Public Finance Leaders Forum 2011

Navigating Uncharted Territories After
S&P's U.S. Debt Downgrade from its Gilt-Edged AAA Credit
Wednesday, November 9th, 1:30PM-7:00PM, New York City

Standard & Poor's (S&P) downgraded the U.S. debt rating on August 5, saying that political gridlock had prevented the country from reaching a plausible solution to getting its financial house in order. It remarked that the agreement to reduce the nation's debt by at least $2.1 trillion over the next 10 years "fell well short" of comprehensive reforms. Moody's has a negative outlook on the U.S. but has indicated it is in no rush to cut its rating. Fitch Ratings has a similar outlook. If the U.S. is no longer AAA, can any municipal credit still be AAA? 

Public Finance Leaders Forum 2011, "Navigating Uncharted Territories After S&P's U.S. Debt Downgrade from its Gilt-Edged AAA Credit Rating" will provide attendees with the first analysis of the impact of the U.S. credit rating downgrade by S&P. Recognized investors, government officials and executives from the rating agencies will debate the short and medium-term outlook for public issues in the U.S.:

Obtaining Financing under Increased Uncertainty in the U.S. Municipal Markets

Municipal bonds have swum against the tide as of lately. Prices have risen and yields have fallen as many investors looked for ways to get clear of the plummeting stock market, while new issuance is running at its lowest level in more than a decade. However, the new budget agreement and debt downgrade may force the federal government to chop programs that aid states and municipalities. Reflecting this uncertainty and possibly a need to meet margin calls, about a billion dollars million flowed out of munis in the week when the debt ceiling agreement was reached, extending a four-week trend.

• With the economy teetering on the edge of recession, how issuers can structure their debt offerings to make sure they gain the lowest-cost funds possible?
• Are fundamental supply and demand trends still driving the market?

The Investors' Perspective: Rethinking Public Issues in a Brave New AA+ World

S&P said last July a downgrade of the U.S. could "disrupt the capital markets, making it more challenging for some public issuers to get financing." Now that the U.S. credit rating has been effectively downgraded, state governments could only expect that they will be evaluated in light of the flow of federal funds and the potential impact of fiscal contraction on a state's economy, and local governments on a case by case basis.

• Can any municipal credit still be AAA if the U.S. is no longer AAA?
• Are widespread rating actions out of the table?
• How higher interest rates will impact financially weaker governments, especially those with variable-rate exposure?
• Is it possible that investors could still view U.S. public finance issues as a safe haven?

The Government's Perspective: Striking a Balance Between Short and Long-Term Needs

Governments have favored private investments as these can help build more long-term assets, boost efficiency and avoid raising taxes. However, deals are threatening credit ratings in some cases, effect now compounded with the federal government's debt downgrade, and affecting the quality and cost of basic utilities such as electricity and water.

• Are these moves akin to individuals using their retirement plans to pay for immediate needs, instead of planning for the future?
• What are the risks associated with revenue losses over time? How can governments ensure that communities are not hurt over the long run?
• How to encourage investors to focus on projects that address governments' most pressing needs? Is the private sector bringing in additional costs for the community?
• Could selling assets hurt governments financially over the long term?

The Ratings Agencies' Perspective: Judging Fiscal Policy through the Political Process

Behind all too many of market moves in government debt of late has been a report from one of the major agencies, S&P, Moody's and Fitch Ratings. They are alternately vilified by politicians or held out as just arbiters for denouncing government profligacy. Yet there is an overwhelming irony in their new-found prominence, as these are the same firms that gave out top ratings to ultimately worthless structured mortgage products during the 2007-2008 credit crisis, allowing the credit bubble to form. Now they sit in judgment of the countries that had to ruin their public balance sheets to prevent financial collapse by saving the banks shattered by those bad instruments once blessed by the agencies.

• Are ratings agencies trying to rebuild their credibility with their recent actions?
• Are they now up to the task of evaluating world governments for bond issuances and other investments?
  

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