HJ Sims Secures $6.5 million Additional Debt Financing for Capital Improvements

FOR IMMEDIATE RELEASE

CONTACT: Tara Perkins, AVP | 203-418-9049 | tperkins@hjsims.com

HJ Sims Secures $6.5 million Additional Debt Financing for Capital Improvements

FAIRFIELD, CT– HJ Sims (Sims), a privately held investment bank and wealth management firm founded in 1935, is pleased to announce the successful August 2020 transaction in the amount of $6.5 million additional debt financing for capital improvements for the Philadelphia Protestant Home (PPH). PPH operates a continuing care retirement community in northeast Philadelphia, featuring 266 independent living units, 175 personal-care units and 126-bed nursing facility.

PPH has been funding capital improvements from general fund revenues. To efficiently manage cash-flow, PPH elected to finance $6.5 million of upcoming capital improvements. Sims, as financial advisor, developed a financing plan that provided for the funding of the required capital improvements, while implementing a structure that maintained maximum flexibility to maintain their debt service at manageable levels.

Prior to engaging PPH’s existing banking partner, Citizens Bank (Citizens), Sims worked with the PPH Fiscal Oversight Committee to develop structuring options. Following engagement of Citizens, Sims led the effort in working with Citizens to finalize the debt structure, within the confines of the bank’s requirements. Due to impacts of COVID-19, Sims negotiated a modified Debt Service Coverage test to the benefit of PPH. The additional obligations were structured as parity debt with PPH’s outstanding Series 2015 obligations.

Citizens provided $6.5 million of senior debt financing, fully amortizing in ten-years, and a five-year interest-only period followed by monthly principal amortization. The obligations were structured with a five-year, PPH-owned par call provision, and were issued on a tax-exempt basis through the Philadelphia Authority for Industrial Development (PAID). This provision was paramount as PPH’s existing Series 2015 Obligations mature in seven years, while Citizens could only defer principal on the Series 2020 obligations for five years. This call feature will allow PPH to restructure future debt at minimal cost.

Following closing of the Series 2020 Bonds, PPH locked in a synthetic fixed-rate on the debt. Sims served as Swap Advisor for the swap transaction, which also bears a mirroring, PPH-owned par termination right in five years, to align with the Citizens’ loan.

Sims, Citizens, PAID and the financing team worked diligently with PPH to secure final approvals, including navigating through unanticipated delays followed by the onset of COVID-19, to successfully close the financing.

“The HJ Sims’ commitment to incomparable client services has once again served The Philadelphia Protestant Home well. Despite the unforeseen challenges and uncertainly resulting from the pandemic, the Sims’ team provided valuable insight and unwavering advocacy to assure our financing needs were achieved. We are thankful for our partnership, the integrity, and collaboration with Aaron Rulnick and Siamac Afshar, for always putting what is in the best interest of PPH, first,” said John Dubyk, CEO, PPH. Philadelphia Protestant Home

Financed Right® Solutions—Aaron Rulnick: arulnick@hjsims.com or 301-424-9135 | Siamac Afshar: safshar@hjsims.com or 267-360-6250.

ABOUT HJ SIMS: Founded in 1935, HJ Sims is a privately held investment bank and wealth management firm. Headquartered in Fairfield, CT, HJ Sims has nationwide investment banking, private client wealth management and trading locations. Member FINRA, SIPC. Facebook, LinkedIn, TwitterInstagram.

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COVID-19 Response

March 18, 2020:

Dear Valued Client,

As you are likely closely monitoring the developments and impact of COVID-19, we are doing the same at HJ Sims. Our primary focus is the safety and well-being of our employees, our clients and their families.

We would like to update you on important preparations currently in place, and our ability to respond to your needs during this unprecedented time.

  • We have enacted a comprehensive COVID-19 business response plan and remain confident that as a nimble and resilient organization, we will maintain business continuity. We are prepared in the event the situation continues to escalate.
  • During this extraordinary time, we recognize that you rely on access to our financial professionals and representatives. As such, we have prepared plans for employees to work from different locations, as well as remotely from home. Alternate site work arrangements are intended to balance and diversify our resources to minimize risk for an extended period, if required, while using today’s technology to be ever-present for our clients.
  • Our employees are being kept fully aware of the situation by our Executive Committee. We have established access to online company resources to help them manage during this unparalleled time.

Please be sure to keep us updated with your contact information so we may stay in touch with you.

We are confident that we are taking proper steps to ensure the continued operation of our business, and continue to follow guidance from official local, state and Federal Government and public health agencies, including the Centers for Disease Control (CDC). We will monitor and evaluate the situation and determine whether additional steps are needed to support our clients and communities.

We have strong financial talent who have the experience to weather all market cycles. We appreciate your trust and confidence in us. Please let us know if we can help in any way.

We wish you, your communities and your family all the very best.

Thank you,

William Sims
Managing Principal
HJ Sims

Market Commentary: Evolving Ecosystems

Through Facebook and Twitter, mountains of data providing insight on human behavior are available to advertisers and social scientists to study and exploit. Via algorithms used in video gaming, datamining is also being applied to the analysis of behavior in nature, where technology now provides oceans of data documenting the social behavior of fish, for example, to help us better understand and model ecosystems. As it turns out, fish form dynamic social networks well outside of schools, taking cues from each other and telegraphing critical information such as where it is safe to go and eat.

These days it is hard for those of us on solid ground to know where it is safe to go out — never mind what is safe for us to invest in. The Federal Reserve, the executive and legislative branches of government at the federal, state and local levels have taken unprecedented actions to both depress and bolster our economy since January. Social media, social distancing, home delivery services, N95 masks, UV-C light, air purifiers, corticosteroids, Vitamin D, convalescent plasma, all appear to be aiding us in battling this pandemic. Common sense, gut instinct, and trusted family, friends, colleagues, and investment advisers are also guiding us as we endeavor to protect our savings and boost our investments in an evolving ecosystem amid an ocean of uncertainty.

We are six months a pandemic that has felled more than 1 million around the world. Our nation has been struck by a recession of historic proportion. But many students are back in the classroom. Consumer confidence just jumped to 101.8 in September, up from 86.3 in August. Daily TSA Airport Passenger screenings have risen from 87,534 on April 14 to 873,038 on September 27. Retail sales have exceeded pre-crisis levels since June. New home sales have risen at the fastest pace since 2006. The Federal Reserve Chair, in testimony before Congress, refers to our economic recovery as “highly uncertain” and points to the need for additional stimulus. But the last jobs report reflected positive momentum. Data on September, the last we will see before November 3, will be reported on Friday. Third quarter GDP will be reported a mere five days before Election Day.

The stock market has had some significant intraday twists and turns in September trading and many strategists expect volatility to increase as we draw close to the presidential election. At this writing with one more day of data to go, equity indices are all down for the month: after swinging by more than 2300 points the Dow is down more than 3%, the S&P 500 has fluctuated by more than 340 points and has fallen over 165 points, and the Nasdaq has lost 6% with intramonth highs and lows varying by as much as 1400 points. On the commodity side, oil prices have fallen nearly 9% to $38.86 and gold prices are down more than 4% to $1,886 an ounce. Bond markets have been remarkably steady. Treasuries have traded in a narrow range all month, strengthening overall. The 2-year yield stands at 0.12%, the 10-year at 0.65% and the 30-year at 1.42%. The 10-year BAA corporate bond yield is flat on the month at 3.01%. Investment grade corporate issuance now exceeds $1.53 trillion in 2020. High yield corporate issuance at $335 billion is already higher than it has been for any full calendar year on record; this month’s volume exceeds $45 billion but the sector is expected to post a loss of 1.30%.

In the municipal bond market, the AAA general obligation bond 2-year benchmark yield has dropped 3 basis points this month to 0.13% while the 10-and 30-year yields have risen by 2 basis points to 0.83% and 1.58%, respectively. Municipal Market Analytics reports that munis have been essentially unchanged for 22 consecutive sessions, beating a 40-year old record. Approximately 40% of primary market sales in September have been federally taxable. Investors took in $25 billion of cash from bond redemptions and maturities; $2.2 billion flowed back into municipal bond mutual funds. Funds have seen 20 straight weeks of net inflows. Year-to-date, the BofAML Municipal Index is up 3.31%; the High Yield Index has returned 0.93% and the Taxable Muni Index 10.86%

September muni volume will likely exceed $50 billion for the second consecutive month. Among the higher yielding transactions last week, Lake County, Florida sold $126 million of non-rated bonds for Lakeside at Waterman Village in a financing that included 2055 term bonds priced at 5.75% to yield 5.58%. The Washington Housing Finance Commission issued $81.3 million of non-rated bonds for Rockwood Retirement Communities structured with 2056 term bonds priced with a coupon of 5.00% to yield 5.25%. The North Carolina Medical Care Commission came to market with a $53 million BBB-minus rated deal for Friends Homes that had 30-year term bonds priced at 4.00% to yield 3.48%. The Public Finance Authority of Wisconsin was in the market with a $22.8 million non-rated financing for Freedom Classical Academy In North Las Vegas structured with 2056 term bonds priced at 5.00% to yield 4.89%. The Colorado Educational and Cultural Facilities Authority sold $18.7 million of non-rated bonds for Liberty Tree Academy that came with 30-year term bonds priced at par to yield 5.75%.

This week, the markets are focused on the first presidential debate, quarter-end portfolio rebalancing, the Friday jobs numbers, prospects for agreement on a pre-election stimulus bill, Treasury loans to U.S. passenger airlines, economic data from China, outflows from high yield corporate bond funds, and a string of Federal Reserve speakers. As we enter the final quarter of the year, we encourage you to contact your HJ Sims advisor to review your positioning and strategy.

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Market Commentary: Twisting Path to Election Day

In the 40 days to Election Day, we follow a path with many twists and turns, certain only to be surprised by what is around the next corner. We have already had quite a journey this year, one that has taken us into a pandemic, a recession, and in directions never before traveled in terms of fiscal and monetary policy, lockdowns, and behavioral change. The appointment of a new Supreme Court Justice may lead us into a right turn, but other developments could have us bear left. The Federal Reserve has used all of its paving powers to try and keep our economy us on a straight and narrow course – one that may extend out to mile markers in 2023.  Financial markets have not always followed it. Stocks have stumbled this past week under a range of pressures. But since Labor Day, the bond markets have been keeping a steady pace. The municipal bond market has seen almost no change in price for three consecutive weeks.  Benchmark yields offer us no clue on future direction, although market history since 2014 tells us that the quarter end tends to take us on a downward slope. At this writing the 2-year Treasury yield and the 2-year AAA municipal general obligation bond yield are at 0.13%, the 10-year Treasury yields 0.66% and the tax-exempt counterpart yields more at 0.84%. The 30-year Treasury yields 1.42% while the 30-year muni is higher at 1.58%.

Last week’s $9 billion municipal calendar met with another warm welcome.  HJ Sims came to market with an $18.1 million BB rated issue for Presbyterian Villages of Michigan and sold the 4.75% Public Finance Authority bonds due in 2053 at a discount to yield 5.00%.  Among other senior living deals, the North Carolina Medical Care Commission had a $96 million BBB+ rated deal for Presbyterian Homes that featured 5.00% bonds due in 2050 at a yield of 3.03%. The Kalamazoo Economic Development Corporation issued $47.8 million of BB rated bonds for Heritage Community’s Revel Creek expansion that had term bonds due in 2055 priced at 5.00% to yield 4.40%. Franklin County, Ohio brought a $27.8 million BBB rated financing for Ohio Living Communities that included 2045 term bonds priced at 4.00% to yield 3.73%.  In the education sector, the St. Paul Housing and Redevelopment Authority issued $26 million of BB+ rated charter school bonds for Hmong College Preparatory Academy that had a maximum yield of 3.55% in 2055, and the California School Finance Authority brought a $10.1 million non-rated deal for Real Journey Academies that had a 39-year maturity priced at 5.00% to yield 3.98%.

At these, or even lower rates prevailing for most issuers, the volume is expected to increase for the next five or six weeks. So much uncertainty surrounds Election Day and outcomes that may not be known for days, weeks or months that borrowers are rushing to bring deals to market as soon as possible.  This week’s muni calendar is expected to exceed $12 billion. Corporate high yield issuance is only $2.5 billion away from a record high for the year and investment grade issuance is expected to total $30 billion. We encourage you to contact your HJ Sims financial professional to discuss whether your portfolio is well positioned for the twists and turns in the months ahead, how you might better prepare, and which opportunities to anticipate.

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Financing the Perception of Safety

FOR IMMEDIATE RELEASE

September 22, 2020

CONTACT: Tara Perkins, AVP | 203-418-9049 | tperkins@hjsims.com

Financing the Perception of Safety
Senior Living Survey Finds Residents Feel Safe, Glad to be Part of a Community during Pandemic 

FAIRFIELD, CT– HJ Sims (Sims), a privately held investment bank and wealth management firm founded in 1935, participated in the Senior Living COVID-19 Sentiment Report, which surveyed 4,000+ current and prospective senior living community residents, assessing their thoughts/ feelings about the COVID-19 pandemic. Lynn Daly, Executive Vice President, Sims’ Chicago office, authored content included in the 104-page report, COVID-19 Sentiment Report: A Survey of Independent Living Desirability & Safety.

The Survey, published by Plante Moran Living Forward and Retirement DYNAMICS®, was distributed to 23,000+ residents, prospective residents and staff at senior independent living communities nation-wide.

Among the results, it was discovered that of more than 4,000 current and prospective senior living community residents, 77% of current senior living community residents were somewhat or strongly supportive of living in a community during the Pandemic, with 87% of prospective community residents feeling somewhat or strongly glad to be living at home during the Pandemic. Click here to download the report.

While surveyed prospects worried about social isolation and daily tasks when living in their own homes, Survey results showed a slight decrease in their likelihood to move into an independent living community due to the Pandemic. The survey revealed:

  • 92% of staff felt their community responded well to Pandemic.
  • 93% of residents felt their community took all precautions.
  • 85% of staff agreed residents “are safer in their community than in their previous homes.”
  • 77% of residents said they were “glad to be living in a community during the Pandemic,” with 86% affirming they were glad they moved.
  • Prospective residents (61%) and residents (68%) felt socially isolated during shelter-in-place.
  • 74% of prospective residents reported their time frame for a move has been unchanged.

While independent living communities received high marks from seniors on cleanliness, sanitation and communications, communities earned low grades on recreation activities, dining and technology offered during shelter-in-place.

The Survey received a 21.1% overall response, and was sent to independent senior living communities throughout the U.S., generating 7,000+ comments. The results indicate that prospective senior living residents recognize that living in a community would provide them peace of mind, safety and security. However, they are happy to be home during the Pandemic. For senior living providers and operators, making small operational changes can improve prospective residents’ perceptions, with the hope that they will make the commitment and enjoy what moving to a campus would provide.

“HJ Sims is deeply passionate about the providers we serve. We appreciate that COVID-19 has stretched our provider clients in unimaginable ways, including resident and staff safety, retention/recruitment of staff, uncertainty and negative press. We welcome helping those in the industry become more knowledgeable about COVID-19 and are pleased to provide relevant data on what providers are doing right, and where they can improve to align themselves with the perceived needs of consumers and staff. We have tremendous faith in the non-profit senior living model and embrace the opportunity to support its sustainability and resilience,” said Daly.

Ms. Daly has 30+ years of experience working exclusively with nonprofit organizations on their financing needs. Read more here.

Lynn Daly: ldaly@hjsims.com | 312-505-5688.

ABOUT HJ SIMS: Founded in 1935, HJ Sims is a privately held investment bank and wealth management firm. Headquartered in Fairfield, CT, HJ Sims has nationwide investment banking, private client wealth management and trading locations. Member FINRA, SIPC. Facebook, LinkedIn, TwitterInstagram.

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HJ Sims Participates in the MoneyShow Virtual Expo

Tools for entirement®

The HJ Sims team experienced a successful first-time appearance as speakers at this year’s MoneyShow Virtual Expo, September 15-17. The event theme was Investment Strategies and featured thousands of attendees over the three-day run.

Our Test Your Stress: How in the World Is Your Portfolio? presentation highlighted HJ Sims Tools for entirement® and the strategic methods in which HJ Sims’ financial advisors can test client portfolios against dozens of world events, including economic, political and financial scenarios.

Our team was comprised of Geoffrey von der Linden, Senior Vice President; Eugene Chyzowych, Senior Vice President; and Joshua Davison, CIMA®, Director of Investments.

Additionally, HJ Sims hosted a dynamic virtual booth, including our videos, biographies, and foundational information about us and our rich 85+ year history.

We look forward to speaking at the next MoneyShow Virtual Expo in October for accredited investors.

Register for MoneyShow Virtual Expo October, featuring HJ Sims

HJ Sims is a SEC registered Broker-Dealer, a member of FINRA, SIPC and is affiliated and under common ownership and control with a state registered investment advisor: Herbert J. Sims Capital Management, Inc. (HJSCM). Some HJ Sims financial professionals are dually registered as investment advisors with HJSCM and may therefore provide advice on HJSCM managed accounts. This material has been prepared and is distributed solely for informational purposes and is not a solicitation or an offer to buy or sell any security or instrument or to participate in any trading or investment strategy. September 2020.

Introducing Tools for entirement®

Test Your Portfolio against Dozens of What-if Scenarios

Do you have questions and concerns about your portfolio, and the potential impact of world events on your investments? We are pleased to introduce Tools for entirement®. We invite you to test your portfolio against dozens of what-if scenarios, including economic, political and market events. 

Test Your Portfolio against Dozens of What-if Scenarios

HJ Sims is a SEC registered Broker-Dealer, a member of FINRA, SIPC and is affiliated and under common ownership and control with a state registered investment advisor: Herbert J. Sims Capital Management, Inc. (HJSCM). Some HJ Sims financial professionals are dually registered as investment advisors with HJSCM and may therefore provide advice on HJSCM managed accounts. This material has been prepared and is distributed solely for informational purposes and is not a solicitation or an offer to buy or sell any security or instrument or to participate in any trading or investment strategy. September 2020.

Market Commentary: Rock, Paper, Scissors

Hope is what sustained the 102 passengers of the Mayflower who departed from Plymouth, England for the New World four hundred years ago this week. In far more grim circumstances than we face today, on September 16, 1620, there were 41 Protestant Separatists or “Saints” – better known today as the Pilgrims – seeking freedom from the Church of England. A larger group of commoners including servants and children dubbed “Strangers” simply gambled the little they had on a new life in an unknown place in northern Virginia. They were 50 men whose average age was 34, 19 women, 14 teenagers and 19 children. The oldest was 64 and the youngest, Oceanus, was born during the voyage, which was financed by London stockholders. Crammed together with sheep, goats, chickens and dogs on the gun deck only 58 feet long, 24 feet wide and 5.5 feet high, they spent a grueling 66 days at sea during the height of the storm season. They ate old bread and dried fruit and salty fish; with no fresh drinking water, each person was rationed a gallon of beer per day. Nearly five percent of those aboard died en route. Yet, they were filled with gratitude to meet their new world.

The Mayflower passengers arrived in New England on November 11 and a group of 41 managed to draft and sign a 200-word document that came to be known as the Mayflower Compact, the first document to establish the framework for our self-government. It was a simple text, one worth a review in this complicated era where there are too many federal laws in force to count and even more regulations among the 50 subject matter titles in the Federal Register. Signatories agreed to “solemnly and mutually, in the presence of God, and one another; covenant and combine ourselves together into a civil body politic; for our better ordering, and preservation and furtherance of the ends aforesaid; and by virtue hereof to enact, constitute, and frame, such just and equal laws, ordinances, acts, constitutions, and offices, from time to time, as shall be thought most meet and convenient for the general good of the colony; unto which we promise all due submission and obedience.”

Plymouth Rock was said to have “received the footsteps of our fathers on their first arrival” in Plymouth Harbor on December 21, 1620. But, as the Pilgrims and the non-believers slowly built their town, they largely remained aboard the Mayflower in tiny quarters for another four harsh winter months. They endured outbreaks of scurvy, pneumonia and tuberculosis, malnutrition and exposure. Only 52 of the passengers departing from England, including 5 women and half of the 50-man crew, survived that first winter.

There are an estimated 10 million living Americans and 35 million people around the world who are descended from the original passengers on the Mayflower. Several hundred thousand who are not descended from the Aldens, Bradfords or Winslows still risk untold peril every year to come to America by sea, land and air. Latest federal data show that 7.8% of our population self-designates as having English roots, 14.7% German, 12.3% Black or African-American, 10.9% Mexican, 5.5% Italian, 3.3% French, 3% Polish. The U.S. population exceeds 331 million now outnumbered by only China and India. More than 40 million of us were born in another country. 56 million of us are aged 65 or older, but our median age is 38.3 years. Approximately 6.3 million of us work in financial services.

In difficult times, it is important to maintain perspective in order to remain hopeful, much like the Mayflower passengers; we must hold steadfast to the belief that the world will improve. In a time where we are concerned for our loved ones, and in an era where we feel nervous, we must remember that back in the time of the Mayflower, the death rate of the newcomers exceeded 50%. At this writing, the COVID-19 death rate per 100,000 population is 0.06%. However, with tragedy comes a sense of gratitude for what we do have, for what kindness exists in the world. And, we hold hope for a vaccine, we have appreciation for our medical workers who treat those who are need, we gather to help strangers and neighbors, alike. Overall, this is a time to come together—we can experience this as an opportunity to unite.

Perspective helps us process the deaths of more than 196,000 Americans at this writing. With a changing world, twenty-nine million of us are receiving some type of unemployment assistance and many more have had hours or pay cut and income slashed. We have become adaptable as a significant number of children can only go to school online, but some are unsupervised and others have only limited access to the internet and learning. Small businesses are closing by the thousands in cities and small towns—some transitioning to an online model with the evolution of these times. On top of all of this, hurricanes and floods have battered the people of the southeast and megafires have destroyed nearly five million acres in the West. After six-plus months, we see some pockets of recovery but much of the nation is exhausted, numbed, or in a state of shock. The luckier among us gripe about inconveniences: gyms and salons closed, lost vacations, reunions and celebrations postponed. But at night, most of us toss and turn, worry about our college students, our parents in health care facilities, a second wave of illness, our weight, our retirement, the vaccines being rushed to market, how long we can postpone medical tests and procedures, whether our vote will count in November. Life has changed dramatically for many in these past seven months.

The financial markets are always looking to the future and the view from Wall Street is still much rosier than the one from Main Street right now. Investors have come to look to the Federal Reserve as the Rock of Gibraltar, a veritable Pillar of Hercules – a mythical point once marking the limit to the known world, now widely viewed as our barrier to unthinkable loss. So far so good. But the Fed can only loan money. So, state and local governments and markets have also looked to Washington for fiscal relief. Again: so far so good. Maybe too good. Federal spending topped $6 trillion for the first time last month and the federal deficit has topped $3 trillion for the first time; Congressional appropriators are discussing even more fiscal spending but cannot reach agreement. Eventually, they will have to take the scissors to the budget, but for now we are in historic spending mode. The President has taken certain executive actions, and perhaps no more legislative is necessary or possible until after the elections, so it is to the unelected officials of the central bank that we look for any further immediate relief if needed. 

The Fed’s monetary policy committee, the Open Market Committee, met this week for the 8th time this year and provided reassurance that they will be accommodative, hold interest rates at rock-bottom levels through 2023 and basically do whatever else is required for our economy. Economic data show that we have regained at least half of the loss of output so we may see third quarter gross domestic product above 25%. CNN and Moody’s Analytics have teamed up to produce a “Back-to-Normal” Index that actually shows the U.S. at 80% of pre-pandemic levels.

Despite the pandemic-induced recession and pain experienced across virtually every sector, the S&P 500 is up 5.27% this year, the tech-heavy Nasdaq is up nearly 25%. Gold has gained more than 28%.  The 2-year Treasury has strengthened significantly; its yield has dropped lost 143 basis points and currently stands at 0.13%.  The 2-year municipal general obligation bond yield has fallen 91 basis points to 0.13%. The 10-year Treasury at 0.67% is down 124 basis points. The 10-year muni has decreased 60 basis points to 0.84% and the 10-year Baa corporate bond yield at 2.98% is down 72 basis points.  The 30-year Treasury yield has fallen 95 basis points to 1.43% and the comparable muni yield has shed 51 basis points to stand at 1/58%.

Corporate and municipal borrowers continue to vie for space on the calendar of buyers.  So far this year, tax-exempt muni issuance at $337 billion is up 33% year-over-year. Corporate bond issuance as a whole totaled $210 billion in August alone. High yield corporate issuance exceeds $308 billion so far this year, up 74% from 2019.  Mutual fund investors have added a net of $19.2 billion to municipal bond funds, $139.4 billion to investment grade corporate funds and $40.8 billion to high yield corporate funds. With record Treasury issuance this year, outstanding debt at 9/15 totals $26,790,503,839,118.28 and returns are up about 9.31%.

Last week was shortened by the Labor Day holiday but it was by no means a quiet one. HJ Sims underwrote a $107.3 million A-minus rated revenue bond issue for Presbyterian Retirement Communities which we structured with tax-exempt term bonds due in 2055 priced with a coupon of 4.00% to yield 3.10% and taxable bonds due in 2050 priced at 4.00% to yield 4.125%.  Among recent deals on the high yield calendar, there was a $17.1 million BB+ rated California School Finance Authority issue for Classical Academies that had a thirty year term bond priced at 5.00% to yield 3.42%; a $13.3 million Ba1 rated Public Finance Authority financing for KIPP Charlotte that included 35-year term bond priced at 5.00% to yield 4.50%;  and a $10.3 million BB+ rated New Hope Cultural Education Facilities Finance Corporation issue for Southwest Preparatory Academy in San Antonio that came with a 2050 maturity priced at 5.00% to yield 4.00%.

This week, Plymouth, Minnesota has a $41.7 million general obligation bond sale planned. Local Massachusetts news reports that Plymouth Rock, the Landing Place of the Pilgrims, the symbol of our country’s first hardships and struggles, a representation of our freedom and desires for a better life, an international attraction typically drawing a million tourists every year, has unfortunately been vandalized for the second time in one week. Yet, we persevere.

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Market Commentary: Alternatives

There are only 54 days to Election Day (at the time of this writing). We can tell by the attack ads on TV, the robo calls, the mailers, the endorsements, the increasingly slanted campaign coverage from all sides. The fight is often framed in terms of Democrats versus Republicans, conservatives versus. liberals, progressives versus moderates, left versus right, Red versus Blue, incumbents versus challengers, the Coasts versus the Heartland, or Us versus Them. It is said to be the most important election ever, once again. And, as the sportscaster in Rocky IV exclaimed, “It’s a gutter war – no holds barred!”  On the presidential ballot, we do not hear much about the fifteen third party and independent candidates. So, for those taking due diligence seriously, it may seem that considering all the alternatives, the choices are more difficult. But, as the big day draws nearer, our choices dramatically narrow to essentially two as we examine our options from the perspective of our vested interests to either find the candidate who will best represent us or “pick the lesser of the evils” as some believe. As Henry Kissinger once said, “The absence of alternatives clears the mind marvelously.” Speaking of alternatives…

The alternative minimum tax (AMT) and the ordinary income tax are two parallel income tax systems in the U.S. The former was enacted in 1969 by Congress after the public became outraged to learn that a significant number of higher income filers had so many itemized deductions that they paid no income tax. So, to ensure that everyone pays what is viewed as their “fair share,” taxpayers must calculate their taxes under each system and pay whichever is higher. But, since the AMT was not indexed for inflation until 2013, over time more and more retirees and middle class taxpayers became subject to the higher rate. About five million filers were paying the AMT in 2017 when the Tax Cuts and Jobs Act was enacted. The new law applies to tax years 2018 to 2025. It increases the AMT exemption (generally $113,400 for married couples in 2020), indexes it to inflation, and sets the income levels at which the exemptions phase out at much higher levels (generally $1,036,800 for married couples filing jointly in 2020). Many of the tax breaks that triggered the AMT for middle class taxpayers have been changed, so there needs to be quite a few tax preference items to trigger it. These include incentive stock options, a large amount of long-term capital gains, some types of accelerated depreciation, and interest on private activity bonds. Fewer than 200,000 households are now impacted and corporations are no longer exposed to AMT liabilities.

Income from private activity bonds that fund private company projects that benefit the public such as stadiums, airline terminals, and solid waste facilities may be subject to the AMT, meaning that interest income would be taxed at the applicable AMT rate. This could be 26% or 28%. That would be a major hit to muni yields already at or near historic lows. It is easy to tell if a bond is subject to the alternative minimum tax. Since 1986 it has been required that a tax attorney provide an opinion stating whether or not the interest on each muni bond is a tax-preference item subject to the AMT. The opinion is clearly printed on the cover of each official statement. Investors must read any muni bond fund prospectus more carefully. Some funds, including Vanguard’s, may invest as much as 20% of their assets in private activity bonds so a portion of their income distributions may be subject to the AMT.

Investors are advised to speak with their tax advisors before buying bonds, or funds with bonds, that are subject to the AMT.  For those who are not subject and not likely to become subject, we encourage you to contact your HJ Sims advisor.  AMT bonds can offer some incremental yield pickup in the range of 20 basis points in the current market. They also provide access to different sectors of the muni market such as pollution control projects, student loans, single-family housing, and public-private venture expressways.  Among major issuers of both AMT and non-AMT bonds are the Port Authority of New York and New Jersey and the City and County of Denver, Colorado. Last week, The New York Transportation Development Corporation issued $1.51 billion of Baa3 rated special facilities revenue bonds subject to the AMT for the Delta Air Lines Terminal C and D redevelopment project at LaGuardia Airport. The 2045 term bonds priced at 4.375% to yield 4.55%.

HJ Sims was in the market last week with a $134.9 million Palm Beach County Health Facilities Authority bond issue for the Toby and Leon Cooperman Sinai Residences of Boca Raton expansion. We structured the non-rated Series A bonds with a 2055 maturity priced at 5.00% to yield 4.60%. The Series B-1 bonds due in 2027 were priced at 3.00% to yield 3.05%, the Series B-2 bonds due in 2025 were priced at 2.625% to yield 2.75%, and the Series C taxable bonds due in 2024 had a 3.875% coupon priced to yield 4.00%. Among other senior living financings, the Economic Development Corporation of the City of Grand Rapids and the Michigan Strategic Fund brought $47.1 million of BBB-minus rated refundings for United Methodist Retirement Communities and Porter Hills Presbyterian Village with final maturities in 2044 priced at 5.00% to yield 3.88%.

This week’s muni calendar is expected to total $7 billion but the investment grade corporate market may see as much as $50 billion of new issues.. At this writing, the 2-year AAA municipal general obligation bond yield stands at 0.15% versus the 2-year Treasury at 0.14%. The 10-year muni benchmark is at 0.83% while the comparable Treasury yield is 0.68%.  The 30-year tax-exempt yield is 1.57% and the Treasury is lower at 1.43%. The 10-year A rated corporate bond yields 2.22%. Stocks are weaker for the third session, sinking to a four-week low. Oil at $36.87 a barrel has fallen to prices last seen in mid-June. Gold at $1,930 an ounce is 6% off its record August high. This week’s economic calendar includes Job Openings, the Producer and Consumer Price Indices. The Senate returns from recess to vote on an alternative stimulus measure and the nation pauses on Friday, the 19th anniversary of September 11 to honor the memory of those lost and pay tribute to heroes we will never forget.

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Market Commentary: Under Pressure

We live in a world where every inch of our body is subjected to atmospheric pressure of about 14.7 pounds per square inch (psi) at sea level. We don’t do well with abrupt increases, but if the pressure rises gradually, we are able to tolerate a lot more — something even in the range of 400 psi. There are, of course, other pressures placed upon us: pressures to be perfect, to be successful, to fit in, to be fit. From physics, we recall that the only characteristic of pressure is magnitude. From life, we know that magnitude fluctuates and that it often cannot be controlled.

For six months now, governmental policies developed in response to the pandemic have placed unprecedented pressures on individuals, families, groups, businesses, and communities. Some are folding under the pressure, other have exploded, some have adapted, others thrive. Some take medication for relief, others find release in other forms: prayer, kickboxing, community service, grants, loans, forbearance. Many state and local governments and other enterprises working with shaky budgets are unwilling to accept what may be permanent changes in revenues and expenses, and hold their breath for a fifth windfall from Washington. Financial markets, on the other hand, have enjoyed 11 years of monetary policy windfalls in the form of low rates, frequent injections of liquidity, and an ever-expanding balance sheet. So far, none have cracked under the strain of record levels of debt issuance by the U.S. Treasury and American corporations, the worst collapse in GDP in our history, 27 million unemployment claims, hundreds of bankruptcy filings, $26.7 trillion of national debt, a $4 trillion federal budget deficit, $110 billion of state budget shortfalls, and unfunded pension liabilities of $1.62 trillion. Quite to the contrary.

S&P 500 has more than fully recovered from the March coronavirus lockdown shock and is up 8.3% on the year to 3,500 as of August 31. The Nasdaq is up a staggering 31% in 2020 to 11,775. Gold has gained 30% and is now priced at 1,971 an ounce. The 2-year Treasury yield at 0.13% has plummeted 143 basis points. The 10-year is down 121 basis points to 0.70%. The 30-year at 1.47% is 91 basis points lower. The 10-year BAA corporate bond yield has fallen 68 basis point to 3.02%. In the tax-free sector, the 2-year AAA municipal general obligation bond yield has dropped 88 basis points to 0.16%, the 10-year is down 63 basis point to 0.81% and the 30-yield has fallen 53 basis points to 1.56%.

Last week, the Fed indicated that it will continue to monitor the pressure gauge, remaining accommodative regarding rates and tolerating periods of higher inflation in order to focus on keeping unemployment low. The forward-looking stock market, full of optimism for coronavirus treatments and vaccines and pleased with the better than expected economic data, continued to rally. But inflation is not welcome in the lexicon of bondbuyers, so a pressure switch was triggered.. Municipals and Treasuries both weakened; for tax-exempts, it was the third consecutive week of higher yields. Muni investors, flush with cash from more than $47 billion of maturing and called bonds in August added a total of $9.5 billion to mutual funds and ETFs despite increasing credit concerns. On the month, Treasury returns fell 1.20%. The general muni market as measured by the ICE BofAML Municipal Index lost 0.34% while the High Yield Index gained 0.42%. So far this year, Treasuries are up 9.02%, munis are up 3.25%, taxable munis are up 10.45%, and corporate bonds with maturities of 15 year and longer are up 9.05%.

Primary municipal bond volume in August exceeded $40 billion for the third straight month, propelled by $12.6 billion of taxable issuance. In the high yield sector, the Hastings Campus Housing Authority in California sold $406.8 million of non-rated bonds with a final maturity that went all the way out to 2061 priced at 5.00% to yield 4.95%. The Public Finance Authority issued $73.2 million of non-rated bonds for Whitestone Senior Living in Greensboro, North Carolina structured with 2055 term bonds priced at 5.25% to yield 4.56%, and a $20.8 million non-rated transaction for Pine Springs Preparatory Academy in Holly Springs, North Carolina that had 2055 term bonds priced at 6.25% to yield 6.618%. The North Carolina Medical Care Commission came to market with a $47.8 million non-rated deal for Pennybyrn at Maryfield that included a 2050 maturity priced with a 5% coupon to yield 4.09%. The Arizona Industrial Development Authority brought a $28.5 million non-rated financing for Linder Village in Meridian, Idaho with a single maturity in 2031 priced at 5.00% to yield 5.245%.

This week, HJ Sims is in the market with a $135.8 million expansion financing for the Toby & Leon Cooperman Sinai Residences of Boca Raton. The non-rated bonds are being issued by the Palm Beach County Health Facilities Authority and are structured with maturities in 2024, 2025, 2027, and 2055. Among other deals planned for this week is a $1.3 billion Baa3/BB+ New York Transportation Development Corporation issue for Delta Airlines at LaGuardia Airport Terminals C & D, a $274 million Southern Ohio Port Authority financing for PureCycle, a $162 million BBB/BB+ rated Metropolitan Pier and Exposition Authority deal for McCormick Place, a $48.2 million BBB- rated Michigan Strategic Fund/Grand Rapids Economic Development Corporation transaction for Porter Hills Presbyterian Village, and a $16.5 million BB+ rated California School Finance Authority financing for Classical Academies.

Markets will be closed on Monday as America takes the long Labor Day weekend to decompress and celebrate the many contributions made by its workforce of 160 million to the strength and prosperity of our nation. We hold closest in our thoughts the 27+ million who are unemployed and under employed as a result of the pandemic and hope that, with the help of personal and professional networks, that their searches are soon successful and talents again rewarded.

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