Loose Lips Quash Sales and Lower Bond Rating?

Bankruptcy Remarks and Bond Sale

     In early January, 2010 Gov. Christie told a town-hall meeting in Paramus, N.J., that health care costs  “will bankrupt” the state. About 20 minutes, in another part of the state, the New Jersey Economic Development Authority cut its tax-exempt school-related bond offering by more than half to $712.3 million.

     “It doesn't help to try and sell a $1 billion deal on the same day the governor is talking about the state going bankrupt due to health care costs,” said Mike Pietronico, who oversees $360 million as chief executive officer of Miller Tabak Asset Management in New York.

      While it is unclear exactly what affect the governor's harsh words had on the state's attempted sale of bonds, it does suggest that it might have been wise to avoid a topic like bankruptcy on the same day as a sale of this magnitude. The state cited “market conditions.”   It was an ugly day in the muni market. For another thing, everybody knows that healthcare costs are a huge issue everywhere. And beyond that, people also know that words like "bankruptcy" may be a bit hyperbolic.

      Still, all the talk of muni bankruptcies aren't making muni bond salesmen happy.  Bloomberg

quotes head of bond trading at Deutsche Bank Private Wealth Management in New York, Gary Pollack, as saying "He is scaring some people when he says the state is going bankrupt... it wasn't timed well.

     Less than a month later (Feb. 10, 2010),  the governor declared that the state was on the “edge of bankruptcy”  seizing broad powers to freeze aid to more than 500 school districts and cut from higher education, hospitals and the Public Advocate.

     Standard & Poor’s downgraded New Jersey’s general-obligation rating to AA-, from AA, and dropped the ratings on some other state debts even lower. The changes will increase the interest rates that the state must pay when it borrows money.

Standard & Poor’s has given lower ratings to just two states, California and Illinois; four others stand with New Jersey at AA-, which is the fourth-highest rating. The firm rates New York and Connecticut a notch higher, at AA.

    A Standard & Poor’s credit analyst, Jeffrey Panger, cited New Jersey’s under financed pension and employee benefit funds, and his firm’s shift to putting more emphasis on such obligations.  The state reported last year that its pension system had $54 billion less than it needed to meet future obligations, one of the biggest such deficits in the country, and experts have said the state could run out of money within a decade. The fund for retiree health care is even further behind.

    Democrats said Wednesday that the governor was responsible for the downgrade, for failing to put money into pensions last year. They noted that last year they agreed to pension and benefit reductions for newly hired employees.

      “It’s time the governor took responsibility for his own actions and stopped trying to blame others,” said  Assemblyman Louis D. Greenwald, chairman of the budget committee. 

See also Nj.com and bloomberg.