Providence Bond Refinancing Offering Blasted by Financial Analyst
Kate Nagle, GoLocal Contributor
Providence Bond Refinancing Offering Blasted by Financial Analyst
The $17,465,000 Series 2014A tax exempt and $6,285,000 Series 2014B federally taxable general obligation refunding bonds had a preliminary financial statement posted on June 19, with a Moody's rating of Baa1 and a S&P rating of BBB.
"This bond offering overstates pension assets by $57 million and understates the ARC," said financial analyst Michael Riley. "Is the true nature of the pension obligation disclosed? What will the UAAL be under GASB 68? What will the ARC be?"
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTFirst Southwest, the financial analyst being sued by the State of Rhode Island for its role in the 38 Studios, which was recently rehired by the state, is the financial advisor for the bond sale.
"Accounting standards change over time and the City adjusts its practices accordingly. Please see page A-24 of the Preliminary Official Statement for more regarding GASB 68," said Meaghan McCabe with the City of Providence. "The City of Providence has worked with First Southwest for many years and has not had an issue with their performance."
Use of Consultant's Findings Questioned
Riley, who on June 17 posted a piece for GoLocal entitled "GASB 68 Portends Huge Problems for City and State", spoke to what he believed were at the core of the issues with the bond offering.
"First, about $57 million in last year’s assets was essentially a lie. This lie has been carried forward for some time, probably as far back as Cicilline," said Riley. "Taveras decided to carry on the lying tradition but he has a problem, his actuary warned in January 2014 (far after we did) the following:
'Segal Report from January 31, 2014: As in prior valuations, the actuarial value of assets and the market value of assets include the discounted contribution paid by the city for the following year. We recommend that future valuations exclude discounted contributions from reported assets.' That amount was $57.3 million," wrote Riley.
"Where do they show the effects of GASB 68?" asked Riley. "And Segal's diss-allowance of pension assets calculation, how does that show up in this disclosure?"
"[The City of Providence] should in theory refinance as much as the market will bear, but the low rate environment and the lies they have gotten away with will both end soon," Riley continued.
SEC on Record
"[Municipalities] hire actuaries who purposely wait until the last minute that they are legally required to disclose," said Riley. "There has been little teeth in the past, but that's all changing. A SEC commissioner spoke out about it two weeks ago."
On May 29, Lisa Lambert for Reuters wrote "Regulator Hits U.S. Public Pensions for "Misleading" Practices." Lambert wrote the following:
"Trillions of dollars in liabilities -- reflecting amounts promised to state and local government workers -- are not appropriately reflected on government books, thereby seriously misleading investors about the riskiness of their investments in municipal securities," said Daniel Gallagher, one of the five members of the Securities and Exchange Commission, which regulates U.S. financial markets.
Gallagher, who warned last year of an impending "Muni Armageddon," hit every area of public pensions, saying that the current system saves "elected officials from making the hard choices."
Of his assessment of the Providence bond offering, Riley said. "I could buy some bonds and complain," said Riley. "I will have then been harmed by their lack of disclosure and have standing."
See How Much Providence Pays in Pension Fund Fees
Manager: Halpern Denny III
Manager Effective Fee: 0.0%
Asset Class: Private Equity
Assignment: Private Equity
Market Value: $188,318
% of Total Fund: 0.1%
Note: Fund is in liquidation.
Manager: William Blair VII
Manager Effective Fee: 0.0%
Asset Class: Private Equity
Assignment: Private Equity
Market Value: $434,649
% of Total Fund: 0.2%
Note: No further management fee is charged in 2013 other than a $2000 charge anticipated from January 2013 to mid March 2013. Fund is in liquidation.
Manager: SSgA Russell 2000 Growth
Manager Effective Fee: 0.08%
Asset Class: Equity Managers
Assignment: Small Growth (Index)
Market Value: $10,415,062
% of Total Fund: 3.9%
Note: Subject to $10,000 min annual fee.
Manager: SSgA Russell 1000 Growth
Manager Effective Fee: 0.08%
Asset Class: Equity Managers
Assignment: Large Growth (Index)
Market Value: $6,811,160
% of Total Fund: 2.6%
Note: Subject to $10,000 min annual fee
Manager: Vanguard MG ETF
Manager Effective Fee: 0.10%
Asset Class: Equity Managers
Assignment: Mid Growth
Market Value: $7,635,410
% of Total Fund: 2.9%
Manager: Invesco Venture Fund III
Manager Effective Fee: 0.25%
Asset Class: Private Equity
Assignment: Venture Fund of Funds
Market Value: $1,627,627
% of Total Fund: 0.6%
Note: Fee reduced to 0.25% in Q4-2013.
Manager: Columbia (Fleet)
Manager Effective Fee: 0.30%
Asset Class: Cash
Assignment: Large Value
Market Value: $397,606
% of Total Fund: 0.1%
Note: Subject to $15,000 min annual fee.
Manager: Columbia (ValuePath)
Manager Effective Fee: 0.37%
Asset Class: Equity Managers
Assignment: Large Value
Market Value: $20,453,356
% of Total Fund: 7.7%
Note: Columbia (Value Path): 0.40% on first $10m/0.35% on next $15m/0.30% on next $75m/0.25% on remainder.
Manager: Mellon (Prov Group)
Manager Effective Fee: 0.50%
Asset Class: Equity Managers
Assignment: Large Growth
Market Value: $6,641,213
% of Total Fund: 2.5%
Manager: Renaissance Installation Equity Fund
Manager Effective Fee: 0.50%
Asset Class: Hedge Funds
Assignment: Long/Short Equity
Market Value: $34,779,679
% of Total Fund: 13.0%
Note: Additional performance fee of 10%.
Manager: Q-BLK (Quellos) Strategic
Manager Effective Fee: 0.50% Min
Asset Class: Hedge Funds
Assignment: Fund of Funds
Market Value: $11,120,033
% of Total Fund: 4.2%
Note: The quarterly advisory fee paid to the Investment Manager is 0.1250% (0.50% per annum) of the Fund’s net assets on a quarterly basis when the Fund’s quarterly return is equal to or less than the return on the 90-day US Treasury bills plus 1.25%. The advisory fee will ratably increase, depending on the Fund’s performance, up to a maximum of 0.6250% per quarter (2.50% per annum).
Manager: Rogge Global Partners
Manager Effective Fee: 0.65%
Asset Class: Fixed Income
Assignment: Foreign Bonds
Market Value: $14,033,078
% of Total Fund: 5.3%
Manager: Boston Partners MV
Manager Effective Fee: 0.70%
Asset Class: Equity Managers
Assignment: Mid Value
Market Value: $24,556,046
% of Total Fund: 9.2%
Note: Boston Partners-MV: 0.70% on first $25m/0.60% on remainder.
Manager: Brandes
Manager Effective Fee: 0.74%
Asset Class: Equity Managers
Assignment: Foreign Equity
Market Value: $39,824,387
% of Total Fund: 14.9%
Note: Brandes Partners: 0.95% on first $10m/0.80% on next $10m/0.60% on next $30m/0.50% on remainder.
Manager: Boston Partners SV
Manager Effective Fee: 0.99%
Asset Class: Equity Managers
Assignment: Small Value
Market Value: $25,886,408
% of Total Fund: 9.7%
Note: Boston Partners-SV: 1% on first $25m/0.80% on remainder.
Manager: Point Judith II
Manager Effective Fee: 1.50%
Asset Class: Private Equity
Assignment: Private Equity
Market Value: $1,174,791
% of Total Fund: 0.4%
Note: Management fee is charged on committed capital and is equal to 2.5% during the first six years of the fund; 1.5% for the next two years and 1.0% thereafter. Point Judith also charges a performance fee of 20%.
Manager: Graham Global II*
Manager Effective Fee: 3.0%
Asset Class: Hedge Funds
Assignment: Global Macro
Market Value: $5,426,857
% of Total Fund: 2.0%
Note: Additional performance fee of 25%
