The name is Boise. And just how right does this bankruptcy filing make Meredith Whitney? Not very.
Boise County, Idaho filed for bankruptcy protection almost two weeks ago. There are three salient facts surrounding this Chapter 9 filing.
First, Boise County is just that, a county. Sadly for Ms. Whitney, it is not Boise City and not a major obligor. In fact, it does not even encompass the city of the same name which is located in adjacent Ada County. Wikipedia has the county's estimated population at 7,571 as of 2007. The county's annual operating budget was approximately $10M. To put that in perspective, Los Angeles County has a budget of $22.5B or 2,250 times that of Boise County.
Second, the county had no debt and hence did not default on any. Not only was this not a major obligor, it was not even a default. It is also far from a forgone conclusion that there would have been a default should the county have had GO or even COP debt outstanding. A recent bankruptcy ruling in Sierra Kings Health District case affirmed the security of the unlimited tax revenue backing those bonds. As for COP's it all depends on the security of the bonds and decisions of the obligors. In the Vallejo case, all the COP's defaulted but MBIA as subrogee for the bondholders won nearly full recovery and legal costs amounting to 10% of the COP par outstanding while Union Bank won only a 60% recovery (though we think they could have gotten higher if they had seized the property.)
Third, the bankruptcy was caused by an exogenous factor, namely an adverse legal ruling creating an approximately $5M obligation, or about 1/2 the size of the cities annual operating budget. Importantly, the bankruptcy was not simply the result of normal economic stress.
The Whitney report we have seen is dated 9/28/10. While Jefferson County might just beat the half time buzzer, Whitney will need a miraculous comeback to be proven out... or to just save face. We commend her for a heroic prediction. But we resent her kicking the muni market while its down. That's why Mark Tapley will put on his best coattails to celebrate the six month anniversary of Meredith Whitney's mistaken prediction.