THE $3.8 TRILLION U.S. municipal bond market is home to more than 50,000 individual issuers. That’s almost 10 times the number of corporations that sell debt.
Yet muni issuers, which range from a tiny California school district to an economic powerhouse such as New York City, aren’t beholden to the same reporting requirements that companies must follow. Matt Fabian, a partner at Concord, Mass.-based research firm Municipal Market Analytics Inc., scours their often haphazard filings for signs of troubled borrowers. His database tracks events such as issuers dipping into reserves or skipping payments, informing his weekly reports to clients.
This labor-intensive undertaking has yielded surprising insights into where defaults cluster and may offer investors a road map. Fabian, based in Westport, Conn., joined MMA in 2006 after working at a ratings company, bond insurer, and investment bank. Here, he talks about his process, his bleak outlook for the U.S., and the implications for investors.
ROMY VARGHESE: You started your database in 2009, when the Municipal Securities Rulemaking Board rolled out the Electronic Municipal Market Access [EMMA] service for disclosures that could affect the value of bonds. Describe your process.
MATT FABIAN: Every two weeks, we look at every event notice that has been posted to EMMA. Usually there are 2,000 to 3,000 event notices. Any notice that’s not a bond call or rating change, we’ll open and read. To the extent that the PDF file has information about some kind of trouble, we’ll enter that into our database. It takes a couple days. It’s a serious time commitment. The issuers and their attorneys who do these filings don’t necessarily make it easy for you.
We keep one database of unique borrowers that are in trouble and a linked page that has all the Cusips. It’s a combination of hand-punched data fields and data fields extracted from Bloomberg that go to either the borrower tab or Cusip tab.
RV: How large is the database?
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