Oppenheimer SPA Program May Help Relieve Muni Stress

The COVID-19 pandemic induced economic suspension has placed unprecedented pressure upon state and local government budgets as well as upon many revenue enterprise issuers. This currently uncertain environment with implications for both credit quality and security valuations creates an important opportunity for Oppenheimer’s municipal bond clients to reach out to their Financial Advisors and schedule a review of their municipal holdings. Oppenheimer’s Municipal Research & Strategy Department can assist in this Strategic Portfolio Analysis (SPA) process, with a focus on individual credit and sector analysis and weightings as well as on overall portfolio diversification. This program can address client liquidity needs and helps to ensure that our clients’ investment strategy and suitability objectives are still being met. Oppenheimer is not taking an alarmist position and the Firm understands that for many individual investors, acquiring municipal bonds often represents a longer-term, buy and hold commitment. Nevertheless, today's credit circumstances may necessitate client portfolio adjustments.

Even in more stable times, it is always appropriate to review all municipal bond securities held within client portfolios. The SPA program makes appropriate sell, hold, or structural recommendations based on a comprehensive review with identification of a portfolio's weakest links, and guides the Financial Advisor and client to make changes that help insulate the account from potential effects of a downturn.

• A SPA treatment extends a valuable service to Oppenheimer's clients and provides an effective asset gathering tool
• SPA offers a tailored analysis that addresses the unique investment goals of the client
• The SPA review can determine whether a municipal bond is a declining or improving credit, or if it is part of a sector that has identifiable trouble spots
• SPA can identify potential opportunities and help with the key objective of capital preservation
• Through the SPA program, clients can find value knowing that their municipal bond holdings are on a systematic review schedule which may initiate market and/or credit related portfolio realignment

The global pandemic of 2020 has brought about unprecedented shelter-in-place policies and restrictions on human movement here in the United States. Throughout the foreseeable future, sectors of the public finance space will likely be subject to reassessment as the economic suspension is sure to have a budgetary and revenue impact of consequential significance long after the economy comes back on line, yet sector and individual credit experience will likely be disparate.

Oppenheimer expects overall municipal credit to demonstrate resiliency with the vast majority of obligors well-positioned to weather the economic disruption with the fortitude to regain lost financial ground. As states re-open their economies with a flattening of the COVID-19 curve and the public health narrative on therapeutics and vaccines driving the timing and sequence of events, the national recovery can be placed on solid footing. Market functionality has been supported by meaningful intervention from the Federal Reserve and Congress has provided significant financial relief to municipal issuers, with more expected to come.

State and local governments are experiencing significant declines in key sources of taxation, including corporate and personal income, capital gains, gas, and sales tax collections, which pressure budgets and make it more difficult to forecast revenues. Certain states more than others are impacted by the volatility within the financial markets, which has direct implications for various types of tax receipts, and pension fund investment performance can come under pressure more broadly. Oppenheimer further notes that tax payment delays will likely add further strain on already challenged budgets. Credit sectors that rely upon sales tax receipts, tourism-related revenue, and other types of dedicated revenue streams for debt service, as well as airports, ports, public transit, healthcare, toll roads, higher education and public schools are all exposed to uncertain credit pressure to varying degrees.

Events are fluid with credit and policy headlines on the rise, potentially impacting investment psychology. Oppenheimer clients are encouraged to contact their Oppenheimer Financial Advisor today to schedule a SPA review as a way to help insulate accounts from credit and market risk.