Orderly vs. Disorderly Dissemination of Municipal Finance Data

Last week we saw two significant reports from stressed municipal debt issuers Puerto Rico and the City of Detroit. Newspaper El Nuevo Dia reported that the Puerto Rico Highways and Transportation Authority (PRHTA) is in immediate danger of defaulting. The report was quickly refuted by PR government finance officials, stating that the bonds are structured to protect bond holders first. In addition, over the weekend, the City of Detroit released the initial report from the Michigan Governor's specially appointed emergency manager. In that report, the emergency manager lays out the City's current financial position, the underlying issues of financial distress, and some of the options to reverse the City's financial decline. The juxtaposing of the two events is revealing, because it shows an orderly versus disorderly process of disseminating critical municipal financial data. The market should take note because the City of Detroit is providing clear signs of its intentions, while Puerto Rico is veiled in relative uncertainty. Regardless, we continue to see deterioration in the credit quality of both issuers, and will continue to avoid their bonds.