Bond Early Warning System Needed for Monitoring Defaults

How can investment advisors monitor the 1.5 million cusips from 60,000 different issuers if most bonds ratings are stale or are not rated at all? We need an Bond early warning system to identify defaults before they happen. (BWACS)

Here is the latest bond default….Facilities muni bond issuer Erickson Retirement Communities, was bought by private-equity firm Redwood Capital Investments for $365 million in a 12/09 bankruptcy auction. The muni bondholders were pummeled when paid only $3.5 million of the $95 million total debt associated with Erickson’s Chicago-area Sedgebrook assisted living complex. This according to MMA’s ever prescient Matt Fabian, the top muni research firm that tracks many of the estimated 60,000 municipal bonds on the market. Matt is quoted everywhere in the press these days, including the US Congress grilling of the muni industry. His data shows that there are 23 retirement facilities-related bond issues representing about $673 million worth of debt that have missed payments and defaulted. Another $1.4 billion of retirement bonds are either making payments from reserves or are in technical default, making the sector one of the shakiest in the still relatively sedate muni marketplace. One of the Sedgebrook bonds defaulted in December, and now trades at 14 cents on the dollar, according to MMA data.

There are retirement facilities bonds, that typically are not backed up by the full faith and credit of the state/ local government. To see the actual Sedgebrook bankruptcy filing

Mitchell Savader, CEO of Savader Asset Advisors, a municipal bond-research firm in New York, says the fate of the Sedgebrook bonds doesn’t herald a widespread collapse of the unrated muni sector. However, it should prompt calls to financial advisers for bond portfolio reviews. . “to make sure that advisers and money managers are keeping an eye on their holdings.” Good advice but how can investment advisors monitor the 1.5 million cusips from 60,000 different issuers if most bonds ratings are stale or are not rated at all? We need an Bond early warning system to identify defaults before they happen. (BWACS)