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Muni Defaults More Than Double to $2.5 Billion in 2nd Quarter

Wire: BLOOMBERG News (BN)
Date: Jul 16 2009 15:20:40
By Martin Z. Braun

July 16 (Bloomberg) -- The bursting real estate bubble in Florida helped push municipal bond defaults to $2.5 billion in the second quarter, a 260 percent increase from the prior quarter, according to the Distressed Debt Securities Newsletter. Builders who issued tax-exempt bonds backed by special assessments to finance infrastructure for residential developments aren't paying the debt as they fail to sell houses and the value of land declines, wrote Jack Colombo, the editor of the Miami Lakes, Floridam newsletter. In the first quarter of 2009, $683 million of municipal bonds defaulted, according to the newsletter. "Perhaps many of the landowners see the same picture as homeowners, who owe much more on their mortgage than their home is worth and are just choosing to just walk away," Colombo wrote. Florida had the third-highest foreclosure rate in the first half of 2009 among the 50 U.S. states, according to RealtyTrac Inc. It has more than 100 so-called community development districts that builders use to finance projects. The lack of buyers has forced them to pay assessments on lots that back the bonds. The Amelia Concourse Community Development District in Nassau County, Florida, sold $7.35 million of bonds to help pay for roads, wastewater collection and recreation facilities for a 458-unit development, 20 miles (32 kilometers) northeast of Jacksonville's airport.

Jacksonville Development

The developers, who are principals in Jacksonville-based Watson Custom Homebuilders, couldn't make their May 1 interest and principal payment on bonds maturing in 2038 and will draw on reserves, according to a notice filed by the trustee. The developers have built six units and sold none of them, according to an interim report filed by Governmental Management Services LLC, a family of companies that provides management services to community development districts in Florida. The bonds, which haven't traded, are owned by OppenheimerFunds Inc.'s Rochester National Municipals and AMT- Free Municipal mutual funds. "We still haven't seen many of these bonds hit the secondary markets," the newsletter said, referring to sales by original bondholders. "Expect a deluge to hit the markets in the coming months." For Related News and Information: News of distressed municipal bonds: NI DFL Top muni-bond news: MUNT Negotiated muni-bond sales: CDRN Competitive sales: CDRC Bloomberg mortgage delinquency statistics: HSST4 Bloomberg housing & construction data: HSST Mortgage delinquency rates: BBMDDFCL GP

Editors: Michael Weiss, Stacie Servetahd this will continue to constrain consumer spending in the state.