Philadelphia hopes for $1 billion in bond financing

Meetings like this week's have no precedent in the city's recent financial history, Treasurer Nancy Winkler said.
Meetings like this week's have no precedent in the city's recent financial history, Treasurer Nancy Winkler said.
Posted: April 21, 2013

Philadelphia will try to borrow or refinance more than $1 billion over the next nine months in the face of contentious tax reform, rising pension and public school costs, a flat private-business sector, tough labor negotiations, and the lowest credit rating among the largest U.S. cities.

That's why Mayor Nutter and business executives invited 150 bond marketers, some of the giant institutional customers that own Philadelphia debt, and firms that invest in other big, higher-rated U.S. cities for closed-door presentations on the city's prospects Thursday.

Along with panelists including Greater Philadelphia Chamber of Commerce chairman Daniel K. Fitzpatrick of Citizens Bank and David L. Cohen, executive vice president of Comcast Corp., they toured on Friday the Philadelphia Gas Works and the city airport and Water Department, which issue their own debt. The School District of Philadelphia, which faces more extreme financial pressures, was not included in the tour.

Though Philadelphia leaders have met with big bond investors individually, mass meetings like this week's affair, which was closed to the public and reporters, have no precedent in the city's recent financial history, said city Treasurer Nancy Winkler, meeting with reporters after the Friday tours.

Such meetings weren't needed before the financial crisis of the late 2000s. That's because, for the last generation, most municipal bonds, especially for financially troubled cities like Philadelphia, were insured. Specialized insurance firms guaranteed investors against the possibility that cities wouldn't pay their debts.

Back then, investors "may have known Philadelphia was not in great shape, but they had MBIA or Ambac or one of the other bond insurers to back them up," Edward Murray, managing director of the public finance group at the investment bank and brokerage Boenning & Scattergood in West Conshohocken, said in an interview.

But with the collapse of municipal bond insurance, "we've gone back almost to the 1970s," Murray said.

Without bond insurance to guarantee that municipal issuers are being complete and accurate about the risks connected with their bonds, big bond investors "are doing their own due diligence, digging into the numbers and listening to management" before deciding what to buy and sell, Murray said.

With increased legal scrutiny of local governments, "it's very important we make the information available on an equal-access basis" instead of continuing to meet with individual investors, Winkler said.

So why not invite the public, too? "We don't believe the format we have is appropriate for retail investors," Winkler said. "Retail can access our website."

Though that might put small investors at a disadvantage if big firms get the chance to ask questions directly of city officials, relatively few small investors are buying bonds directly, Murray said.

"A mom who wants to put $50,000 in Pennsylvania bonds and buys Vanguard's Pennsylvania municipal bond fund is counting on someone at Vanguard to make the appropriate credit analysis," he said. Philadelphia is honing its pitch to pro investors like the people at Vanguard.

Do presentations like Philadelphia's really make investors more likely to buy the city's bonds? "What harm can that do?" asked Murray, praising the city's transparency.

Winkler acknowledged this week's visiting investors asked a lot of questions about the city's labor contracts and negotiations, and remain concerned about the financially troubled public schools.

But she added that none of the investors had expressed concerns about municipal corruption. The Nutter administration cultivates a good-government image, and Winkler said she expected that would help attract investors when Philadelphia goes back to Wall Street with bonds to sell.

Contact Joseph N. DiStefano at 215-854-5194,, or follow on Twitter @PhillyJoeD.

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