The municipal market is getting riskier. Is anyone paying attention?

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Demand for tax-exempt paper has been so strong that one investor recently called it a “food fight.”

When CalPlant, a northern California manufacturer of fiberboard from rice farming waste, filed for bankruptcy in October, it may not have come as a complete surprise.

“‘If our market wasn’t so bananas, they would have gone to a hedge fund or a bank loan or somebody’s parents for the financing.’” On the surface, the muni market seems placid enough. There have been only 60 defaults so far in 2021, according to MMA records, not too shoddy for the first full year of a global pandemic, as Fabian put it in an interview with MarketWatch. And the majority have been in sectors that were considered riskier even before the pandemic strained their business models, such as health care and senior living facilities.

Projects are premised on shakier projections, he argues, even as issuers seek fewer ratings, if they seek any at all

 

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