We believe that a municipal bankruptcy continues to carry significant costs, in terms of expense, political backlash and most important, access to market capital when it is needed most. As such, we disagree with those who now believe the stigma of bankruptcy is wearing off and that we are facing an onslaught of new filings. For the vast majority of municipalities, we expect a bankruptcy filing will remain a last ditch effort, once all other fiscal options have been exhausted.
While we do not dismiss the recent California bankruptcies as being non-events, we do not feel they represent a pervasive problem in the national municipal market, or even in the state of California. There will be additional bankruptcies of similarly distressed cities with below average socio-economic profiles that were impacted disproportionately by the housing boom and subsequent bust, but we believe the number will remain low relative to the overall market. Municipal entities are overseen by elected officials and, as a result, an element of political assessment is necessary when evaluating credit strength. An underlying credit positive is the potential political cover and leverage these recent bankruptcies may provide elected officials of other struggling credits to push through politically difficult, but necessary, fiscal reforms and budget reductions.