Best and worst muni bets? BlackRock names names

If municipal bond investors can stomach continued negative headlines — and some defaults over the next few months — they will find some compelling investment opportunities, BlackRock Inc. executives said today at a press gathering. Specifically, the firm sees investing opportunities in debt issued by state and local governments, hospitals and higher education, as well as some water and sewer utilities. Municipal bond funds have suffered from $25 billion in net outflows over the past 14 weeks. And the negative headlines will continue, said Peter Hayes, managing director and head of the municipal bonds group at BlackRock. “The headlines are going to continue to be negative over the next three to six months,” he said. Sparking those headlines will be some defaults, but they won't be widespread, said Joseph Pangallozzi, a director and credit research analyst on the municipal investment team at BlackRock. Year-over-year state revenues were up 7% as of the fourth quarter, according to the Nelson A. Rockefeller Institute of Government. “This is not an environment where you are going to see a cascade of defaults,” Mr. Pangallozzi said. There will be defaults in some areas, however, such as legacy manufacturing and midsize cities where the housing boom got out of control, he said. “You can guess that a good number of Florida dirt bonds will have problems,” he said. But there are also plenty of investing opportunities, Mr. Pangallozzi said. Specifically, BlackRock sees opportunities among state bond issuers. “There are 20 states pushing for pension reform,” he said. “None of the 50 states are going to default.” Local governments that Mr. Pangallozzi said he liked are Fairfax County, Va., and San Antonio, Texas. BlackRock also likes public power, such as CPS Energy, along with multi-state hospitals. He also sees opportunities in issuance by state colleges, such as the University of Texas and the University of North Carolina at Chapel Hill. Water and sewers are another area where there are good investment opportunities, Mr. Pangallozzi said. “It's important to realize that the market is very broad,” he said.