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Waste Heat Energy Market: New Business Strategy Towards Carbon-Neutral Industries

      The Massachusetts Institute of Technology (MIT) Center for Collective Intelligence announced last year its Climate CoLab was sponsoring a Solve CO challenge. MIT's Climate CoLab has convened a growing, global community of over 75,000 experts and non-experts to work together to develop and select innovative and effective proposals on how to tackle different aspects of the climate change problem.
     Scientists were invited to submit solutions that would solvUpgradese the world's problems from carbon-based fuels.
     Mohammad Ebrahim Feyz of Purdue University formed Team Hydromania along with Terence Smith of Smith's Research & Gradings. 127 teams were formed and entered into the MIT Challenge.
     Mr. Feyz and Mr. Smith met each other last year during the U.S. Department of Energy's RECS program, which is a study course about carbon capture and sequestration. The Department of Energy's RECS program attracts scientists to apply from all over the world, but only 20 are selected to participate. Mr. Feyz is from Iran and attends Purdue University.
     MIT recently announced Team Hydromania are among the finalists in the competition. On March 7th, Team Hydromania will make a presentation at the United Nations in New York and participate in a Q&A about the proposed idea.

Smith's Event Risk Gradings: U.S. Dams Downgrades

     The 2017 Oroville Dam crisis continues to be a major and is a persistent threat to lives and property in Northern California. At 770 feet in height, Oroville Dam is the tallest dam in the United States. Located about 70 miles north of Sacramento, the reservoir forms Lake Oroville, which is 400 miles long and 40 miles wide. It controls the flow of the Feather River and the hydro-electric plant provides approximately 30% of the State of California's power.
     Smith's Research & Gradings has a proprietary database of more than 160,000 dams across the United States. Smith's dam database is used to examine the proximity of dams to every municipal bond that is graded.
     Terence Smith, CEO of SRC, explained, "Dams are massive achievements. They are visible from space.  And,  I am sorry but we don't need Elon Musks batteries because we have dams, which are the world's largest batteries, providing a reliable and sustainable source of electricity."
     Terry Turpin, Director, Office of Energy Projects, Federal Energy Regulatory Commission (FERC), met with Smith's Research & Gradings last week. "Dams produce 100 GigaWatts of power in the United States," he said. "That's  important since 50% of the hydro-power is coming up for relicensing next year."


Puerto Rico and Virgin Islands In the Context of the Ongoing Caribbean Debt Crisis

      Dr. Scott MacDonald weighs in on Puerto Rico and the Caribbean:
     The Caribbean has a debt crisis. Although many of the island states in the region have worked hard to adjust their economies and are achieving some positive results in terms of economic growth and better fiscal outlooks, a handful of others are struggling with onerous debt burdens.
     The advent of a higher interest rate environment from the U.S. Federal Reserve is not helping. Indeed, Puerto Rico defaulted on its $70 billion debt last year and its finances are now being overhauled by a Washington-appointed body, PROMESA.
     In early 2017 Barbados, Belize and the U.S. Virgin Islands (USVI) are in the throes of difficult debt management problems. Belize (Caa2 stable/CC negative) is undergoing its third major debt restructuring (covering its $530 million "super bond") and Barbados (Caa1 stable/B- negative) appears to be sliding into what could well become a major debt crisis. Barbados began the year with a new downgrade from the Caribbean Information and Credit Rating Services Limited (CariCRIS). That downgrade brought the number of downgrades to more than a dozen since 2009.
     Barbados increasingly appears unable to deal with its debt management and fiscal deficit problems. The island economy has been troubled since 2009, when the Great Recession hurt the tourist sector and there were pressures from the financial sector.

Previous Edition


Smith's Political Event Risk Grading Alert:
U.S. Sanctuary Cities (-1)

     Smith's Political Event Risk Grading Alert was issued the first week of February for U.S. Sanctuary Cities (-1).
     Smith's Research & Gradings (SRG) publishes its SRG Political Event Risk Grading whenever Smith's Sentinel System triggers a predetermined response.
     Smith's Research & Gradings was founded in 1992 to provide principles-based, independent, conflict-free (Paid By Investor/Stakeholder) analysis. One of the principles is to provide credit analytics that are "Universal" so investors can compare risks across all classes of investments.
Smith's Gradings have three components: 1) long-term payment probability gradings 2) recovery gradings, 3) event risk gradings.
     Smith’s reported a Political Event Risk Alert for the United States Treasury Debt at Smith's Affordable Housing Conference in March of 2011. “Probability of Sovereign Debt Crisis Now Escalating to Over 40%”, according to Terence M. Smith, CEO, SRG. He noted the "Weak US$ Policy vs. Weak Chinese Yuan".
     Smith’s Political Event Risk Covers (classes):
1) Currency inconvertibility (CI) and exchange transfer (FX);
2) Confiscation, expropriation and nationalization (CEN);
3) Political Violence (PV) or War (including revolution, insurrection, politically motivated civil strife, terrorism);
4) Breach of Contract, Contract Frustration (CF), Contract Repudiation.
5) Wrongful Call of a Guarantee (WCG).

Fitch Disagrees With Moody's on Chicago Public Schools

     Moody's Investor Services issued a report discussing:
     Legal options available to the Chicago Public Schools (CPS) to address its operating deficit, suggesting CPS can divert state aid to support operations to get around a restriction on a certain tax levy; and
     Bondholder protections provided by CPS' dedicated capital improvement tax bonds series 2016 (CIT bonds), minimizing the special revenue status while crediting a 'lock box' device as a real enhancement.
     Fitch Ratings disagrees with Moody's on both points.

State Aid Not Available for Budget Relief
     Moody's report "Chicago Public Schools, IL Frequently Asked Questions", released on Jan. 12, states "the district could elect to use unrestricted [general state aid] GSA for operations instead of debt service" on alternate bonds issued under the Illinois Local Government Debt Reform Act (the Act). Unless by 'elect' Moody's is referring to a successful ballot referendum, a plain reading of the Act indicates this is not the case. Section 15(e) of the Act clearly indicates that CPS must apply available alternate revenues {state aid} to debt service. As there is no option in the law to apply alternate revenues to operations, Fitch believes any attempt to do it would draw a successful challenge in litigation opposing an attempt to levy taxes while alternate revenues were available for debt service.
     Amy Lasky, Managing Director at Fitch Ratings said, "The law (Section 15(e)) is pretty clear in our opinion." Itstates: "[t]he ...revenue source ..shall be in fact pledged to the payment of the alternate bonds; and the governing body shall covenant, to the extent it is empowered to do so, to provide for, collect AND APPLY [emphasis added] such ...revenue source ...to the payment of the alternate bonds."



S&P Global State and Local Government Outlook   
The S&P Global Ratings Public Finance Group recently held a live Webcast and Q&A to discuss their 2017 US State and Local Government Credit Outlook.
     Key areas of discussion included S&P's view of how slow economic growth and low interest rates over a protracted period of time have resulted in elevated credit stress across the state sector, and the direct impact of these factors on the local level.
In addition to addressing those challenges, as well as other uncertainties facing local governments in 2017, the program highlighted what S&P believes are the main areas of risk and opportunity facing both sectors in the year ahead.

State Outlook
     Credit pressure across the U.S. state sector is likely to remain elevated throughout 2017 as slow tax revenue growth compounded by growing pension contribution requirements and Medicaid expenditures is contributing to fiscal strain for many states. A more pronounced slowdown in state tax revenue growth that began in mid-2015 persisted through 2016 and, following bouts of stock market volatility, is seen in the performance of many states' fiscal 2017 revenues. In the coming year, revenue growth is likely to remain slow and below the rates at which key expenditures are growing. Some of these pressures, years in the making, are already evident in state financial and credit profiles.

Local Governments Have Inherent Strengths
     Municipal issuers' autonomy and revenue raising capabilities, institutional framework, and governance protections are some of the credit aspects that will help local governments address the risks they will face in 2017, and to take advantage of the opportunities that may arise, according to S&P Global.
     Budget pressures from a continued slow growth economy will present challenges for local governments as state budgets are likely to be squeezed even tighter in 2017.

















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