bonds. {Three|3|A few} years later

Most munis offer you no problems

Did you listen to the 1 in regards to the risky, low-grade muni bonds that outperformed the marketplace and delivered stellar results to their traders?  We did not consider so.
To the detriment of current and long term retail traders, the muni market stories that have obtained traction in the course of this most current cycle of volatility have targeted nearly completely around the higher default charges that a handful of analysts, which includes Meredith Whitney, think may possibly produce.
These prophets of doom and gloom have captured the fearful imaginations of U.S. investors and sent a few of them managing for that exits, dollars in hand.  We've got to think that some traders have been attracted through the greener pastures of first-quarter equity markets, despite the fact that number of marketplace analysts selected to connect individuals dots.
The untold stories in the muni landscape – you will find thousands of them in this particular $2.9 trillion market – stand in marked contrast for the common themes in modern media coverage.  Listed below are a few:
The Languishing Landfill: In late 1998, Hudson County, New Jersey, was getting ready to buy a 167-acre site within the Hackensack River and put it to utilize like a landfill.  An “improvement authority” issued $17.5 million in bonds – using a 6.125% coupon along with a last maturity of January one, 2029 – but was by no means capable to resolve neighborhood environmental concerns.  The issue was assigned below-investment-grade ratings by Regular & Poor’s and Fitch Ratings but proved to be a reliable credit, making its scheduled payments on time and in full.
Without a landfill Pandora Bracelets Sale, the improvement authority had no way to generate income and, in each of the 6 years between 2003 and 2008, the State of New Jersey provided an estimated $4.five million to help the authority with its debt service payments – good for bond holders who continued to acquire paid, but not good for angry tax payers who may have felt their funds was currently being wasted.
In 2009 Tiffany Ring, cash-strapped New Jersey stopped providing aid.  At the same time, hard cash was finding tight for that improvement authority and it was approaching a scheduled bond payment.  Clearly, something had to give.
In early January 2011, the good news broke:  The bonds that financed this no-go project had been going to be called at par later within the month – in other words Pandora Silver Bracelet, all bond holders had been going to be paid back about the cash lent, despite the truth that the project never received off the ground.
As many long-term municipal bond investors have seen countless times Pandora Charms, officials found a way to resolve a credit difficulty and do right by their investors. At the end of the day, officials understand the implications of not paying their bond holders – reduced creditworthiness and larger pricing the next time they try to finance a project. The takeaway, aside from tax-free income with the savvy traders in the deal?  A bond can look like garbage to others, but nearby governments can go to great lengths to honor their debts and protect their credit ratings.  Of program, having a team of experienced analysts on hand to do a deep dive into the politics behind the deal and to identity the “right” opportunities like this always helps – and isn’t so easy for a standalone investor.
The Old College Try: In the 1990s, Nichols College, an old business college in Dudley Pandora Beads Sale, Massachusetts, found itself struggling having a new difficulty: declining enrollment.  The school’s roots date back to 1815, but its long term was starting to look uncertain.
A new management team was brought in to improve operations, enrollment and fund-raising.  By 1999, a plan was in spot to construct a new residence hall and recreation facility, together with the hope that enrollment trends could be reversed.
Oppenheimer Rochester funds became traders when Nichols College issued $21.3 million in municipal securities. Despite receiving the lowest investment-grade rating provided by S&P, a BBB-minus, our in-depth research identified some important factors that made the offering seem much more savory.  For example, some of the bonds ended up backed by a mortgage on the 210-acre campus.  The college also had agreed to other provisions that helped protect traders, so even that has a very low rating, experienced traders understood there have been many positives to your issue than the ratings system indicated.
The result is a textbook example of the value of solid credit operate.  Even though the bonds the fund held have been never upgraded and have been frequently described as “risky,” “high-yield securities,” we held firm as their costs fluctuated, happy to collect a 6 percent tax-free income for our investors.  Inside the end, Nichols College paid its traders back years ahead of the bonds’ maturity dates, leaving tenacious investors like us thrilled, and the college in good standing from a credit perspective.
A Health Scare: In 2006, voters in Central Valley, California, gave the Sierra Kings Health Care District their OK to issue $20 million in general obligation (G.O.) bonds.  Three years later, after learning that hospital management had used some of the borrowed cash to pay operating expenses – something that was not anticipated when the bonds were issued – the district filed for Chapter 9 bankruptcy.
So bondholders had been holding paper from an ailing issuer in what has frequently been a volatile muni sector.  You'll find commentators today who would immediately throw their hands within the air and try to sell their holdings, at what would likely be a significant loss. They would have missed an excellent opportunity even though.
Throughout 2010, the district made complete payments of scheduled interest.  As for future debt payments, a federal judge ruled in March 2011 that the bankruptcy filing does not allow the district to stop making its debt-service payments.  Back in 2006, it seems, voters had agreed that the bonds would be secured by property tax receipts, and that vote, according towards the judge, indicates the property-tax pledge must be honored, so bond holders have no worries about where their payments will come from – so prolonged as there continue to be folks residing within the Central Valley in California.  The news was so positive, that the bond was upgraded and now has an investment-grade rating of Baa3 from Moody’s.
Clearly, “bad news” is not the end for all municipal bond investors. While not every individual investor has the resources to do the type of homework that is necessary to understand when a low bond rating doesn’t tell the whole (positive) story, there are teams of municipal bond fund groups that do have the resources. Investors in individuals funds are positioned to reap the benefit of their years of detective-like research into specific bond problems – and their tax-free revenue streams are clearly appreciative.
The next time someone talks about the dire state of the muni market place, we hope you’ll remember these a few stories and have the previous laugh. Past performance does not guarantee potential outcomes.
Digby Clements is a senior vice president of OppenheimerFunds Inc. and product director of OppenheimerFunds/Rochester, the firm’s 20-fund family of tax-free municipal bond funds with $26 billion under management as of April 30, 2011.