A Brief Primer on the Current Status of     Restructuring Sovereign & US Municipal Debt                          Bill Bran...
CHAPTER 9 BANKRUPTCIES, 2000 TO DATE    Date          Municipality                                   Population    04/2000...
% Job Losses in Post WWII Recessions              1948       1953       1958       1960      1969          1974        198...
Home Price Index-Decline from Peak100%95%90%85%                                                                           ...
New Privately Owned Housing Units Started       50%       40%       30%       20%       10%        0%      -10%      -20% ...
Foreclosed Homes in 201012.0%10.0%    8.0%    6.0%    4.0%    2.0%    0.0%    Source: RealtyTrac.com6
Lag Effect      Fiscal 2011 Property Tax Revenues Based on      2008-09 Market Values                                     ...
Combined Liabilities as Share of GDP                          Top 10 States                  Debt/GDP              Pension...
Numbers/Facts     Among the 50 states, there are:      218 separate state pension plans      2,332 local pension systems...
Financial Condition of the State                 Retirement Systems                          (Dollars in Billions)     $15...
Net Tax-Supported Debt & Unfunded Pension     Liabilities as % of GDP: U.S. States Compared                to Advanced G-2...
Teachers in Illinois: 2001 to 2010                         2001      2010     % increase     # of Annuitants    65,000    ...
State of Illinois Pension Plans                                      Unfunded Actuarial Accrued Liability                $...
What caused the Change in the Unfunded                  Pension Liability?                      UNFUNDED PENSION LIABILITY...
BILL BRANDTBILL BRANDT has been in the business of workout, turnaround and insolvency consulting for more than thirty year...
BILL BRANDTMr. Brandt has written for publications that span a broad spectrum of thought, ranging from Maclean’s, Canada’s...
About Us     DSI Civic specializes in government financial restructuring and reorganization; debt     restructuring; foren...
The experts you trust.                                       The insight you need.     SAN FRANCISCO                      ...
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Brief Primer on Current Status of Restructuring Sovereign & US Municipal Debt - Bill Brandt

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Brief Primer on Current Status of Restructuring Sovereign & US Municipal Debt - Bill Brandt

  1. 1. A Brief Primer on the Current Status of Restructuring Sovereign & US Municipal Debt Bill Brandt “The Politics and Principles of Restructuring” California’s Fiscal Crisis: Prospects for Deficit Reduction and Pension Reform in the Golden State September 21, 2012 • IGS, Berkeley, California1
  2. 2. CHAPTER 9 BANKRUPTCIES, 2000 TO DATE Date Municipality Population 04/2000 City of Westminster, Texas 390 09/2000 Town of Tyrone, Oklahoma 880 The table shows the cities, towns, 11/2000 City of Macks Creek, Missouri 267 villages and counties that have filed for 06/2001 City of Kendleton, Texas 466 Chapter 9 municipal bankruptcy since 11/2001 Village of Hinsdale, Missouri 1,477 the turn of the century. Stockton, 12/2001 City Of Desert Hot Springs, California 16,582 California, became the most populous 06/2002 City of Rio Bravo, Texas 5,553 city to file for Chapter 9 and the 11/2002 City of Reeds Spring, Missouri 465 second-biggest of any municipality 10/2003 Village of Brooklyn, Illinois 676 since 2000, according to Census 10/2003 City of Iron Mountain Lake, Missouri 693 Bureau data. The average population 04/2004 City of Westminster, Texas 390 among the 19 municipalities filing for 05/2004 Village of Washington Park, Illinois 5,345 bankruptcy before the 18-month 12/2004 Town of Millport, Alabama 1,160 recession starting in December 2007 01/2005 Village of Alorton, Illinois 2,749 was about 2,260. For the 12 04/2005 Town of Muldrow, Oklahoma 3,104 municipalities filing during of after the 08/2005 City of Camp Wood, Texas 822 downturn, the average population was 01/2006 Town of Marshall Creek, Texas 431 99,083. Still, “for the most part, 12/2006 Town of Moffett, Oklahoma 179 Chapter 9, has been used by small 02/2007 Town of Marion, Mississippi 1,305 municipal utilities and special tax 04/2008 City of Gould, Arkansas 1,305 districts, and rarely by larger 05/2008 City of Vallejo, California 116,760 municipalities,” Jim Spiotto, a 04/2009 Westfall Township, Pennsylvania 2,430 bankruptcy attorney with Chapman and 07/2009 Village of Washington Park, Illinois 5,345 Cutler LLP in Chicago, wrote in March. 10/2009 Town of Moffett, Oklahoma 179 As Spiotto pointed out this week, a total of 95 municipalities, including 10/2009 City of Prichard, Alabama 28,633 those municipal utility and special tax 03/2011 Boise County, Idaho 7,028 districts, have filed for Chapter 9 since 08/2011 City of Central Falls, Rhode Island 19,376 2000. 10/2011 City of Harrisburg, Pennsylvania 49,528 -Brian Chappatta and Steven Church 11/2011 County of Jefferson, Alabama 658,466 06/2012 City of Stockton, California 291,707 07/2012 Town of Mamoth Lakes, California 8,234 Source: Bloomberg, Census. Used with permission of Bloomberg L.P. Copyright© 2012. All rights reserved.2
  3. 3. % Job Losses in Post WWII Recessions 1948 1953 1958 1960 1969 1974 1980 1981 1990 2001 2007 1% 0% -1% -2% -3% -4% -5% -6% -7% 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 Number of Months After Peak Employment Source: Data360 Data as of June 30, 20113
  4. 4. Home Price Index-Decline from Peak100%95%90%85% BOSTON80% NEW YORK75% MINNEAPOLIS70% COMPOSITE CHICAGO65% L.A. SAN DIEGO60%55%50% MIAMI45% PHOENIX LAS VEGAS40% 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 Months Since Peak Data as of August 31, 2011 Source: Standard & Poor’s / Case-Shiller 4
  5. 5. New Privately Owned Housing Units Started 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% -60% 1960 1969 1974 1980 1981 1990 2001 2007 % Change in Housing Starts Following the Beginning of a Recession (3-Year Post-Recession Average) Source: U.S. Census Bureau5
  6. 6. Foreclosed Homes in 201012.0%10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Source: RealtyTrac.com6
  7. 7. Lag Effect Fiscal 2011 Property Tax Revenues Based on 2008-09 Market Values Value Collection Levy Calculated Year Year As Of Based on the Market Period 2006 2005 July 1, 2004 January 1, 2003 to June 30, 2004 2007 2006 July 1, 2005 January 1, 2004 to June 30, 2005 2008 2007 July 1, 2006 January 1, 2005 to June 30, 2006 2009 2008 July 1, 2007 January 1, 2006 to June 30, 2007 2010 2009 July 1, 2008 January 1, 2007 to June 30, 2008 2011 2010 July 1, 2009 January 1, 2008 to June 30, 2009 2012 2011 July 1, 2010 January 1, 2009 to June 30, 2010 Example from the notes of the audited financial report of a Colorado school district Source: Moody’s7
  8. 8. Combined Liabilities as Share of GDP Top 10 States Debt/GDP Pensions/GDP 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Source: Moody’s Investors Service8
  9. 9. Numbers/Facts Among the 50 states, there are:  218 separate state pension plans  2,332 local pension systems State of Delaware  Pension system is nearly fully funded  Credit rating is AAA State of Indiana  Public Employees Retirement System is 94% funded  Teacher Plan is 43% funded State of New Jersey  Public Employees Fund is 56% funded  Local Fund is 71% funded  Teacher Plan is 64% funded Source: Kotok, David. (2011). Munilan and Pensions. Cumberland Advisors.9
  10. 10. Financial Condition of the State Retirement Systems (Dollars in Billions) $150 $140 $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 Total Assets Total Liabilities10
  11. 11. Net Tax-Supported Debt & Unfunded Pension Liabilities as % of GDP: U.S. States Compared to Advanced G-20 Nations U.S. States U.S. Federal Debt Advanced G-20 Nations 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 2006 2007 2008 2009 2010 Source: Moody’s Investors Service & International Monetary Fund11
  12. 12. Teachers in Illinois: 2001 to 2010 2001 2010 % increase # of Annuitants 65,000 98,000 51% Benefits Paid $1.6B $4.1B 156% Average Salaries $50,000 $66,000 32%12
  13. 13. State of Illinois Pension Plans Unfunded Actuarial Accrued Liability $90.0 Unfunded Liability $80.0 All State Pension Systems Combined $70.0 Dollars in Billions based on Market Value of Assets $60.0 $50.0 Billions $40.0 $30.0 $20.0 $10.0 $0.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Fiscal Year Ending June 30 Source: 6/30/09 CGFA Report13
  14. 14. What caused the Change in the Unfunded Pension Liability? UNFUNDED PENSION LIABILITY FY1995 VS. FY2003 (in $ billions) $42.2B $45.0 $0.3 $40.0 $5.8 All Other Factors $35.0 Benefit Improvements Investment Losses $6.4 $30.0 Contribution Shortfall Unfunded Liability: 7/1/95 $25.0 $10.6 $20.0 $15.0 $10.0 $19.1B $19.1 $5.0 $0.0 FY1995 FY200314
  15. 15. BILL BRANDTBILL BRANDT has been in the business of workout, turnaround and insolvency consulting for more than thirty years and is widelyrecognized as one of the foremost practitioners in the field. He is President and CEO of Development Specialists, Inc. (“DSI”), a firmspecializing in the provision of management, consulting and turnaround assistance to troubled or reorganizing enterprises. Mr.Brandt and his firm continue to be involved with some of the more celebrated financial restructuring cases in the nation’shistory, including Mercury Finance Company, Southeast Banking Corporation, Malden Mills, the Keck, Mahin & Cate law firm, theCoudert Brothers law firm, the Ohio “Coin Fund” scandal, and the Bernie Ebbers Settlement Trust.Mr. Brandt has advised Congress on matters of insolvency and bankruptcy policy, and in that capacity was the principal author of theamendment to the Bankruptcy Code permitting the election of Trustees in Chapter 11 cases. He was also involved in drafting severalamendments to the Bankruptcy Code enacted into law in April 2005 as part of the Bankruptcy Abuse Prevention and ConsumerProtection Act of 2005, which substantially rewrote the nation’s bankruptcy laws. During the Clinton administration, he served as amember of the President’s National Finance Board as well as serving as a delegate from the State of Florida to the 1996 DemocraticNational Convention. During that decade as well, and upon the invitation of both business and political leaders in the People’sRepublic of China, Mr. Brandt worked with various public policy, law and banking leaders in that country on approaches to thereorganization and restructuring of some of China’s state-owned industries. In 2000, he served as a member of the DemocraticParty’s National Convention Platform Committee. In 2002, he served on the Illinois Gubernatorial Transition Team as well as on theState of California’s Business Delegation dispatched to Cuba to discuss politics, business and trade. In 2008, Mr. Brandt served as adelegate from the State of Illinois to the Democratic National Convention.By Gubernatorial appointment, Mr. Brandt is serving his second consecutive term as Chair of the Illinois Finance Authority, havingbeen first appointed in 2007 and then reappointed in 2010. The IFA is one of the nation’s largest self-financed entities principallyengaged in issuing taxable and tax-exempt bonds, making loans, and investing capital for businesses, non-profit organizations andlocal government. The Governor has also appointed Mr. Brandt to the Illinois Broadband Deployment Council, which works to ensurethat advanced telecommunications services are available to all the citizens of Illinois. He serves as a member of the National AdvisoryCouncil for the Institute of Governmental Studies at the University of California at Berkeley, while also serving as a member of theBoard of Trustees of Loyola University Chicago, and is a life trustee of Fenwick High School in Oak Park, Illinois. Additionally, he wasalso featured in What Happened, a documentary film humorously chronicling the dot-com “bust,” which premiered at the New YorkCity Film Festival.15
  16. 16. BILL BRANDTMr. Brandt has written for publications that span a broad spectrum of thought, ranging from Maclean’s, Canada’s WeeklyNewsmagazine, to Directors & Boards, Corporate Board Magazine, the Florida Real Estate Journal, and the American BankruptcyInstitute’s Law Review, published in conjunction with St. John’s University School of Law. He is the co-author of the “Due Diligence”chapter in the 2nd edition of Bankruptcy Business Acquisitions published by the American Bankruptcy Institute. He is a frequentlecturer and speaker on topics of corporate restructuring, bankruptcy and related public policy issues and regularly appears onCNN, CNBC, CNNfn, Bloomberg, and Canada’s BNN, as well as the CBS Radio and National Public Radio networks. He has beenprofiled and interviewed in a wide array of periodicals including, among others, The Wall Street Journal, The New York Times, TheInternational Herald Tribune, Business Week, The Miami Herald, The Chicago Tribune, The Boston Globe, Billboard Magazine and BankBailout Litigation News.He served several terms as a member of the Board of Directors of the American Bankruptcy Institute, as well as also serving severalterms on the Advisory Board for that organization’s Law Review. He served for almost 20 years as a member of the private Panel ofTrustees for the United States Bankruptcy Court for the Northern District of Illinois and briefly served as a member of the same panelfor the Bankruptcy Court in the Southern District of Florida in the late 1980s. He is a member of the Executive Committee of theBankruptcy Section of the Commercial Law League of America and serves on their National Government Affairs Committee. Mr.Brandt is a member of the Board of Advisors for the American Bankruptcy Institute’s Bankruptcy Battleground West seminar heldannually in Los Angeles and is also currently serving his third consecutive three-year term as a member of the Board of Directors ofthe San Francisco Bay Area Bankruptcy Forum. In addition to the Commercial Law League of America and the American BankruptcyInstitute, he holds memberships in the National Association of Bankruptcy Trustees, the International Council of Shopping Centersand the Urban Land Institute.His biography appears in a number of reference works including Who’s Who in America, Who’s Who in Finance and Industry, andWho’s Who in American Law. For well more than a dozen years, his firm, Development Specialists, Inc., has been rated as one of theoutstanding turnaround firms in the world by the publication Turnarounds & Workouts. Mr. Brandt has also been routinely listed inthe K & A Restructuring Register, an annual roster of the country’s top 100 restructuring advisors. He received his B.A. from St. LouisUniversity and his M.A. from the University of Chicago, where he also completed further post-graduate work toward a doctoraldegree.16
  17. 17. About Us DSI Civic specializes in government financial restructuring and reorganization; debt restructuring; forensic auditing; and negotiations - including vendors, bargaining units, regulatory bodies, investors and financial institutions. DSI Civic has been a leading provider of management, consulting, and financial advisory services for more than thirty-five years, successfully crafting and executing strategies for government officials, corporations, regulatory agencies, not-for-profit organizations, and court-sanctioned committees protecting the rights of retirees and pension holders. DSI Civic recognizes the dramatic differences between realigning government bureaucracies and realigning commercial enterprises. We understand the complex and fundamentally different rules and regulations, and the political and communication imperatives associated with any difficult change.17
  18. 18. The experts you trust. The insight you need. SAN FRANCISCO LOS ANGELES 235 Pine Street Wells Fargo Center Suite 1150 333 South Grand Avenue San Francisco, CA 94104-2750 Suite 4070 PH: (415) 981-2717 Los Angeles, CA 90071-1544 FAX: (415) 981-2718 PH: (213) 617-2717 FAX: (213) 617-2718 NEW YORK 110 East 42nd Street CHICAGO Suite 1818 Three First National Plaza New York, NY 10017 70 West Madison Street PH: (212) 425-4141 Suite 2300 FAX: (212) 425-9141 Chicago, IL 60602-4250 PH: (312) 263-4141 FAX: (312) 263-1180 PHILADELPHIA 2 Penn Center Plaza COLUMBUS Suite 200 6375 Riverside Drive Philadelphia, PA 19102-1706 Suite 200 PH: (215) 564-2717 Dublin, OH 43017-5045 FAX: (215) 569-0216 PH: (614) 734-2717 FAX: (614) 734-2718 MIAMI Southeast Financial Center LONDON 200 South Biscayne Boulevard Devonshire House Suite 1818 60 Goswell Road Miami, FL 33131-2329 London EC1M 7AD PH: (305) 374-2717 United Kingdom FAX: (305) 374-2718 PH: 44-020-7250-3260 FAX: 44-020-7566-401018

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