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Q

How do I obtain current information on issuers of bonds I’m interested in? S&P ratings are helpful, but what are they based on and how current are they? There seems to be no ongoing analysis similar to equity research. I’m interested in the Puerto Rican Sales Tax zero bonds and bonds issued by the Tenn. Energy Acquisition Corp.

A

James A. Klotz responds:

As you’ve discovered, information about municipal bonds is very different from equity analysis, and there are reasons for this. First, equities trade on a central exchange (NYSE for example), and shares trade continually since investors seek capital appreciation as the main reason for stock investing. Corporations make public their quarterly profit-and-loss financial statements and production data, which greatly influences share prices. The municipal market is different. Bonds are issued by governments and non-profit institutions for public “essential” purpose projects. Bonds are loans and investors primarily are interested in the income they produce.

Since many bonds are locally traded rather than nationally, no central exchange exists, like the NYSE, as a trading venue. In fact many bonds trade very little during their lifetime. While financial data and project-related utilization data for municipal data is important to track how the credit underlying the bond performs, it is typically reported on an annual basis for most bond issues. Investors’ time horizon is usually longer than in the stock market, where analysts produce buy-sell-hold recommendations based on projections of future profitability.

In recent years, there has been greater transparency for credit reporting in the bond market. Bond issuers are required to provide ongoing reporting to national repositories, such as Bloomberg. Documents about various issuers are available there. Many, but not all, issuers also release continuing disclosure information to online disclosure agents, such as www.dacbond.com. You can register for an account there and see if the bond you are interested in uses Dacbond for disclosure. Also, you can contact the issuer itself and request information.

Rating agencies, like S&P, provide updated analyses of the bonds on which they have ratings.  You can contact S&P regarding pricing for their services.

Of course, we are pleased to provide this type of information to clients on an ongoing basis.

The two issues you specifically refer to are both rated by S&P. Information on the Puerto Rico issue is generally released on an annual basis. The most recent analysis by S&P was in February 2008 and relates to a proposal by the governor of Puerto Rico to substitute different collateral to secure those bonds. That proposal has yet to be enacted.

The Tennessee Energy bond is supported by Goldman Sachs and the rating depends on Goldman’s credit profile.  So, you can follow Goldman, which is publicly listed, through the financial press and Goldman’s Office of Investor Relations, to determine how well that firm is doing.