Dissecting Bonds

By Berard, Yamil | Investigative Reporters and Editors, Inc. The IRE Journal, Spring 2011 | Go to article overview
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Dissecting Bonds


Berard, Yamil, Investigative Reporters and Editors, Inc. The IRE Journal


I stared at the hulking, 1 0-story building in Fort Worth, Texas, from a parking lot full of potholes and broken concrete. It seemed to hover over adjacent restaurants and apartments like Godzilla over Tokyo.

A man in a wheelchair motioned to me. He was ravaged by a palsy that kept his arms crossed, and I couldn't fully understand what he was saying. But I nodded yes and told him I was a reporter who was visiting his home for the first time. I said a quick goodbye and headed to the door to meet another man, Gary Coleman, a former school district employee with scoliosis who had spent months in the hospital undergoing surgeries.

That day, Coleman was peering through the glass of the lobby trying to spot me. Quickly, he gestured me to a small elevator. We went nine stories up, and I had to cover my eyes and hold my breath because of the reek of urine and feces in the elevator.

I had little to complain about, though; I didn't have to live there, but it was home for Coleman and hundreds of others with mental disorders, chronic medical conditions and other life-threatening impairments.

Westchester Plaza was the match that lit up a four-part package of stories about private-activity municipal bond projects. It was the piece that would rattle readers and ignite the most outrage. It made all the ink spent on describing the intricacy of bond ratings and refinancings worthwhile.

Without Westchester, readers may not have grasped the concerns about our county's sideline private-activity municipal bond business. But there was another component to the package that was even more vital. That component is called EMMA -the Electronic Municipal Market Access (emma.msrb.org), the brainchild of the Municipal Securities Rulemaking Board. EMMA is the official clearinghouse of financial statements and material event disclosures for the once-opaque municipal bond world, under rules set by the Securities and Exchange Commission.

EMMA is an indispensable tool for reporters interested in coverage of private-activity municipal bonds, state and local government debt and the record number of municipal bond defaults. Experts warn that bigger trouble lies ahead, so some state and local governments are scrambling to veer off defaults. Other cash-strapped governments are facing higher borrowing costs.

Before EMMA, reporters faced frustrating days of mining for information on municipal bonds from a myriad of sources. One has been state information depositories, such as the Municipal Advisory Council of Texas, where financial statements and notices of material events affecting bonds are filed. But we have free access to just some of its material, and for only limited windows of time. We also had to depend on a barrage of public information requests to governments to obtain, in many instances, minimal data about bond debt. To track and analyze it, we were forced to create spreadsheets by yanking data from these various sources.

That could be quicksand. For my story, I obtained the county's 2007 resolution authorizing the issue of $35 million in bonds for Westchester Plaza. But the document produced almost more questions than answers about the financing. For example, it noted that the bonds had been refinanced. In other words, that $35 million could have been part of an earlier authorization of bonds, and county commissioners only were approving the refinancing to lower borrowing costs.

Then a source of mine pointed me to EMMA, which had been launched in 2009 as the MSRB's primary market disclosure service and was continuing to build its bank of documents about municipal bonds, including issues dating back decades.

Using EMMA, I was able to find documents about 1 998 bonds for the facility that had defaulted, and I found that a portion of the new bonds issued were unrated, non-investment grade or junk bonds. Reading through numerous documents on the site, I also was able to obtain information I couldn't get anywhere else on all the county's private-activity, or "conduit," bonds.

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