Muni bond lawsuits, FTDA woes: Top news items for October 2024

November 4, 2024 1:30 PM

Enjoy complimentary access to top ideas and insights — selected by our editors.

October's roundup of pressing items in the bond markets includes a spate of lawsuits involving municipal bonds, the ongoing bankruptcy of Chester, Pennsylvania, issuers weighing in on the Financial Data Transparency Act and more.

Click here to read September's grouping of top news.

“This is a huge nothing burger that is meant to distract from the mayor's failed leadership on fiscal responsibility at the city,” Houston Controller Chris Hollins said.

Michael Dorman

Houston mayor blasts controller over investor conference sponsorships

Article by

Karen Pierog

Houston Mayor John Whitmire took aim on Oct.17 at city Controller Chris Hollins for soliciting sponsorships from municipal bond firms for an upcoming investor conference, saying it smacks of pay-to-play and calling for an investigation.

The mayor said he received calls from bond underwriting firms about sponsorships for the Oct.15 event with price tags ranging from $10,000 to $100,000 and a corresponding list of what those contributions would earn sponsors in terms of recognition, networking, and access.

"This is nothing but the appearance of pay-to-play in Houston, Texas, done with city resources, city employees, and it's damaged Houston," Whitmire told reporters at a city hall press conference, adding that Hollins "is a part of the selection team that chooses the underwriters."

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Susana Mendoza, Illinois State Comptroller

Illinois State Comptroller Susana Mendoza

Illinois State Comptroller's office

Chicago City Council to tackle controversial bonds, CPS drama

Article by

Jennifer Shea

Prior to Chicago's City Council meeting on Oct. 9, the group was faced with the decision of whether to sell controversial refunding bonds and deal with the Oct.11 resignation of the entire seven-member Chicago Public Schools board.

According to the agenda, the finance committee at its Oct. 2 meeting approved an ordinance authorizing the refunding of the city's Series 2024 general obligation and sales tax securitization corporation bonds. The city also plans to include a tender offer, according to the ordinance that passed.

The proposed sale size has grown to $1.5 billion, and Mayor Brandon Johnson's administration contends that it could generate $90 million in savings this year. The committee deferred the vote.

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Midwest private colleges face continued enrollment declines

Article by

Jennifer Shea

Fitch Ratings and Moody's Ratings downgraded Xavier University, a private Jesuit college in Cincinnati, to A-minus from A and to Baa1 from A3, respectively, earlier this month.

Fitch pointed to the school's decision to take on more debt to finance the construction of a new College of Osteopathic Medicine at a time when operating performance has been weaker and enrollment has declined.

Xavier is far from the only Midwest higher education institution to struggle and indeed remains better placed than many of its neighbors.

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Lawsuits in multiple Southwest states involve municipal bonds

Municipal bonds are directly or indirectly involved in a flurry of litigation in Arizona, Oklahoma, Texas, and Utah triggered by defaults, bankruptcy, environmental concerns, or laws that punish financial firms for their stance on fossil fuels.

The outcomes of the lawsuits could determine if bonds can be issued, who is to blame for defaulted debt, and if state municipal underwriter bans are constitutional.

In Texas, state Comptroller Glenn Hegar and Attorney General Ken Paxton had a Oct. 4 deadline to respond to a lawsuit filed in August challenging a 2021 state law that prohibits governmental business with investment banks and other financial firms that "boycott" the fossil fuel industry.

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Chester, Pennsylvania's bankruptcy nears two-year mark

Chester, Pennsylvania, is broke, its state-appointed receiver says.

This fact is not in dispute. Chester is one of the only two municipalities in the country with an active bankruptcy, and is millions of dollars short of its pension obligations.

But nearly everything else about the Chester bankruptcy — the causes, the town's obligations, the receiver's proposals — is more complicated.

Click here to read the full story.

The politics of higher ed: tax treatment at stake in election

November's election carries potentially high stakes for universities and colleges that have already found themselves facing the glare of Capitol Hill's spotlight over the past year.

The new administration and Congress are expected to take up tax reform next year, which could reshape the tax treatment of nonprofit higher-education institutions. House Republicans have criticized the institutions' tax-exempt status and passed legislation to increase a tax on large endowments. Risks come from both parties as all lawmakers will be on the hunt for revenue, said higher-ed advocates.

The political uncertainty add strains to a sector already facing internal pressures and increasingly splitting into haves and have nots. Defaults are rising on a monthly basis, Municipal Market Analytics noted in a September default report. "In fact, at $1.06 billion, private higher ed is the third largest contributor to gross par impairments this year," behind retirement homes and hospitals, MMA said. "For a sector with only a minimal history of actual, current (as opposed to theoretical, future) credit impairments, this is highly concerning for the near-term trend," the firm said.

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Worried issuers weigh in on FDTA

Municipal market participants this month laid out their doubts about a data standards law in a blizzard of comments to the Securities and Exchange Commission.

A similar refrain came from issuers big and small: the Financial Data Transparency Act of 2022 represents regulatory overreach and an unfunded federal mandate that will especially burden small issuers. The FDTA carries the risk of driving cities and states into the private borrowing market, they warned.

The public comments came ahead of an Oct. 21 deadline that marked the end of the first comment period for the FDTA's complex and years-long rulemaking process. Muni-specific rules won't come until 2026, but most lobbyist heavyweights, from the Government Finance Officers Association to the National Association of Lawyers and Bond Dealers of America, weighed in with their concerns.

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Muni advisor fined for fee-splitting, violation of fiduciary duty

The Securities and Exchange Commission has closed out its case against Matthias O'Meara and Choice Advisors, who acted as unregistered municipal advisors and were the first to be charged under MSRB Rule G-42 on the duties of non-solicitor municipal advisors, winning judgments of $312,572 against O'Meara and $187,337 against Choice Advisors.

That comes after the U.S. District Court for the Southern District of California granted partial summary judgment to the commission in April 2024, finding that Choice and O'Meara breached their fiduciary duty by acting as an unregistered securities dealer and for failing to disclose it to their clients.

The court also found back that O'Meara breached his fiduciary duty and was in violation of MSRB Rule G-42 for participating in a fee-splitting arrangement by being simultaneously employed by both Choice Advisors and his previous underwriting firm BB&T Securities. The pair also violated MSRB Rule G-17 on fair dealing and MSRB Rule A-12 on registration.

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PNC Bank hires four to expand west and in Texas

PNC bank has recently made several hires, beefing up its banking presence in the west and in Texas.

Christopher Roberts joined the firm in August as managing director and head of Western Region & National Public Power/Utilities, and Joey Dierker joined as an associate director.

More recent hires include Soledad Mancias, who joins as a vice president and municipal bond underwriter; and Steve Bassett, who joins PNC as a director.

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Public finance veteran George Mulry dies

A stalwart municipal market veteran, devoted friend, and beloved husband and father, George C. Mulry III, a managing director in public finance marketing at Assured Guaranty, died on Oct. 9.

He was 64 years old.

Mulry is remembered for the lives he touched and his unimpeachable work ethic.

Click here to read the full story.