Using EMMA to Find Great Stories by Yamil Berard

EMMA: What governments DON’T want you to
know about their loads of debt ...

What you will learn
•  How to recognize a flaky deal for investors
•  How borrowers get sweetheart deals
•  How governments take risks that no lender
would
•  How good ‘ole boys get good ‘ole deals
•  How EMMA reveals financing failures

Texas is a leader in the nation’s
municipal bond market.

Bond Factory
•  Tarrant County
is one the
largest issuers
of conduit
bonds in the
nation and a
leader in bond
defaults.

Conduit bonds vs. Municipal bonds

•  Conduit bonds require approval of
governments similar to municipal bonds.
•  Governments lend their tax-exempt status
allowing borrowers to reduce project costs.
•  Important distinction: When a conduit bond
fails, investors are left holding the bag.
•  Governments have no skin in the game.

Bond Factory

•  "County commissioners are grinding
them out, churning them out like
pancakes, like McDonald's
hamburgers,“ said Richard Sandow,
a Texas investment adviser who
specializes in conduit and municipal
bonds. "It's a bond factory that
specializes in flaky deals."

“Ka-Ching!!!” – Big Profits to Be
Made in Fees to Bond Advisers
"Every time there's a [bond] closing, it's 'ka-
ching,'" said Jeff Bryant, a Fort Worth
developer who has received millions in tax-
exempt, county-financed conduit bonds.

Where the story begins ...
Forbes’ 2008 most affluent American
city: Southlake, Texas.
In 2009, a group of developers is
granted a $35 million conduit bond to
build an assisted-living center next to
the city’s central Town Square of
“New Urbanism” -- upscale condos,
shops, movie theaters, restaurants,
city hall and library.

The Bond Factory
•  Southlake residents
pack council meetings
to protest the project,
saying it is not suitable
or viable for the
community. Some
criticize city leaders
for a lack of
transparency.

Rumors, innuendo, accusations fly of cozy
relationships between developers, bond
advisers and county commissioners.

The good ol’ boys club ...
Tarrant County commissioners are getting their advice from a former
Southlake Mayor and his law firm. The mayor is also a business
partner of developers who were granted the $35 million in bonds to
build the project at Town Square.

I built my spreadsheet using Electronic Municipal
Market Data Access (EMMA). It provided bond
amounts and other disclosures, such as rating
information, which revealed millions of county-
financed bond defaults over the last decade.

Tarrant conduit bonds supported
this troubled assisted-living
community in Fort Worth

Westchester Plaza Assisted Living

What was discovered ...
The bonds’ nonprofit
borrowers describe “anarchy”
at Westchester, one of the
state’s largest centers for the
elderly, disabled and mentally
ill.

Residents lives are in jeopardy
due to unsafe conditions, such
as rapes, burglaries and other
crimes. Some residents have
overdosed or missed
medications because of
incompetent staff. The facility
is filthy and disordered.

•  Faces of the victims of the county’s bond-
conduit failures.

A Westchester resident who fears for her
safety and has complained of receiving the
wrong medications from staff.

Westchester does not belong at Southlake Town
Square ...

.... where mothers frolic with their
happy-faced kiddos.

County commissioners try to dig
themselves out of the hole of bad
publicity.

No Skin In The Game.
The Securities & Exchange Commission
does not regulate conduit bonds. Nor do
county governments vet the projects for
viability. "We have no authority to do
anything," County Commissioner Gary
Fickes said. But he’s uncomfortable
with the deals.

For one, nonprofits don't have any skin
in the game. If a project fails, they can
walk away. "When you're doing this with
no money in it, with no personal
guarantees, that gives you a whole new
outlook on borrowing money.”

Municipal bond dealers can’t do
business with an issuer if they have
contributed to the campaign of an
official of such issuer. The purpose is
to prevent fraudulent and manipulative
acts and practices.

The county’s municipal bond adviser did not disclose to
federal regulators campaign contributions to county
commissioners. While nothing illegal may have occurred,
the political donations raised ethical questions.

In 2010, bid for $35 million in
conduit bonds for the Town Square
project is withdrawn.

How to check on conduit-bond
financing in your area?

Issuer’s Name
Project Name
and/or CUSIP

Notices of Default
Continuing Draw on Reserves
Material Event
Disclosures P&I Payment
Bankruptcy

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What we covered
EMMA can help us check the status of projects in our cities
and counties.
Rounding up the number of failed projects and flaky deals
can give us a good indication that the purported intent of
owners and borrowers is NOT, as they say, “for the public
good.”
Bond advisers stand to collect millions in fees in the deals.
Governments don’t care if the projects fail because they
have no skin in the game. So the public is left in the dark
about much of what goes on with the deals.

More resources
•  Short videos on how to:
1. Dissect an official statement
2. Look up material events (defaults)
3. Look up litigation
At http://bit.ly/self-guided-training
•  EMMA Education Center
•  How to contact me:
yberard@tx.rr.com

Thank you for your
attention and
interest

Using EMMA to Find Great Stories by Yamil Berard

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Using EMMA to Find Great Stories by Yamil Berard