The Daily Item, Sunbury, PA

Business

July 29, 2013

The Color of Money: Detroit casts a shadow on munis

— Although a municipality filing for bankruptcy protection is rare, you still ought to be paying attention to what happens to bondholders in the case of Detroit.

     The city's Chapter 9 filing will likely set some precedents including how investors and/or their investment advisers view municipal bonds, also known as munis.

     "I think that the potential risks to the municipal bond market are serious," said David D. Tawil, co-founder and portfolio manager for Maglan Capital, a New York investment firm that specializes in distressed assets. "At the very least, municipal bonds will no longer be considered a risk-free asset."

     Detroit's filing comes at a time when the Securities and Exchange Commission is increasing its investigations of municipalities that aren't being upfront about their finances in disclosures about their bonds.

     Earlier this month, the SEC charged the city of Miami and its former budget director with securities fraud related to several municipal bond offerings. The SEC alleges that misleading financial information was given to investors.

     Municipal bonds have significantly lower rates of default than corporate or foreign government bonds. "Nevertheless, municipal bonds can and do default, and these defaults can negatively impact investors in ways other than non-payment, including delayed payments and pricing disruptions," the SEC said in a report last year.

     As Detroit's bankruptcy progresses and other municipalities face greater scrutiny over their lack of disclosure, it could affect the reputation and cost of municipal bonds, some experts believe. But even if that doesn't happen, watch and learn more about an investment you might have in your portfolio but may not really understand.

     When states, cities, counties and other governmental entities need to raise money to build highways, hospitals, schools, libraries, sewer systems or other public projects, they may issue bonds or debt obligations. Investors lend the municipalities money to pay for the projects in exchange for a promise that they will get back their principal at a specified maturity date plus interest paid at a specified time. The appeal of many munis is the state and federal tax exemption on the interest.

Text Only
Business
  • Fancy management systems won’t fix bad managers

    In violation of my long-standing “only watch TV” rule, I read an article recently about how Zappos is adopting a management structure known as holacracy.

    July 30, 2014

  • Your Office Coach: Supervisor-employee boundaries must be honored

    QUESTION: Two weeks ago, my husband “Barry“ unexpectedly came home from work with a large flat-screen television. He explained that one of his employees gave it to him as repayment for a loan. I was shocked, because I had no idea that Barry was lending people money.

    July 29, 2014

  • Silly mistakes that sink job applicants

    Some employers won’t care - or won’t catch them - but mistakes in word usage can put your application in the reject pile.

    July 29, 2014

  • Watercooler: Raised to the roof

    Q: Over 15 years, I have worked my way up the corporate ladder with the same organization. I have been given a raise every year and excellent reviews, as well as several promotions.

    July 25, 2014

  • Career Coach Q&A: job search follow-up; introverts as leaders

    Starting a business:

    Q: I have a stable job that I don't hate, but I have an idea for starting my own business.

    July 25, 2014

  • How to become a leader

    QUESTION: I’ve just been promoted into a leadership role. I’m excited, but also kind of overwhelmed. What do I need to do to be good at my new job?

    July 24, 2014

  • Balancing Act: How much is your time worth? Consider outsourcing some tasks

    Todd Paton has a booming business getting customers noticed on the Web. One tool he uses is generating online press releases to build brand awareness and create links that will send traffic to a customer’s website. But Paton, owner of Paton Internet Marketing, acknowledges that writing the releases is not his strong suit. Rather than spend his time doing it, he hires out the task.

    July 23, 2014

  • The Color of Money: No easy way to get out of debt

    Many people who are deeply in debt are desperate for a quick fix. They ask the question: What can I do to get out of debt?

    July 21, 2014

  • Watercooler: When to speak up if you see problems down the line

    Q: Our organization has hired a new director. I am one of a number of division heads; above us, there's the associate director, and above him is the director. The associate director is feared and disliked for his duplicity and dictatorial nature, though few have come forward because of his vindictiveness.

    July 18, 2014

  • Career Coach: Bringing a purpose-driven spirit to work

    Increasingly, religious beliefs and practices of employees are becoming more evident in the workplace. Religious diversity and concepts of spirituality are more prevalent in organizational settings.

    July 18, 2014

Business Video
Stocks