Wisconsin Public Finance Authority – No more scandal

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In our October issue, we featured this Wisconsin bond issuing authority for its authority assuming the approval of municipal bond issuances for projects in a dozen other states. We have treated this as an attack on the sovereignty of other states and questioned the motivation for such action and the ethics of doing so. Note that our attention to this situation was not by accident, but rather by the fact that a number of these bond issues were in default. It was also not the first time that we raised the question of the integrity of this authority.

In our August 2018 issue, we wrote a feature article on a $ 10.8 million bond issue approved in November 2017 by this Wisconsin authority for a Nevada company domiciled in Texas and underwritten by a brokerage firm. Texas regional. The company involved called Integrity Aviation Finance was in the business of leasing jet engines with an inventory of 8 engines. He used $ 2.5 million of the bond proceeds to take all of his equity out of the company. Equity based on unaudited financial statements. Our attention was drawn to bonds in 2018 as the trustee sought to report the bonds in default as the company refused to provide audited financial statements. The bondholders ignored the trustee’s request as the bonds had an 8% coupon and were up to date on interest payments. Despite this, the bonds began to sell and their price fell until the mid-1930s, a single price for a bond that was up to date on its interest payments and the only violation was failure to file statements. audited financials.

As we warned in 2018, expect to learn more about this issue. Things quickly went from bad to worse. Several engines were leased from a Miami leasing company that has since declared bankruptcy. Now the trustee is scrambling to make sure the engines are not part of the bankruptcy estate. In addition, two engines are being held by the Ethiopian airline pending payment for the repair work. In addition, the payments to the trustee were $ 256,000 in arrears. Any future normal debt service of any kind for these obligations is unlikely.

The bondholders eventually decided to be careful and allowed the trustee to accelerate the bonds. This will likely generate a bankruptcy filing by Integrity. Meanwhile, bonds traded in October at prices of 4-18. I suspect 4 is a more likely number for a possible rally.

While the Wisconsin authority cannot be directly blamed for the above events, the lack of due diligence at the authority level is clearly evident. Integrity directors did not have particularly glowing resumes and were shown to have low integrity. Nevada’s domicile is questionable. Approval without audited financial statements is negligent. The provisions of the binding act and the restrictions on the use of the proceeds were neither clear nor definitive. At some point, it may become clear to the bond market that Wisconsin-licensed bonds need to be looked at more closely or simply avoided, especially when they carry an interest rate above the market. We also believe that states with undermined bond issuing authority should jointly complain to more responsible individuals in Wisconsin to eliminate this alteration of its position in the municipal bond market. And in case you think this is a one-time incident, read the article on Wisconsin-approved bail for Nevada Goodwill Industries or the Maryland Proton Cancer Center.

We note that the authority is now called “Public Finance Authority” without any mention of Wisconsin. This appears to be either an intentional deception by bond buyers or an overt attempt to expand their mandate without having to explain the inquiries about the defaulting issues. In a recent prospectus, the following language explains where the Authority derives its power. “The Authority was created by local government, primarily for local governments, with the public aim of providing local governments with a way to efficiently and reliably fund projects that benefit local governments, non-profit organizations and other eligible private borrowers in the state of Wisconsin and across the country. the country. ”In short, 4 counties in Wisconsin and one city have given themselves the power to authorize municipal bond issues anywhere in the United States. What a hutzpah!


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