National Federation of Municipal Analysts Warns Uncertainties with Redevelopment Dissolution Could “Lead to Bond Covenant Violations and/or Debt Service Payment Disruptions”

Sacramento – The National Federation of Municipal Analysts (“NFMA”) today released comments expressing concerns about the redevelopment dissolution process, warning of “bond covenant violations and/or debt service disruptions” that “could have widespread consequences across the State.”

NFMA joins a chorus of respected analysts including Fitch, Moody’s and Standard & Poor’s in warning that uncertainties in the redevelopment dissolution process could have catastrophic impacts on the State and local governments and their bondholders.

The warning by NFMA underscores the importance of the clean-up legislation sponsored by Assembly Speaker John Perez, which seeks to address these many concerns. CRA and the League of California Cities are working closely with the Speaker’s office on this vital clean-up bill and appreciate his leadership on this critical issue.

Established in 1983, the NFMA is an organization of over 1,200 members, primarily research analysts, who evaluate credit and other associated risks in the municipal market. These individuals represent, among others, mutual funds, insurance companies, broker/dealers, bond insurers, rating agencies, and financial advisory firms.

From the NFMA comment (full document below):
·       On behalf of its members, the NFMA is concerned about the lack of clarity in ABx1 26 related to its implementation.

·       The NFMA’s goal is not to debate the merits of ABx1 26, but to highlight the potential unintended adverse consequences for the Successor Agencies, bondholders, and other market participants.

·       Primary among the NFMA’s concerns is that implementation uncertainties could lead to bond covenant violations and/or debt service payment disruptions.

·       We believe that uniform guidance and possible clean-up legislation is needed, as expeditiously as possible, to ensure that the intentions are not undermined by unintended consequences.

·       Variation among Successor Agencies in the interpretation of the bond documents may impair holders of RDA debt.

·       Credit impacts such as missed debt service payments could have widespread consequences across the State.

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