Brief Primer on Current Status of Restructuring Sovereign & US Municipal Debt - Bill Brandt

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Transcript of Brief Primer on Current Status of Restructuring Sovereign & US Municipal Debt - Bill Brandt

  • 1. A Brief Primer on the Current Status of Restructuring Sovereign & US Municipal DebtBill Brandt The Politics and Principles of RestructuringCalifornias Fiscal Crisis: Prospects for Deficit Reductionand Pension Reform in the Golden StateSeptember 21, 2012 IGS, Berkeley, California1

2. CHAPTER 9 BANKRUPTCIES, 2000 TO DATEDateMunicipality Population04/2000 City of Westminster, Texas39009/2000 Town of Tyrone, Oklahoma880The table shows the cities, towns,11/2000 City of Macks Creek, Missouri 267villages and counties that have filed for06/2001 City of Kendleton, Texas466Chapter 9 municipal bankruptcy since11/2001 Village of Hinsdale, Missouri 1,477the turn of the century. Stockton,12/2001 City Of Desert Hot Springs, California 16,582California, became the most populous06/2002 City of Rio Bravo, Texas5,553 city to file for Chapter 9 and the11/2002 City of Reeds Spring, Missouri465 second-biggest of any municipality10/2003 Village of Brooklyn, Illinois 676 since 2000, according to Census10/2003 City of Iron Mountain Lake, Missouri693 Bureau data. The average population04/2004 City of Westminster, Texas390 among the 19 municipalities filing for05/2004 Village of Washington Park, Illinois5,345 bankruptcy before the 18-month12/2004 Town of Millport, Alabama 1,160 recession starting in December 200701/2005 Village of Alorton, Illinois2,749 was about 2,260. For the 1204/2005 Town of Muldrow, Oklahoma 3,104 municipalities filing during of after the08/2005 City of Camp Wood, Texas822 downturn, the average population was01/2006 Town of Marshall Creek, Texas 431 99,083. Still, for the most part,12/2006 Town of Moffett, Oklahoma 179 Chapter 9, has been used by small02/2007 Town of Marion, Mississippi 1,305 municipal utilities and special tax04/2008 City of Gould, Arkansas 1,305 districts, and rarely by larger05/2008 City of Vallejo, California 116,760 municipalities, Jim Spiotto, a04/2009 Westfall Township, Pennsylvania 2,430 bankruptcy attorney with Chapman and07/2009 Village of Washington Park, Illinois5,345 Cutler LLP in Chicago, wrote in March.10/2009 Town of Moffett, Oklahoma 179 As Spiotto pointed out this week, atotal of 95 municipalities, including10/2009 City of Prichard, Alabama28,633those municipal utility and special tax03/2011 Boise County, Idaho 7,028districts, have filed for Chapter 9 since08/2011 City of Central Falls, Rhode Island19,3762000.10/2011 City of Harrisburg, Pennsylvania 49,528-Brian Chappatta and Steven Church11/2011 County of Jefferson, Alabama658,46606/2012 City of Stockton, California291,70707/2012 Town of Mamoth Lakes, California8,234Source: Bloomberg, Census. Used with permission of Bloomberg L.P. Copyright2012. All rights reserved.2 3. % Job Losses in Post WWII Recessions1948 1953 1958 19601969197419801981199020012007 1% 0%-1%-2%-3%-4%-5%-6%-7%13 5 79 11 13 15 17 19 21 2325272931 33 35 37 39 41 43 45 47 49 Number of Months After Peak EmploymentSource: Data360Data as of June 30, 20113 4. Home Price Index-Decline from Peak100%95%90%85%BOSTON80% NEW YORK75% MINNEAPOLIS70%COMPOSITECHICAGO65%L.A. SAN DIEGO60%55%50%MIAMI45% PHOENIX LAS VEGAS40%1611 16 2126 31 3641 4651 56616671Months Since Peak Data as of August 31, 2011 Source: Standard & Poors / Case-Shiller 4 5. New Privately Owned Housing Units Started 50% 40% 30% 20% 10%0%-10%-20%-30%-40%-50%-60% 1960 1969 1974 1980 19811990 2001 2007 % Change in Housing Starts Following the Beginning of a Recession(3-Year Post-Recession Average)Source: U.S. Census Bureau5 6. Foreclosed Homes in 201012.0%10.0%8.0%6.0%4.0%2.0%0.0%Source: RealtyTrac.com6 7. Lag EffectFiscal 2011 Property Tax Revenues Based on2008-09 Market Values Value Collection Levy Calculated Year Year As Of Based on the Market Period 2006 2005 July 1, 2004January 1, 2003 to June 30, 2004 2007 2006 July 1, 2005January 1, 2004 to June 30, 2005 2008 2007 July 1, 2006January 1, 2005 to June 30, 2006 2009 2008 July 1, 2007January 1, 2006 to June 30, 2007 2010 2009 July 1, 2008January 1, 2007 to June 30, 2008 2011 2010 July 1, 2009January 1, 2008 to June 30, 2009 2012 2011 July 1, 2010January 1, 2009 to June 30, 2010Example from the notes of the audited financial report of a Colorado school districtSource: Moodys7 8. Combined Liabilities as Share of GDPTop 10 StatesDebt/GDPPensions/GDP 18.0% 16.0% 14.0% 12.0% 10.0%8.0%6.0%4.0%2.0%0.0%Source: Moodys Investors Service8 9. Numbers/Facts Among the 50 states, there are: 218 separate state pension plans 2,332 local pension systems State of Delaware Pension system is nearly fully funded Credit rating is AAA State of Indiana Public Employees Retirement System is 94% funded Teacher Plan is 43% funded State of New Jersey Public Employees Fund is 56% funded Local Fund is 71% funded Teacher Plan is 64% fundedSource: Kotok, David. (2011). Munilan and Pensions. Cumberland Advisors.9 10. Financial Condition of the State Retirement Systems(Dollars in Billions) $150 $140 $130 $120 $110 $100$90$80$70$60$50$40$30$20 Total Assets Total Liabilities10 11. Net Tax-Supported Debt & Unfunded Pension Liabilities as % of GDP: U.S. States Comparedto Advanced G-20 NationsU.S. StatesU.S. Federal Debt Advanced G-20 Nations120.0%100.0% 80.0% 60.0% 40.0% 20.0%0.0%2006 20072008 2009 2010 Source: Moodys Investors Service & International Monetary Fund11 12. Teachers in Illinois: 2001 to 2010 20012010 % increase # of Annuitants65,00098,000 51% Benefits Paid $1.6B $4.1B156% Average Salaries $50,000 $66,00032%12 13. State of Illinois Pension PlansUnfunded Actuarial Accrued Liability$90.0Unfunded Liability$80.0All State Pension Systems Combined$70.0 Dollars in Billionsbased on Market Value of Assets$60.0$50.0 Billions$40.0$30.0$20.0$10.0 $0.01996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Fiscal Year Ending June 30 Source: 6/30/09 CGFA Report13 14. What caused the Change in the UnfundedPension Liability?UNFUNDED PENSION LIABILITY FY1995 VS. FY2003(in $ billions)$42.2B $45.0 $0.3 $40.0 $5.8 All Other Factors $35.0 Benefit Improvements Investment Losses $6.4 $30.0 Contribution Shortfall Unfunded Liability: 7/1/95 $25.0 $10.6 $20.0 $15.0 $10.0 $19.1B$19.1$5.0$0.0 FY1995 FY200314 15. BILL BRANDTBILL BRANDT has been in the business of workout, turnaround and insolvency consulting for more than thirty years and is widelyrecognized as one of the foremost practitioners in the field. He is President and CEO of Development Specialists, Inc. (DSI), a firmspecializing in the provision of management, consulting and turnaround assistance to troubled or reorganizing enterprises. Mr.Brandt and his firm continue to be involved with some of the more celebrated financial restructuring cases in the nationshistory, including Mercury Finance Company, Southeast Banking Corporation, Malden Mills, the Keck, Mahin & Cate law firm, theCoudert Brothers law firm, the Ohio Coin Fund scandal, and the Bernie Ebbers Settlement Trust.Mr. Brandt has advised Congress on matters of insolvency and bankruptcy policy, and in that capacity was the principal author of theamendment to the Bankruptcy Code permitting the election of Trustees in Chapter 11 cases. He was also involved in drafting severalamendments to the Bankruptcy Code enacted into law in April 2005 as part of the Bankruptcy Abuse Prevention and ConsumerProtection Act of 2005, which substantially rewrote the nations bankruptcy laws. During the Clinton administration, he served as amember of the Presidents National Finance Board as well as serving as a delegate from the State of Florida to the 1996 DemocraticNational Convention. During that decade as well, and upon the invitation of both business and political leaders in the PeoplesRepublic of China, Mr. Brandt worked with various public policy, law and banking leaders in that country on approaches to thereorganization and restructuring of some of Chinas state-owned industries. In 2000, he served as a member of the DemocraticPartys National Convention Platform Committee. In 2002, he served on the Illinois Gubernatorial Transition Team as well as on theState of Californias Business Delegation dispatched to Cuba to discuss politics, business and trade. In 2008, Mr. Brandt served as adelegate from the State of Illinois to the Democratic National Convention.By Gubernatorial appointment, Mr. Brandt is serving his second consecutive term as Chair of the Illinois Finance Authority, havingbeen first appointed in 2007 and then reappointed in 2010. The IFA is one of the nations largest self-financed entities principallyengaged in issuing taxable and tax-exempt bonds, making loans, and investing capital for businesses, non-profit organizations andlocal government. The Governor has also appointed Mr. Brandt to the Illinois Broadband Deployment Council, which works to ensurethat advanced telecommunications services are available to all the citizens of Illinois. He serves as a member of the National AdvisoryCouncil for the Institute of Governmental Studies at the University of California at Berkeley, while also serving as a member of theBoard of Trustees of Loyola University Chicago, and is a life trustee of Fenwick High School in Oak Park, Illinois. Additionally, he wasalso featured in What Happened, a documentary film humorously chronicling the dot-com bust, which premiered at the New YorkCity Film Festival.15 16. BILL BRANDTMr. Brandt has written for publications that span a broad spectrum of thought, ranging from Macleans, Canadas WeeklyNewsmagazine, to Directors & Boards, Corporate Board Magazine, the Florida Real Estate Journal, and the American BankruptcyInstitutes Law Review, published in conjunction with St. Johns University School of Law. He is the co-author of the Due Diligencechapter in the 2nd edition of Bankruptcy Business Acquisitions published by the American Bankruptcy Institute. He is a frequentlecturer and speaker on topics of corporate restructuring, bankruptcy and related public policy issues and regularly appea