In the News: Recent Developments

November 7, 2008

Muni Borrowers Need More Control Over Debt Sales, Adviser Says

By Adam L. Cataldo

Municipal bond borrowers should broaden the distribution networks used to sell debt and hold the financial professionals they hire responsible when foreseeable problems arise, a financial adviser to borrowers said today. “If there isn’t accountability for bad advice or bad execution, why will we think things will be different the next time around,” said Joseph Fichera, chief executive of Saber Partners LLC, a New York-based advisory firm. Fichera led a panel discussion at Princeton University on how the financial crisis is affecting the municipal-bond market. Tax-exempt borrowing costs reached the highest on record relative to U.S. Treasuries last month. The $330 billion auction-rate securities market collapsed in February, driving up interest costs. Governments sought to save money on long-term debt by offering bonds whose rates reset weekly at auction allowing investors sell holdings. Banks that oversaw the bidding withdrew support for the market as they fell under pressure from the mounting credit crisis. “Auction-rate securities represented an ingenious attempt to square a particular financial circle: to create a funding instrument that appears long term from the borrower’s perspective but short term from the lender’s perspective,” according to a Nov. 2 research note by the Federal Reserve Bank of Chicago. “If a funding instrument is long term for one party, it also must be long term for the counterparty; any appearance to the contrary must be an illusion. ” The credit squeeze has affected even top-rated states and cities, who last month incurred 30-year borrowing costs of 6 percent when the comparable-maturity U.S. bond yielded about 4. 2 percent, according to data compiled by Bloomberg.

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–Editors: Michael Weiss, Sylvia Wier

To contact the reporters on this story: Adam L. Cataldo in New York at +1-212-617-5227 or

To contact the editor responsible for this story: Beth Williams at +1-212-617-2307 or

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