BOND ANALYSTS' INSIGHT

Perspectives

S&P BOOSTS ITS OUTLOOK ON MUNICIPAL BONDS
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Bondholders can expect to see upgraded ratings in their municipal bond portfolios following a major review by Standard &Poor’s of its rating criteria
Full story

COURT DISMISSES MAJOR TOBACCO LAWSUIT
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
The tobacco industry prevailed in yet another potentially costly lawsuit after a federal appeals court dismissed the class-action status in the “Schwab” case.
Full story

AMBAC’S CAPITAL PLAN GETS MIXED REVIEWS
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Ambac’s plan to raise $1.5 billion in new capital received a lukewarm reception from Wall Street and the three major rating agencies. Full story

ACA UPDATE
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Struggling ACA bows to regulators, but underlying credits remain stable. Full story

INSURER'S RATING REAFFIRMED
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Bondholders received a dose of good news as S&P reaffirms Radian Asset Assurance’s “AA” rating. Separately, ACA announces an agreement with its creditors. Full story

S&P ACTIONS
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
S&P downgraded ACA and took ratings actions against five bond insurers. These moves, however, seem more reflective of Wall Street than Main Street as ACA’s insured credits continue to perform well and other insured bonds are paying their debt from their own resources. Full story

JUSTICES SEEM TO LEAN TOWARD KENTUCKY IN DAVIS CASE
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Supreme Court justices seemed skeptical over a couple’s claim that Kentucky violates the Constitution by taxing out-of-state bonds while exempting interest earned by in-state bonds. Full story

‘MOTHER OF ALL’ TAX BILLS WOULD ELIMINATE AMT
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
A proposal to relieve more than 20 million Americans of the Alternative Minimum Tax for 2007 will be introduced next week as part of a package to permanently eliminate the tax, according to the chairman of the House Ways and Means Committee. Full story

PLAINTIFFS IN DAVIS CASE: MARKET WILL BE FINE IF RULING STANDS
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
The doom and gloom picture state officials paint in their arguments against forcing states to treat in-state and out-of-state muni bond the same way are overblown, plaintiffs in the closely watched Davis v. Kentucky case say. Both sides are reinforcing their positions as arguments are set to begin before the Supreme Court. Full story

STRENGTH OF PREPAID GAS BONDS FUELS INVESTOR DEMAND
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Tax-free bonds that help municipalities control their long-term natural gas costs are gaining popularity among investors for their strong protections and high credit ratings. Full story

COURT RULING FOR PHILIP MORRIS ENDS LENGTHY CASE
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
The class-action lawsuit accusing Philip Morris USA, Inc. of fraud in its marketing of “light” cigarettes has finally been dismissed, ending a lengthy legal journey and significant threat to the largest domestic tobacco maker. Full story

STATES, OTHER GROUPS SUPPORT KENTUCKY IN COURT CASE
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Every other state in the nation has lined up behind Kentucky’s effort to maintain its ability to tax residents’ income from out-of-state bonds while exempting its own. Full story

LOCAL CREDIT QUALITY NOT EXPECTED TO SUFFER LIKE HOUSING
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Although the housing market continues its slump and a high rate of default persists in the subprime mortgage industry, state and local government credit quality is not likely to dramatically suffer anytime soon. Full story

STAKES ARE HIGH AS CONGRESS WRESTLES WITH AMT REFORMS
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
With an estimated $2 trillion at stake, several proposals are taking shape to reform the Alternative Minimum Tax (AMT), but none has emerged so far from Congress’ tax-writing committees. Tax-free bond investors are watching closely since interest earned on bonds known as “private activity bonds” is subject to the AMT. Full story

NEW AMT PLAN WOULD BENEFIT BONDHOLDERS
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
A plan approved by Congress this week would free 20 million people of the Alternative Minimum Tax and would also benefit bondholders. Full story

KENTUCKY CASE RULING WON’T AFFECT TERRITORY BONDS
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Bonds issued by Puerto Rico, Guam and the Virgin Islands will continue to enjoy tax-exempt status, regardless of the upcoming Supreme Court decision on whether states may tax out-of-state muni bonds. Full story

ACA-RATED BONDS GET A BOOST AS INSURER EARNS AN ‘A’
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Standard & Poor’s reaffirmed its “A” rating of ACA Financial Guaranty Corp., signaling a strong vote of confidence in the quality of credit enhancement provided to ACA-rated bonds. Full story

NEW AMT PLAN WOULD BENEFIT ‘PRIVATE ACTIVITY’ BONDHOLDERS
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Minimum Tax (AMT), and it’s also good news for bondholders who invest in “private activity” bonds, whose income is included in calculations of AMT liability. Full story

BIG TOBACCO MAKES ITS ANNUAL MSA PAYMENT
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
The major tobacco companies, once again, made their annual payments to the states under the Master Settlement Agreement, reinforcing the tobacco producers' commitment to the MSA. Full story

COURT OVERTURNS ANOTHER LARGE TOBACCO AWARD
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Altria’s success in overturning a $79.5 million judgment continues a string of favorable rulings that have limited awards against tobacco’s largest producer.
Full story

LOAN ENDS GOVERNMENT SHUTDOWN IN PUERTO RICO
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
A loan agreement signed by Puerto Rico's governor ends a partial shutdown of the island's government and will fund civic operations for the remainder of the fiscal year. Full story

PUERTO RICO'S FINANCIAL CRISIS CAUSES GOVERNMENT SHUTDOWN
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
All non-essential Puerto Rico government services have been shutdown. FMSbonds credit analyst Jay Abrams examines the impact on the commonwealth's municipal debt obligations. Full story

TOP TOBACCO COMPANIES MAKE FULL MSA PAYMENTS
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Two of the top three tobacco makers joined Philip Morris in making their full yearly payments under the Master Settlement Agreement. Full story

PM PAYS ITS SHARE OF MASTER SETTLEMENT AGREEMENT
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Philip Morris, which is responsible for half the payments due states under the Master Settlement Agreement, has made its full 2006 payment. The move, coming on the heels of efforts by tobacco makers to reduce their payments, is good news for tobacco bondholders and signals a willingness between states and tobacco makers to resolve disputes. Full story

ARBITRATOR SIDES WITH TOBACCO COMPANIES IN MSA DISPUTE
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
An arbitrator upheld the claim of major cigarette manufacturers that the Master Settlement Agreement was instrumental in reducing their market share, shifting cigarette sales to smaller discount producers. The dispute now moves to court. Full story

FORD PLANS ITS 'WAY FORWARD'
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Ford announced improved fourth quarter 2005 results and its long-awaited turnaround plan. The car maker hopes cost cutting, innovation and other measures will lead its comeback, which should also be of interest to holders of Ford's tax-exempt debt. Full story

GM REPORTS 2005 FINANCIAL RESULTS
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
General Motors announced losses (net of special items) of $3.4 billion for calendar year 2005 and $1.2 billion in the year's final quarter, capping one of the worst years in the automaker's history. Bondholders anxiously await progress. Full story

GM'S MULTI-PRONGED TURNAROUND STRATEGY
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
General Motors told analysts of its multi-pronged strategy to get its auto business back on track, focusing on quality, lowering sticker prices, reducing its dependence on financial incentives and other measures. Full story

COURT THROWS OUT $10 BILLION "PRICE" SUIT
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
The Illinois Supreme Court threw out a $10 billion class-action suit against Philip Morris USA, dealing a significant victory to the tobacco industry and dimming the prospects of success for similar suits. Full story

DECISION EXPECTED SOON IN IMPORTANT TOBACCO CASE
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
The Illinois Supreme Court revealed that it will finally issue its opinion in the closely watched "Price Lights" tobacco case. The lawsuit has attracted a great deal of interest from the market for tobacco-related debt. Full story


TOBACCO PACT FIRM, THOUGH SOME DIFFERENCES REMAIN
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
The litigation environment surrounding tobacco has improved, and the agreement between tobacco manufacturers and states is firmly in place, although there are disagreements over how well states have enforced the pact. Full story

DESPITE QUESTIONS, RATING AGENCIES SAY MBIA STILL SOLID
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Despite questions, rating agencies say MBIA still solid. Full story

COURT SIDES WITH TOBACCO, REJECTS GOVERNMENT'S
$280 BILLION CLAIM
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
A federal appeals court rejected the government's attempt to force tobacco companies to forfeit $280 billion in profits. Full story

MINNESOTA COURT REINSTATES 'LIGHTS' CLASS ACTION
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
A judge's decision in Minneapolis to reinstate the class-action status of a tobacco suit is somewhat surprising, but the road ahead for the plaintiffs appears to be far more difficult. Full story

HURRICANES NOT LIKELY TO DAMAGE CREDIT IN FLORIDA
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Florida's four hurricanes this summer resulted in record property damage, but they are not likely to damage credit quality. Full story

FEDS FACE BLEAK CHANCES IN SUIT AGAINST TOBACCO
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Later this month, the feds are finally expected to get their day in court against the tobacco industry, but the underlying issues have not changed, and our opinion remains that the federal government's chance of winning looks bleak. Full story

BIG TOBACCO’S MARKET SHARE STABILIZES
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Tobacco companies that provide the lion’s share of funding under the Master Settlement Agreement (MSA) have seen their market share stabilize over the last year. Full story

ACA's STRENGTH IS REAFFIRMED
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
ACA announced it has received a $120 million equity investment, strengthening it's capital base considerably. The investment decision by Bear Stearns Merchant Banking will make it ACA's largest shareholder. Full story

ANALYSTS: TOBACCO LEGAL CHALLENGES UNLIKELY TO SUCCEED
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
While analysts often disagree on the direction of markets, the consensus among experts at a recent industry meeting was that the current spate of legal challenges against the tobacco industry is unlikely to succeed. Full story

CALIFORNIA BEGINS THE PAINFUL ROAD TO RECOVERY
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Holders of California bonds are resting a little easier now that voters in that state have approved two ballot propositions designed to begin the road to fiscal recovery. Full story

CALIFORNIA STEADY WHILE SEARCHING FOR BALANCE
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
With his first state budget proposal since taking office, Gov. Schwarzenegger thinks he has a way to steer California out of its financial woes. What does this mean to bondholders? Full story

RJR PROVIDES POSITIVE NEWS FOR TOBACCO BONDS
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Holders of tobacco settlement bonds were rewarded with good news on two fronts this week by R.J. Reynolds – one business related and one legal. Full story

GOOD NEWS FOR PHILIP MORRIS
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
The storm clouds facing Philip Morris are dissipating after this week’s favorable ruling in Illinois and S&P’s removal of its parent company from CreditWatch. Full story

TOBACCO: THE UNFILTERED VIEW
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Insiders see some tobacco tensions easing. Full story

WHY WE LIKE TOBACCO SETTLEMENT BONDS
By: Jay H. Abrams,Chief Municipal Credit Analyst
Despite new challenges to tobacco companies, tobacco settlement bonds remain strong investments. Full story

RADIAN'S MOVE IS CAUSE FOR APPLAUSE
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Radian Group invested an additional $150 million in bond insurer Asset Guaranty Insurance Co. Rating agencies, issuers and tax-free bond investors all applaud the move. Full story

ASSET GUARANTY INSURANCE CO.
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
Analyst Jay Abrams analyzes Asset Guaranty Insurance. Full story

INSURED BONDS ARE SAFE BONDS
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst
How safe are insured bonds? To date, there have been very few bond insurance claims. Find out why. Full story

Issue Reviews

PINELLAS COUNTY EDUCATIONAL FACILITIES AUTHORITY
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

SOUTH CAROLINA JOBS-ECONOMIC DEVELOPMENT AUTHORITY
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

BROMLEY PARK METROPOLITAN DISTRICT NO. 3
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

FORT BEND COUNTY, TX MUD 142
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

MOUNT SINAI MEDICAL CENTER OF FLORIDA
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

MONTGOMERY, ALABAMA EDUCATIONAL BUILDING AUTHORITY
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

DELTA AIRLINES EMERGES FROM BANKRUPTCY
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

HARRIS CNTY, TX MUNICIPAL UTILITY DIST NO. 278
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

CITY OF TUSKEGEE, ALABAMA
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

NYC IDA SPECIAL NEEDS FACS. '07 A1
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

VILLAGE OF CARY, ILLINOIS SPECIAL SERVICE AREA NUMBER TWO
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

DORMITORY AUTHORITY OF THE STATE OF NEW YORK
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

COMMUNITY FACILITIES DISTRICT NO. 1
OF THE ADELANTO ELEMENTARY SCHOOL DISTRICT, CA
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

NYC IDA SPECIAL NEEDS FACS. '06
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

ORCHARD HIGHER EDUCATION FINANCE CORPORATION
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF DESTIN, FLORIDA
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

WESTCHESTER COUNTY, NY INDUSTRIAL DEVELOPMENT AGENCY
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

SOUTHERN CALIFORNIA LOGISTICS AIRPORT AUTHORITY
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

KINGS MANOR MUNICIPAL UTILITY DISTRICT , TEXAS
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

DENTON COUNTY, TX, FRESH WATER SUPPLY DISTRICT NO. 10
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

MIAMI-DADE COUNTY FL- SOLID WASTE SYS REV
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTH
Aurora Update
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

HARRIS COUNTY TX MUNICIPAL UTILITY DISTRICT NO. 105
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

HOUSING AUTHORITY OF THE COUNTY OF
SANTA CLARA, CA
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst

AKRON, BATH AND COPLEY JOINT TOWNSHIP HOSPITAL DISTRICT, OHIO
By: Jay H. Abrams, Ph.D., Chief Municipal Credit Analyst