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September 16, 2005 at 08:00 PM
Hurricane Katrina ravaged parts of the Gulf of Mexico, but mutual funds that invest in bonds issued by states and local governments in the region have held up fairly well so far.
Six funds that buy Louisiana bonds suffered losses ranging from 0.4% to 1.1% between August 31, two days after the storm hit, and this past Monday. By comparison, the average high quality municipal bond fund was off 0.2%, and the average single-state municipal bond fund dropped 0.3% during that period.
Despite those figures, the impact of the disaster on municipal bonds in the damaged areas still remains uncertain.
Standard & Poor’s said last Friday that it may lower its ratings on about $9.4 billion in Louisiana and Mississippi debt because of destruction from the hurricane.
How many of those bonds, if any, will not be paid off “remains to be seen,” said Alexander Fraser, a Standard & Poor’s director and municipal bond analyst.
Only a handful of the bonds that may be downgraded by Standard & Poor’s had payments due on September 1, and all those were made, as far as he knows, Fraser said.
Fraser noted that governments in the region face the loss of revenue from sales and property taxes and other sources because of Katrina. “The big question” is how quickly that money will be restored before reserves for debt service run out, he said.
Robert MacIntosh, who runs the $36-million Eaton Vance Louisiana Municipals Fund (ETLAX), said he thinks some Louisiana municipalities may have difficulty meeting their obligations, but he expects the state and Washington to take action to prevent defaults.
