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More specific COVID-19 disclosure wave could spark muni price moves, especially in high yield

Triet Nguyen of DPC DATA, Inc. discusses the impact of future financial disclosures due to COVID-19.

Originally posted on Debtwire

31 August 2020

A wave of financial disclosures from obligors containing specific estimates of the COVID-19 pandemic’s impact on their operations could trigger “extreme” reactions in prices of some municipal bonds, especially high yield names, DPC DATA, Inc.’s Triet Nguyen said.

The market has already seen plenty of COVID-19-related disclosures as well as some price adjustments, “but it’s not based on a lot of real financial data,” said Nguyen, vice president of strategic data operations at DPC DATA, a company focused on municipal disclosure data.

The kind of disclosures seen so far mostly have been “vague warnings” about the potential financial impact, without specific estimates, he said. While it may feel as though COVID-19 has been around much longer, obligors really have had only five months or so to get their arms around its financial impact, Nguyen said.

“The next two years I think are going to be pretty challenging,” he said. “You’re going to see the more extreme bond pricing reaction, obviously, with the high yield credits.”

June recorded the highest number for any month so far of COVID-19-related disclosures submitted to the Municipal Securities Rulemaking Board’s (MSRB) Electronic Municipal Market Access (EMMA) system, according to a summary for the week ended 23 August, available on the MSRB’s website.

June saw 1,546 primary market and 2,347 continuing disclosures for a total of 3,893 COVID-19-related disclosures, according to data provided to Debtwire Municipals by an MSRB spokesperson. COVID-19-related disclosures totaled 3,262 in July and have totaled 2,604 this month through 23 August, according to the MSRB data.

The week ended 28 June saw a total of 1,235 total COVID-19-related disclosures – the most of any week so far, according to the MSRB data as of 23 August. That figure included 347 primary market disclosures and 888 continuing disclosures.

“We believe it is related to the fiscal year-end pattern,” the MSRB spokesperson said in an email to Debtwire. “We always have a spike in continuing disclosure filings the last week of June.”

While COVID-19-related disclosures are down from their June peak, Nguyen sees that as “just a temporary lull.” Nguyen suspects that many high yield issuers have been reaching out to key bondholders or other creditors to try to work out forbearance agreements, he said.

by Kathie O’Donnell

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