- Market conditions and expectations
- Issuance projections
- The evolving investor base
- Policy expectations and implications
Transcription:
Linda Vanderperre (00:09):
So welcome everybody. Hopefully you've had a great morning and some time to digest all of the interesting Mark outlook information from this morning's panels as well as the really interesting keynote speaker at our luncheon. So now it's time for us to get your views and see what everyone has digested and absorbed. So why don't we start with the very first question. Muni yields opened this year at their highest level since 2010. The market has been very volatile. Interest rate expectations have shifted since the Fed's rate cuts in September with the FOMC cutting rates three times in it, last three meetings since 2024. So we've talked about it a little bit before, but what are your expectations for Fed policy in 2025? How many rate cuts do you think we're going to see this year and once, twice, more than twice? No cuts at all. Did people get to vote?
(01:27):
They're supposed to vote first. Okay. No. All right. Looks like the votes are in, the vast majority are suggesting that there are going to be two more rate cuts in 2025. 56% of you are saying that 55%, 27% say one more cut, 16% saying none at all and nobody expects there to be more than two rate cuts. So now we want to check in with the panel, and Rick, I want to start with you. What do you see as far as FOMC policy going forward in 2025 and how many more rate cuts can we expect?
Rick Kolman (02:10):
Sure, before I answer the question, it would be appropriate that one of my salesmen at Academy just sent me a story about bankers flooding DC today to discuss tax-free death to states and cities. So the topic we have this morning obviously has been spread to dc, but getting to the question at hand, just to recap what happened last week, I think you all know that the Fed was on pose a pause. Remember that there were three cuts and the pause was expected. I think the key was really not the fact that it was expected, as I said, but really the comments made by Powell about economic conditions. He touched on the fact that we were dangerously close to not being at his inflation target and he talked about growth in the economy and also he touched on something which has come up just a few minutes ago in this prior discussion with Mr. Drake, which is the policies of the administration and what that's going to do moving forward.
(03:03):
And based on a lot of his comments last week, strategists I spoke to said we don't see anything happening before midyear maybe September. So if that's the case, if you look at a consensus of you then you're talking no more than two cuts. But I want to point something out to everybody that I don't know if you saw this yesterday, but the new treasury secretary, he made a point of saying to him, it's not about what the fed's going to do. He talked about what can we do to lower the rate on the 10 year treasury? And if you think about that for a minute, that makes sense because everybody lives off the 10 year treasury, whether it's a mortgage rate. You look at corporate bond deals, Glen McGowan talked about the trillion and a half corporate market love. It's based off the 10 years.
(03:39):
So it was interesting that his focus was the 10 year treasury. They want to extend the tax cuts, they want to think about ways to cut the deficit. They want to create economic growth, they want to produce more oil. And the whole plan is is that by doing that overall that we can then start to decrease the 10 year treasury. So I thought that was kind of an interesting perspective and a little different than just what the question is, which is still a legitimate question for a lot of people. So I want to share that with you at all. I also want to share another comment that I think that I've had this discussion with an issuer earlier this morning that today I think as you move forward, if you're issuing debt, I think you have to remember that it's not going to be about a single event anymore like in the past, but it's going to be about comments, headlines and JP Morgan put out a report yesterday where they talked to institutional traders investors and over 50% said that their focus is on tariffs and inflation and they feel that those are the factors that are going to influence the 10 year treasury.
(04:36):
So again, they're talking about the 10 year treasury even though the Fed is important. So I wanted to share those perspectives with you. Now, when you talked about municipal yields for a second, it was touched on and the earlier panel, which was terrific, I thought on the investor community they talked a lot about the growth in SMAs and the dollars being spent in that market. It's growing every day. In fact, Dave Womack will be talking, he can attest to that support on his bond deals, but as a result of that growth, everybody talks about 65% of the 10 year treasury, 65 odd percent of the five year, which is historically low. If you look at the five year average, it's close at 8%. But I don't remind everybody that a lot of that 80% is when rates were extremely low. So you didn't have a lot of municipal investment and typically in low rate environment that the ratio is very high.
(05:25):
So as I said to this one issue, I said, I think that as you move forward, unless I don't think rates are going to be moving up from here personally, and I do believe that there's going to be a fight to what can we do to get rates down? I think that that ratio is going to stay very rich out to 10 even 15 years because most SMAs have extended out the curve despite the volume we had last year, believe it or not, in many cases there was a supply demand imbalance and they were moving out on the curve. The difference is the long end where the ratio is about 83%.
(05:54):
Historically it's been last five years north than 90. I think that's where there's a lot of uncertainty, as I said earlier, depending on headlines. So I think that if you're an issuer looking at the market and you're looking at those great ratios, I think you're in good shape throughout this year out again, out 10, 15 years. But I do think the long end where you don't have that buyer base is going to be susceptible to a lot more uncertainty. And I think you got to accept as an issuer that with headline risk, one day rates can move 10 basis points in one day. You'll just have to accept that when you're ready to do your bond deal.
Linda Vanderperre (06:23):
Great, thank you. Rick. We've heard a lot about rates being at their highest levels or yields being at their highest levels in maybe 15 years or so. And David, as an issuer, we know sort of what you're hoping for is as to where muni yields are going. What are your expectations? Where do you sort of see the market going given potential fed actions, changes to fiscal policy and all of the volatility that that's likely to engender?
David Womack (06:50):
Well, thanks Linda and thanks Rick for your comments. I don't think I need to say anything more, but I think there are a lot to unpack here, and I think I've been before this group before, we are in the market so often that what happens from week to week, month to month is less important to us. We are financing all the time and we will finance and refinance and manage our debt. That said, I would tend to agree, I think our official forecast in which we base the budget, our tax policy folks, were looking at two rate cuts. However, for everything we've heard out of Washington and whatever read about traders think is the policies that seem to be coming out of Washington might be seen as broadly inflationary and might give the fed pause. And it might be hard for rates to go lower from here.
(07:44):
And there's still a wait and see as many of, we have a transaction in the market next week, so knock on wood that rates stay where they're, or they go lower, but they do move in a band and we have to be conscious of what's happening in the market when we are ready to finance. The rich ratios are a challenge. SMAs have been very good supporters of our transactions as of the institutions on the long end, but from time to time, rich ratios have been very difficult to work with because some of the marginal players in the market, the arbitrage accounts and the trading accounts really focus on those ratios and that's where we can sell big blocks. And so we have to be careful going in. We've gone in on a couple of transactions where MMD hasn't caught up to where the treasuries are and we've had to anticipate and move with the market in order to get our deals done. We'd like to see rates go lower. Everybody I think in this room would like to see rates go lower, but it's hard to see a case right now for that to happen. What we'd like is stability. We take some comfort in the fact that while we have tax exempt bonds, they are the last real remaining tax advantage investment for individuals and that they will continue to support our transactions and everybody else's transactions in the market.
Linda Vanderperre (09:16):
Okay, thank you David, just want to move on. I think we've heard a lot about folks' expectations for issuance volume in 2025 and now it is your chance to give us your feel of where you think issuance is going to be. Last year has been discussed, volume broke, 500 billion, it was a new record. Is that going to happen again this year? And then after we talk about how much we expect to see issued, we're going to chat a little bit about how much we think is needed to be issued to fund current infrastructure needs. But let's go to the vote. How much issuance in the muni market for 2025? About 450 billion, 500 billion, 750 billion or over? Okay, it looks like the votes are in and about 47% believe that issuance is going to be close to where we were last year at about 500 billion. 27 or so percent say it's going to go up as high as 750 billion. And perhaps that reflects a rush to market in anticipation of changes to the tax exemption or other reasons. But there are actually a fair percentage of people who believe a trillion, no, I can't. That is a trillion annually. 16% and 13% think that it will be lower than it was last year. So it seems like we're all going to be busy. Chris, why don't I start with you. Give us your expectation for issuance volume and sort of what's driving that. Do you think we're going to break 500 again this year?
Chris Valentino (11:26):
I do. I dunno if it came up in the conference yet this morning, but you mentioned that there is actually some talk of a risk of tax exemption going away, so that could impact demand, but actually absent that, putting that aside, last year at this time we were hoping to get to 400 million and we ended up having a record year and I think over half of the 500 billion from last year was refunding volume. If you just were to look at bonds that are callable coming due and redemptions, you probably are already halfway to 500 million just in refinancing, things like that. So there's sort of a built in level of issuance that you can kind of count on. And then if you add in expiration of pandemic relief funds and other sort of infrastructure projects that have kind of been put on hold over the last few years due to the right environment and the pandemic, it seems pretty safe to say we'll be pretty close to at least north of that 475, 500 level. So I think I'll let Diana kind of weigh in on how much we actually need.
(12:43):
And then one other factor related to the tax exemption would be not just losing the exemption but losing the traditional municipal structure of spreading out your principal and serial bonds and having tenure park calls if the market has to transition to more taxable structures, that would be a lot pretty big sea change if you think about how much time you spend if you're a banker or an FA kind of modeling in gaps, an issuer's debt service and trying to fill in, and then you think about not really having that flexibility to structure debt in the way that you always have, that could actually, for me be a factor that makes people rush to market more than just the loss of tax exemption.
Linda Vanderperre (13:28):
Okay, so Diana, what do you think? Is Chris's 475 to 500 going to be enough?
Diana Hamilton (13:35):
For those of you who don't know, we used to work together and so I was laughing that we were getting the band back together and we were always kind of like those two characters in the Muppets, the guys up in the balcony arguing. I guess I have to argue with you just by practice. I think the issue, one of the things is in terms of issuance, I mean one of the questions is issuance going to be frontload or backloaded? There are those that say that because of the uncertainty in the environment. Something that's not been discussed a lot today, but I think is going to be a critical issue is when we hit the death ceiling and then when the CR expires. So March 14th, in case you want to know one day after the odds of March, which I'd like to think is not is coincidental, but I am very concerned about those sort of risk factors playing into the market and I think that'll accelerate.
(14:36):
I mean, I think the other thing is always within every presidency there's an urgency about the first a hundred days and what you're able to accomplish in the first a hundred days. So I think what day are we on now? But it's is going to be a rough ride for the next 75, let's put it that way. So that would argue for a little bit of a pause in the initial initially and then perhaps the rush for the barn doors. And so you might see more issuance later on as more certainty appears in the market. When we talk about the need, 1 billion doesn't even begin to cover it.
(15:16):
We worked extensively with Chicago. Just if you look at lead service lines alone, it may not be a problem in certain, obviously newer brand new cities Phoenix, it may not be an issue, but it's certainly an issue throughout most of the country. Basically A SC who I kind of rely on is the most best estimate. They say that the total need is 7.4 trillion in the next nine years. They estimate that only if current funding continued. So that includes B-I-L-I-J-A and these other things that I'm not confident of continuing that you're down to basically that would assume 4.5 trillion in continued funding at the federal level and that would leave a gap of 2.9 trillion a year. So I don't see the ability, I mean I think the need is huge. I think every community, I mean, I lived through this, we do a lot of SRF work, so last week on Monday we're all like going, oh my God, all of a sudden people are trying to launch drinking water and clean water programs and we're not sure whether we have funding. So I think uncertainty is adding to it. So that could put additional pressure on issuance.
Linda Vanderperre (16:38):
I agree. I mean certainly infrastructure's aging in all sectors. We're seeing inflation and then this uncertainty from the feds is just going to make it worse. So it's hard to say when and if, but it's likely that in my view, that issuance will at least be where it was last year. And with that, let's move on to our next survey question. Which of the new administration and Congress's potential policies will have the biggest impact on the market? Do you think it's the repeal of the tax exemption? Is it higher ed in healthcare issuers who need to be most on guard? Is it private activity bonds? Is that the sector that faces the biggest threat or is the loss of the federal infrastructure program one that really poses the greatest challenge to our market? Please vote,
Diana Hamilton (17:47):
Emily. They heard you.
Linda Vanderperre (17:55):
Okay. It seems like most people have voted and by a wide margin, it's the potential repeal of the tax exemption that people are most concerned about. David, what are your thoughts?
David Womack (18:12):
Well, having spent a few days with Emily in Washington last week, this has been beaten into my head, but no, it's something that we have been focused on and thinking about as a, I won't say an existential crisis, but it's close because many of you who've been around for a while in this industry. Remember back in the eighties when the tax reform act of 86 came around and made a lot of changes in our industry and played around with different sectors reduced in that reduced volume substantially. We've adjusted. You move forward every time there are some federal effort nipping at the edges of tax exemption because there's really just no real constituency in Washington that understands it or that cares it. It's really important to us, but it's way down the list from people who walk the halls in Washington. We spent time talking to representatives and their staffs about this.
(19:13):
It's like, yeah, they smile at us. This is great, this is great. But they don't really understand it. The fact that 90% of federal infrastructure spending comes from our market comes from tax exempt bonds at the state and local level, the federal government will never be able to do that in any way, shape or form in grant funding. IIJA. That's wonderful. That's going to pay a part of what we do. We've, we will always need to access the market and losing the cost, losing that tax exemption is going to cost everyone a lot of money. It's either going to cost a lot of money in terms of higher interest rates or it's going to reduce the amount of infrastructure that gets funded. And if you lose tax exemption, I think a bigger impact is smaller issuers. We'll have no access to a capital market. The taxable markets really don't care about issuers below a certain size, and so they'll be left to their local banks.
(20:11):
To some that means higher costs, less market access, harder to borrow. I think that's really an existential crisis. Losing grant funding is important as well, because we can't make up all of those dollars. There's no way that a municipality state or a local government can make up for the loss of the grant funding they get for all of their different programs. We just can't do it. We can't tax our people enough to do that, nor do we want to because we are not competitive when we are thinking about volume and people trying to get ahead of potential loss of tax exemption. Well, that's great, but can you support the debt service? What capacity do you have to pay for it and not, and how does that work with the other services that you're offering? So I think we've got to figure out a way as an industry to untie this knot and to get our case made in Washington to preserve this vital tool, which has kept us all going for decades.
(21:17):
And it's an important federalism issue. State and local governments retain control of what they finance, when they finance it, how they finance it, and there's a cost advantage. Is it an inefficient subsidy fine. We'll accept that argument. How else are you going to do it? How else are you going to get all of that done? And so that's something that we focus on and I think it will hurt. Losing tax exemption in any of its forms will hurt us. Even if they nip at the heels of higher ed and healthcare or other sectors, it still hurts our industry and it hurts taxpayers. It'll cost taxpayers money and it'll be an immediate, as Emily's said, it'll be an immediate tax increase on every citizen in this country.
Linda Vanderperre (22:03):
Thanks, David. And I think everybody would agree that the potential loss of tax exemption is really an existential crisis for our industry, but I want to talk a little bit about particular sectors, Belvia, the higher ed and healthcare sectors, they're already stressed. What do you think might be the impact on those sectors in particular given the priorities of the new administration?
Belvia Gray (22:32):
Sure. I mean, we're hearing obviously like all of you, especially for higher education, if certain portions of the biller passed things like private activity bonds, 501 C3 bonds, student loan types of bonds, that even though they're a smaller component can have a vast impact on institutions of higher education. Our firm Baker Tilly, we have a really large higher education practice. And so we've been hearing from a lot of our clients just around what are they most concerned about? A lot of it's related to enrollment and the changing demographics of the students that they're educating, but the concerns are across the board, whether they're private institutions or public institutions, especially in that risk advisory space. One of the areas they're particularly concerned about are the tariffs, the possibility of tariffs. Because obviously, and I think there was a really good question that was asked to the last speaker in terms of tariffs are going to cost all of our materials, everything's going to cost more, so there's going to be even more stress on the infrastructure that we have, and it's likely going to increase the amount of deferred maintenance costs. People are going to continue to push those things down the road.
Linda Vanderperre (23:56):
What about the potential impact of a loss of funding for research, federal funding for research?
Belvia Gray (24:02):
Yeah, that's also a huge impact, especially some of those larger institutions with their endowments. And I know that that's a very real fear that's out there. And so I know that there's a lot of discussion around what are they going to do if that actually happens.
Diana Hamilton (24:20):
I was just going to comment. I think probably many of you saw it, but both Harvard and University of Chicago published letters basically putting on hold not only projects that were potentially going to be considered, but actually projects which had received funding, they basically told people not to plan travel, not to do any, start any of their research. So just from a personal level, I am very concerned that medical research could potentially really be hampered at this point in time because time matters.
Linda Vanderperre (24:56):
Diana, let's talk about the potential impact of the loss of federal infrastructure funding. I mean, right now I understand there's a temporary pause, there's still some uncertainty and there's uncertainty as to exactly what that pause would mean for the transportation sector, the energy sector in particular. What are your thoughts?
Diana Hamilton (25:26):
We don't have time in the day, so I would just say I think like everyone here in the room, there's a great deal of uncertainty, I would say is what's ruling the day. And uncertainty by itself creates both volatility and adds to cost. So one, you have the delay in materials securing. We've already been through a huge supply chain disruption, so this could only bring back that entire nightmare, which adds significantly. I mean, we've had engineering bids be 30 to 40% off the estimates being 30 to 40% off bids. And so we actually had a transportation deal where we thought we were going to be doing new money, but in fact, the entire transaction was devoted to just funding cost overruns. So we weren't actually doing any new projects, which was not what the council wanted to hear. We were just basically paying for contract costs that exceeded estimates.
(26:27):
So I don't know, do we need more bridges to fall and cars to drive into a river to convince people that we have a problem? I mean, I think we always talk about the state of good repair, which I think needs significant resources to address. I mean, every railroad, I don't know David if you probably know, but I mean the cost of a rail car is just phenomenally expensive. And so I have a great deal of concern that we're just going to create. My son talks to me about this. He goes, mom, it's the boomers that are the problem. And I'm like, oh, of course it's me. But if you have children, you know that you're always the problem. But I do have a concern that we basically pushing out into the future, this will be our grandchildren's problems, unfortunately.
Linda Vanderperre (27:24):
Okay. We're going to shift gears a little bit and we're going to the next survey question. Given the recent wildfires in Los Angeles and the spread widening of LA related credits, do you think there will be a shift in investor demands on issuers, whether that be in terms of more yield or more disclosure of severe weather related events and preparedness.
Diana Hamilton (28:15):
Forest time.
Linda Vanderperre (28:19):
Okay, looks like the room seems to feel that both additional yield and more disclosure are going to be required given the preponderance of severe weather events and the need for preparedness. So Chris, let's kick this one off with you. I mean, prior major disasters, natural disasters have not really resulted in payment defaults or any kind of erosion in long-term credit quality. What do you think investors are going to be looking for from a credit risk disclosure perspective? Might this vary by issuer or by locale?
Chris Valentino (29:03):
Yeah, I think for sure it'll vary by issuer. I think one, this is one those difficult areas where you kind of talk about credit and the ability to pay, and you kind of ignore that thousands and thousands of people out of their houses right now. So just because LA County can pay doesn't mean that that's like they dealt with this successfully. But one of the interesting things about LA is that's a major county with billions of dollars of reserves and resources. Granted, the population density contributed to the problem, but you also have just tremendous amount of resources where economically they can probably get through it. Whereas there's a lot of other counties just in California that are high risk where more rural areas where it would just be economically as devastating as physically. So in that sense, it will kind of be different in different places as far as how investors think about it. One of the interesting things on the investor panel was the discussion about how institutional investors have this in their calculus, but maybe retail investors weren't thinking about it as much. And I think that's something that now no one can really ignore. You just had, LA is just the most recent. You had Maui a couple of years ago, not even two years ago, I think.
(30:35):
And so I think there's just going to be, it's just so in your face now that these a hundred year events happen every year, that you have to include that in how you think about investing if you're investing in our market. One of the other things that's gone on with the new administration has been a lot of talk about getting rid of fema, which I don't think that means you're getting rid of federal aid. It would just be kind of transferring the burden of organizing that to the states. But reliance on federal aid is really a big part of the credit consideration. I think in one of the pieces I read, I think from Moody's about the wildfires, it said the ratings for a lot of these places would be a lot lower if there was no expectation of any federal aid. So if there's a big reorganization of federal in how the federal government responds to emergencies, I think that will have an impact, at least in the short term on how we view the credits. And one interesting thing was in Connecticut just this week, I think Governor Lamont put forth a new plan, what he called resiliency improvement districts. They don't have a real wildfire problem, but they have rising sea levels and flooding problems that they have to worry about. And so that was kind of the most recent high profile reaction to this, where states are, I think, going to try to be more proactive and kind of emergency planning and having a more transparent process of how they're set up to deal with things if they were to happen.
Linda Vanderperre (32:15):
Right. And what do you think about insurance and the potential lack of availability thereof? How's that going to affect investors and their proclivity to stick with our marketplace?
Chris Valentino (32:32):
Yeah, I mean, it's a big deal. The numbers are maybe 30 billion or more just in LA County, and that's going to affect not just the ability to get insurance in California, but across the country, it's going to be more expensive to get insurance. It's going to be a lot harder to get it in places. You've seen a lot of places in Florida and along the southeast coast where hurricanes are a problem that a lot of insurance companies won't insure there. And so then you have the kind of impact on just local governments and property values and how that works out. I think you also may potentially just have people change their behavior of where they want to live. And certain places that were, you have all the boomers potentially retiring, already started to retire, that might change kind of what they decide to go, where they decide to go and things like that. So there's a lot of kind of secondary considerations that play into it. But I think the insurance market obviously is a pretty big one piece.
Linda Vanderperre (33:39):
We are getting a lot of questions from investors about disclosure of availability of insurance reserves for potential liability claims. So I think that if we are talking at all about disclosure here, in addition to investors may be wanting to know more about the steps that are being taken to ensure resiliency. They may also want to know a little bit more about what insurance capacity is available to address potential liabilities. Rick wanted to ask you, we've seen some spread widening at certain issuers that have been affected by the wildfires, particularly LED, wep. What are you seeing? What do you think is likely to happen?
Rick Kolman (34:25):
Yeah, ultimately, as Chris was saying, it was a terrible situation, but you're looking at about 70 billion of volume of across about 70 issuers that really had some sort of connection to the wildfires. And obviously we're all aware of a lot of rating action, a lot of credits being put on negative or watch. But in the end, LA Department of Water and Power was the one that really counted obviously the worst adjustment if you wish, in yield. And if you look at it, LA Department of Water and Power has something like over 16 billion of debt outstanding, 12 billion is the power entity, close to 6 billion is water. And I give you that number because as of Monday, the number that I saw that there were over three and a half billion of sales by institutional investors who owned this debt. And the widening, which took place primarily January 10th or 17th, was about a hundred basis points.
(35:18):
I'm just giving you the long bond, the long debt, about a hundred basis points, and about 50 on the, so again, a hundred on the power, 50 on the water. But to me, what was more interesting, it gets back to what Chris was talking about, disclosure, et cetera, was a couple of investors I spoke to and I actually read some of the material that investors gave to their shareholders. A lot of it being retail, saying there's still a lot of uncertainty. We don't know what the liability is going to be. We don't know what's going to happen with insurance. We don't know to what extent the power line's really going to be at fault. So reading a lot of the reports kind lays into what you were talking about, but it's after the fact questions or basically this is what initiated them to sell. So I can't think in my career, which is probably longer than I want to admit, of three and a half billion plus of debt being sold by really one entity. So it really does emphasize the concern, and they were not looking at the loss of the price. They just felt that this is a fiduciary responsibility to get this exposure down. And we have a lot of questions that need to be answered. Which gets back to your point, Chris, how is that going to play over into a lot of other credits?
Linda Vanderperre (36:24):
Okay, great. I'm going to move it along quickly here. I think we're getting short on time. I think we're ready for the next question, which is a topic that we actually haven't heard too much about today, but I think that's surprising because it's super important. How concerned are we with the threat of cyber attacks in the public finance space? Or is this old news or should this be priority number one? Please vote. Okay. It looks like the majority feel that all of the risks that are cited, the industry not being fully prepared, issuers being increasingly at risk and they're not potentially being enough affordable, insurance for cyber risk are of concern. So I think we all could acknowledge that issuers, investors are concerned. Belvia, what are you telling your clients and what can we do as an industry to sort of help clients avoid incidents and protect against these kinds of cyber threats?
Belvia Gray (37:55):
Sure. Our firm works with issuers of all different sizes. We work with small, medium, large issuers. And so I think that positions us to have a good view of the world, I guess, if you will, in terms of what some of the concerns are with those varying issuers and levels of complexity and sophistication. Last year, I think we completed over 300 transactions, so a large base there. And some of the things that we hear from our clients, certainly on the diligence portion of the transaction that's coming up in rating calls, asking about what their readiness is. And more often than not, they're saying, yes, they have cyber insurance and they're saying it, and yet it doesn't really become super important until something happens, right? It's like they have the insurance, but it's not important until it is important. So part of what we've been focusing in on particular is that bond sale and bond closing and delivery process, the spots where there is money that's being exchanged, and how we can strengthen the ways in which we're providing that communication to all of the relevant parties in the working group.
(39:15):
And we've also been in discussion with the National Association and Municipal Advisors. NMA is really heavily involved and wants to get more parties at the table, and we want to be actively involved in that discussion with other market participants as well, because there really is an opportunity for our industry to come together on this topic to create good guidance and good practices to protect our issuers and also, frankly, ourselves as well as we're involved in some of these transactions. So I would say I heard this theme a lot today, but in the spirit of just being, we need to be more coordinated in our efforts around cybersecurity. And I think this may be a topic where we can get our arms around it maybe a little bit more than some of the other topics we've discussed. So it's a great opportunity for us to come together and to provide good advice to all of our issuers.
Linda Vanderperre (40:16):
Thank you Belvia.
Diana Hamilton (40:17):
Can I ask David a question?
Linda Vanderperre (40:18):
Oh, of course, please.
Diana Hamilton (40:19):
Sorry, unplanned. No, I mean, the reason why I raise this is because in the calls that I've had either due diligence or ratings calls, I mean, I think an issuer has always to strike a balance between saying enough, but not saying too much because you don't necessarily, I mean, one of my clients is a museum with a very large art collection. Well, they don't really want to tell people what the value of that art collection is because they don't have, do they have sufficient insurance to cover that Picasso? So I mean, one of my questions for you is where do you strike the balance between internally, you need to make sure you're covered, but then the question is publicly what needs to be said?
David Womack (41:08):
Well, we do have, for many of you who've participated in our transactions when we have due diligence, we actually have a separate call with the city's office of technology and information that manages our cybersecurity practice. And I think we can, we can tell you what we're doing on a holistic basis, but to get granular almost gives, let's say the cyber criminals a roadmap, and you don't really want to do that. That said, we've all gotten so used to doing all of our business electronically via email, via, we don't meet in person anymore. And sometimes you just don't know who the people are that you are actually dealing with. And I think there was the article in the Bon Buyer yesterday about the follow on issue. There was an issuer that didn't get its bond proceeds because a cyber criminal hacked them and the wires went back, wire instructions got changed, and nobody knew, and the money went off into the ether.
(42:15):
And sometimes you have to do old fashioned stuff, pick up the phone, know who you are working with, and we get trained. We do training internally, and sometimes it feels overbearing, but we are behind the wall here, and we're the ones who are protecting, they're human beings. And you can look at technological solutions, but we're the ones that have to be, that have to hold the fort. And as Belvia said, you've got to be, when money is changing hands, when you're closing a transaction, you need to know where everything is going and that you've got everything tied up and buttoned up. However you need to do that.
(43:01):
And maybe I'm old fashioned, but we've lost that personal touch where we know who the trustee is, we know who counsel is, we know who the underwriter is, we know those people. And if we get an email from somebody we've never heard of, who is that? We don't know who that is, can you find out who that is? And just to make sure that things are the way they're supposed to be and that everybody is agreed on the terms. So we try to be as vigilant as we can. And again, the city has set up a massive practice to try to protect its systems to protect everything in the city system. But there's a lot of detail we just cannot get into. We don't even know it, but it's happening behind the scenes.
Linda Vanderperre (43:49):
Okay. We are at the penultimate question here. For the audience, what is the most pressing challenge facing state and local government credits? So we're going to wrap this whole thing up in terms of all of the things that you've been hearing about today. If you had to pick one of the challenges below, which would it be? Wow. Okay. So it looks like everybody is thinking sort of shorten to medium term here and changes in tax policy are by wide margin. 73% of you feel that the changes in tax policy will have the biggest impact on the industry this year. So let me just ask Rick again, do you agree?
Rick Kolman (45:14):
Well, the one thing I would add about the tax policies that a lot of the discussion here has been how it relates to an issuer, which clearly is extremely important, is David was talking about, just want to bring up also the investor side, that the other question is, do you put it obviously back in time, meaning that someone who owns taxes at bonds today, do you actually lose that? And it's interesting when I've talked to a lot of investors about that, people feel that that's come up many times before and they're not concerned about it. But that is really still an unknown question that I would add to the whole discussion of how it affects issuers. How does it affect investors? And as I said, people I've spoken to, they are not concerned about the fed's backtracking affecting their outstanding holdings. But obviously time will tell, but investors looking at also a different way than what we've heard a lot today about issuers.
David Womack (46:08):
Yeah, I would agree with Rick in the sense that half of our market is still individual investors. Individual investors still hold half of mutual bonds directly, and then indirectly through bond funds, the tax exemption is important to them. But they don't have, at least as far as I can see, there is no unified voice that's representing them. And whether it's retirees, near retirees that want to secure tax-free income, who's representing them and who's making the case for them in Congress and with their elected representatives, we can talk to ourselves among ourselves until we're blue in the face, but they're real people that need to be heard. And I'm not sure how you do.
Rick Kolman (46:56):
That's a good question. That's a good question.
Linda Vanderperre (46:59):
Okay. Well, I thank everyone for your attention, but it would not be a Bond Buyer live market survey unless we ask the final question. Who will win the Super Bowl?
David Womack (47:13):
Should have neither.
Linda Vanderperre (47:28):
Nobody's voting. There you go. Alright. Okay. We got that nice green bar going for the Eagles at 60% and the Chiefs new 39, by the way. Yeah. Go bird. All right.
David Womack (47:44):
Well, it is shocking. I mean, we're in New York. There are no giant fans out there. Can they just lose? Took our best guy. I want to know if anybody in this room can sing Fly Eagles Fly.
Linda Vanderperre (48:05):
Thank you.