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Abstract: 

State and local government finance officials long asserted that their issuer credit ratings under-represented the sector’s credit strength, especially compared to corporate bonds. In 2002, Moody’s recalibrated its municipal bond rating system. Public affairs professor Craig L. Johnson and doctoral researchers Yulianti Abbas and Chantalle E. LaFontant test whether Moody’s changed its ratings model after the recalibration and, if so, what the changes are, and are they statistically significant. Among some stability, they find that the credit model for Moody’s state government ratings changed significantly after the recalibration. Municipal bond insurance has radically changed over the last decade, complicating matters for issuer and researcher alike. Finance professor Earl D. Benson and accounting professor Barry R. Marks examine the interest cost of bond issues in answering their question: Does Insurer Matter? They find evidence that borrowing costs differ by insurer, suggesting that researchers should control for the bond insurer. Bond issuers use the one-time advance refinancing option to obtain interest savings or to get out of onerous indenture conditions. Public administration professor Komla Dzigbede seeks to quantify the opportunity costs, or option value loss, associated with the timing of refunding operations in school districts. Results suggest that in addition to interest cost savings, issuers should consider option value loss. To obtain locally desired economic development, government officials are prone to undertake the construction and management of hotels, stadiums, and convention facilities. Political science professor Paul Landow and public administration professor Carol Ebdon examine the managerial capacity, financial commitment, and accountability associated with city-owned hotels. They conclude that the decision to get into the hotel business is risky at best and a financial disaster at worst. Policy analyst Marc Joffe offers his insights into the hot topic of bank loan and private placement transparency. He calls for improved disclosure and supports the use of an alternative unique identifier for each instrument.

Keywords: Municipal credit ratings, Moody’s Investors Service; Municipal bond insurance; Advance Refunding and option value loss; Public hotel finance; Municipal market disclosure

Affiliations:  1: Editor in Chief.