We're glad to share within the spring edition of The Capital Issue some of the positive outcomes achieved by borrowers in 2011, including those that mitigated negative arbitrage costs and those who tapped every resource to keep their projects moving.
The markets are unpredictable. Financings continue to get done, and borrowers who need to issue debt this year have been finding ways to to do. On the flip side of the balance sheet, these borrowers are also reviewing their investments in the context of new or newly modified debt, a concept explained in our Nonprofit Minute article on liability-driven investing.
If you have any questions on these topics or would like us to visit in person to explain them, please don't hesitate to contact us.
Thomas R. Green, CEO
Borrowers have recently experienced numerous and varied reasons to change capital funding routes in mid-financing. From the sudden collapse of the auction-rate bond market to major increases in bank letter of credit pricing, formerly viable funding options have been derailed on the way to the closing table.
Negative arbitrage (Infitialis arbitari) has historically been a manageable nuisance to hospitals considering tax-exempt bonds for funding construction projects – comparable, perhaps, to the geese congregating around the hospital campus’ pond. In recent years, however, the negative arbitrage budget line item has swelled.
Patience is a virtue. That timeless adage can be equal parts comforting and frustrating. Yes, taking a deep breath and staying the course can often lead to the best of results. But alternatively, waiting for things to unfold can leave one feeling powerless and anxious. Such is the dilemma often faced by those waiting for their loan application to make it through the HUD LEAN backlog and to the closing table.
Finding funding for housing projects in 2011 can be a challenge. Programs are in peril, agency queues are backlogged, tax-credits and credit-enhancements are scarce and traditional funds are not as plentiful as they once were. However, despite these obstacles, housing deals are still being funded in 2011.
When structuring an investment portfolio, institutional investors oftentimes focus solely on the assets of the institution with little, if any, consideration for their embedded liabilities. Doing so typically leads to a strategic asset allocation designed to outperform either a benchmark or an absolute level of return, which is often chosen arbitrarily by adopting historical “norms.”