Los Angelos fired the first shot. But across the state, numerous cities will try to wrangle out of derivative agreements they entered into with Wall Street.
Meet LA Councilman Richard Alarcón.
He’s the one leading the city’s charge to repudiate a pre-crisis interest rate swap agreement that it made with Bank of New York Melon. Doing so would save the city $19 million per year, and with a budget gap of over $200 million, LA needs every dollar it can get its hands on.
The swap — one it made on a water bond pre-crisis — was supposed to protect the city against higher interest rates, though of course rates have collapsed, meaning the city remains on the hook for protection it doesn’t need. This is a hot topic, as numerous cities around the country are in a similar situation, a topic which Gretchen Morgenson covered yesterday.
2010 has thus far been dominated by sovereign debt crises from Europe, including Greece and the now infamous other PIIGS members.
But CEO of JP Morgan Chase Jamie Dimon called that a minor problem compared to the havoc U.S. state debt crises might make of markets.
Many states are experiencing widening CDS spreads and declining debt ratings, with all signs pointing towards the need for more federal aid.
Maryland CDS Spread: 66.4 bps
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Maryland sold $595 million in new debt on February 24 taking advantage of the new Build American Bond provision in the U.S. stimulus bill and their solid credit rating.CDS Spread: 66.4 bps
Municipal Bond Ratings (Moody’s): Aaa
Municipal Bond Ratings (S&P): AAA
Source: Bloomberg
Texas CDS Spread: 75.1 bps
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Texas is ranked fourth by Forbes Magazine in terms of states with the best debt position due to the relatively low amount of debt on its books.CDS Spread: 75.1 bps
Municipal Bond Ratings (Moody’s): Aa1
Municipal Bond Ratings (S&P): AA+
Source: Bloomberg
Connecticut CDS Spread: 119.0 bps
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Connecticut’s per capita debt levels are the country’s worst, having Massachusetts and Hawaii as company.CDS Spread: 119.0 bps
Municipal Bond Ratings (Moody’s): Aa3
Municipal Bond Ratings (S&P): AA
Source: Bloomberg
Massachusetts CDS Spread: 120.8 bps
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Massachusetts experiences a net migrations of nearly negative 10,000 people per year, which will reduce the amount of taxpayers in the state if the trend continues.CDS Spread: 120.8 bps
Municipal Bond Ratings (Moody’s): Aa2
Municipal Bond Ratings (S&P): AA
Source: Bloomberg
Ohio CDS Spread: 136.8 bps
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Sen. Jim Bunning’s moves to halt government spending have hit Ohio by stopping construction of the $4.4 million Fitzwater Road bridge, a replacement for an older construction.CDS Spread: 136.8 bps
Municipal Bond Ratings (Moody’s): Aa2
Municipal Bond Ratings (S&P): AA+
Source: Bloomberg
Nevada CDS Spread: 190.8 bps
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Las Vegas airport administrators are seeking $1.8 billion in municipal bond sales this year to build a new terminal.CDS Spread: 190.8 bps
Municipal Bond Ratings (Moody’s): Aa2
Municipal Bond Ratings (S&P): AA+
Source: Bloomberg
Michigan CDS Spread: 211.3 bps
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Michigan is one of seven states where local communities might lose the support of their state government as a result of financial problems.CDS Spread: 211.3 bps
Municipal Bond Ratings (Moody’s): Aa3
Municipal Bond Ratings (S&P): AA-
Source: Bloomberg
BONUS: New York City CDS Spread: 211.7 bps
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The city’s municipal water authority is set to auction off $400 million in new bonds in the coming weeks.CDS Spread: 211.7 bps
Municipal Bond Ratings (Moody’s): Not Available
Municipal Bond Ratings (S&P): Not Available
Source: Bloomberg
New Jersey CDS Spread: 222.2 bps
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New Republican Governor Chris Christie is attempting to have the federal government forgive the state’s unemployment related debt of $1.2 billion.CDS Spread: 222.2 bps
Municipal Bond Ratings (Moody’s): Aa3
Municipal Bond Ratings (S&P): AA
Source: Bloomberg
New York CDS Spread: 224.2 bps
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New York state is facing a deficit of $60.8 billion over the next five years, according to Reuters.CDS Spread: 224.2 bps
Municipal Bond Ratings (Moody’s): Aa3
Municipal Bond Ratings (S&P): AA
Source: Bloomberg
Illinois CDS Spread: 233.6 bps
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Illinois just completed a $1 billion bond sale in January and now looks forward to another sale, this time of $356 billion, on March 11.CDS Spread: 233.6 bps
Municipal Bond Ratings (Moody’s): A2
Municipal Bond Ratings (S&P): A+
Source: Bloomberg
And while we’re at it, here’s California: CDS Spread: 301.4 bps
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California is planning on a bond issuance of $5 billion in March.CDS Spread: 301.4 bps
Municipal Bond Ratings (Moody’s): Baa1
Municipal Bond Ratings (S&P): A-
Source: Bloomberg
Now Check Out Why Everyone Is Freaking Out Over Sovereign Debt!
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