to include your name or initials and your state of residence. Posted e-mails may be edited for length and clarity. If you prefer a private response, please note that in your e-mail. Responses are provided by James A. Klotz, president and co-founder of FMSbonds, Inc., a municipal bond specialist for more than 35 years, and other members of the firm as noted.
Postings are listed by date. If you have any questions, please call us at 1-800-367-2663 or e-mail us.
An article last year in the Journal of Structured Finance analyzes cigarette consumption and the potential impact it could have on tobacco muni bonds. It shows that long-term smoking is likely in more of a decline than tobacco settlement revenue data indicates, which could seriously impact the muni bonds’ ability to pay. What is your opinion?
S.W.
I have laddered municipal bonds here in Connecticut and am concerned about my state’s fiscal condition. While they are all “AAA” or “AA” and insured, should I be liquidating and going to states like Maryland or Alabama or Tennessee or Texas, where the per capita debt is very low? Or does staying in one of the richest per capita states virtually guarantee the taxing power (under duress) of potentially floundering General Obligation bonds?
T.M., Connecticut
I would like to invest in municipal bonds to avoid paying taxes, but I live in California and am afraid to invest in California bonds right now because of California’s cuts, budget problems, etc. I’ve heard California’s priority in paying their interest on bonds comes second on their list. Also, I wonder about how well they’ll hold their value. Am I being foolish and missing out on the tax break? You mentioned Bush’s tax break will expire the end of this year; what incomes does it cover and who will be effected?
J.H., California
I’m thinking of opening an account and would like to know if it’s possible to hold some bonds in my account and have some registered in my name where I physically hold them?
B.
What is your opinion of the bond insurer ACA, and do you think it will stay afloat and get ratings again? Also, do you have an opinion on Radian Asset Insurance as well? I am a customer of FMSbonds.
J.S., Washington
It seems that the insurers are constantly being downgraded. Can you publish a list of muni-bond insurers with their credit ratings and credit watch standings? Also, I am concerned that a major debtor could fail and bankrupt an associated insurance company. Are some insurers limited in the size of the issues that they are capable of supporting? Is it possible for you to add this information to the aforementioned list, if only with some simple description such as “small, medium or large”?
J.F., California
I am 61 years old and have a large portion of my retirement portfolio in general obligation Arizona muni bonds. I am concerned about potential defaults due to the budget crisis in Arizona. Most of my bonds are school bonds. Do you have any suggestions?
S.R., Arizona
First, what do you charge to buy bonds? Second, we bought NC Housing Finance Agency Home Ownership Revenue Bonds 1998 Trust Agreement, rated AA2. We paid $970 per bond and purchased $100,000. The bonds are selling at $940 but have an interest of 5.20%, and we have already received $10,400 in interest in two years. The cost does not concern us. We will not sell these bonds and will pass them on to our children. I am 95 and my dear wife is 83. We have more than $300,000 in cash and want to buy more of the same, but would like your feelings about their safety, even though they are rated AA2. (Cusip 658207HH1.) Your comments will be surely appreciated.
J.A., North Carolina
I hold some Xenia Rural District Water Bonds 98410ACE3. I live in Florida. The water district is having financial problems. The issue sells for 60% to 70% on a dollar of par. The district is talking about selling itself for 50 percent on a dollar of liabilities. The issue is protected by Assured Guaranty. How will it work if the district is sold for less than $143 million with the insured bonds totaling $85 million? Based on the strength of the insurance company, does the company make up the difference to par with any lost?
J.S., Florida
In the prepaid gas contracts, is the utility able to treat the entire block of prepaid gas as an asset and “rate base it”? I suppose that would only be relevant to regulated gas utilities? Also, have you ever heard of this structure being used to sell blocks of electricity at a fixed price?
T.A.
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