Daniel Bergstresser, BRANDEIS INTERNATIONAL BUSINESS SCHOOL
Paper session: Ratings and Credit Risk
Bankruptcy Risk Premium in the Municipal Securities Market
Direct Bank Investment in Municipal Debt
Paper Session (Buy Side Dynamics)
The Structure of Demand for Tax-Exempt Securities: Past, Present, and Future
Parallel Paper Sessions
The Role of Tax-Exempt Debt in Financing Nonprofit Institutions of Higher Education
The Effects of Political Competition on the Funding and Generosity of Public-Sector Pension Plans
Session B: Issuer Tactics and Strategy
Financial Innovations and Issuer Sophistication in the Municipal Securities Markets
Towards a Better Policy: Analyzing municipal refundings using a real-world market model
|5:45pm-6:30pm||Networking and Cocktails|
Dinner panel: What can history tell us about the future of sovereign and sub-sovereign default?
Idea Generation breakfast
Parallel Paper Sessions
Session A: Taxes and Muni Market Dynamics
Tax-efficient Issuance and Trading of Tax-exempt bonds
The Challenge of Measuring the Revenue Cost of the Tax Exemption
Session B: Market Microstructure
A Comparables-Valuation Model for Municipal Securities
Integrating Big Data, Neuroeconomics, and Learning Networks to Model the US Municipal Bond Term Structure
Bond Term Structure
Roundtable: New Developments in the Municipal Marketplace
Lunch and Keynote Address
Proposed Research Project — Municipal SwapsHypothesis: The use of 20-year or 30-year interest rate swaps in the municipal securities market may be exceptional in the financial markets and may pose substantial risks for municipal securities issuers that would not be presented by shorter term swaps. This proposal calls for research regarding the validity or lack of validity of the Hypothesis.
The methodology would involve research regarding the use of interest rate swaps in financial markets other than the municipal securities market, the contexts and purposes of those swaps, a comparison with practices in the municipal market, and a consideration of risks posed to municipal securities issuers by use of 20-year or 30-year swap terms. In addition, the methodology would critique common assumptions by which interest savings are estimated or projected for municipal issuers.
Interest rate swaps are used commonly in the municipal securities market as a means of hedging the interest rate risks of variable rate obligations so as to achieve synthetic fixed rates lower than fixed rates prevailing in the market. The terms of the swaps generally match the initial terms of the variable rate obligations. During 20- to 30-year lives for which the swaps are structured to exist, many dramatic economic, political, market and other occurrences may require early swap terminations at substantial costs to state and local governments. In addition, it is not uncommon that issuers may wish to change interest rate modes on variable rate obligations, so that the original swap structures no longer may be appropriate for achievement of the estimated or projected issuer savings. The issuers also may wish to re-structure or refinance and redeem the variable rate obligations. Further, bond insurers that are required to enhance issuer ratings for the issuers’ payment obligations pursuant to the swaps may be downgraded. Historically, each of those events have led to swap terminations and associated costly issuer swap termination fees.
The research would be expected to form a foundation for policy considerations regarding the suitability and fairness of the use of long-term swaps, and regarding the fiduciary duties of advisors, and fair dealing standards applicable to swap dealers and advisors, who recommend them to issuers. In addition, issuers may use the research in their own evaluations of swap proposals.