[Mpls] Republican Views of Minneapolis / Bond Ratings

[Erik Larson]

V. Heller wrote:  "Not so fast.  S & P rated the Enron bonds AAA until six 
weeks prior
to its bankruptcy.  The rating agencies will say anything for a large enough
fee.  Also, the City is claiming $27 billion of "market value" for the
purpose of calculating debt capacity.  What a joke!  If Standard & Poors
knew that Minneapolis only collects $250 million in property taxes, and
one-third of that goes into TIF districts, the Agency would drop the rating
in a New York minute."

S&P (and other ratings agencies) never rated Enron AAA.  They did rate 
Enron low investment grade (BBB or BBB+).  Of course, Enron also hid 
information from the ratings agencies along with purposely distorting 
information.  Further, if the raters were for sale, one would have 
anticipated that Enron's push to increase its ratings in the late 90s would 
have been more successful than it was (some upgrades from lowest investment 
grade to next lowest - both of which aren't really considered iron-clad 
safe.  Here's what Moody's says:  "medium-grade obligations (i.e., they are 
neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the 
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds 
lack outstanding investment characteristics and in fact have speculative
characteristics as well."  (The source for much of this is Moody's Managing 
Director's testimony before the senate - this is online if you want to read 
it.)

My sense with the ratings agencies is that they are fairly savvy about 
municipalities and states and that they are doing much more to make sure 
that they have relevant information (especially after what happened in 
Orange County).  If the information is publicly available (and it seems to 
be based on the messages on the board), it seems a pretty safe bet that the 
analyst has included it in his / her assessment.  But just in case you 
think you have found the key, maybe you want to provide a tip to the 
analyst who has most recently prepared reports on Minneapolis general 
obligation bonds:  Eden Perry,  212-438-7967 (info from S&P web site).

Erik Larson
Downtown East