The last few weeks have seen inland flood and hurricane predictions for 2020 both well above recent trends and, given the stress on local economies already, this is not a good combination for issues of municipal bonds in parts of the country that see both. While much attention is currently being given to the cities, counties and states struggling to stay financially whole in a COVID locked-down world, municipal utility districts in Texas shouldn’t be overlooked.
Take Williamson County MUD No 28’s current bond offering for example, the Official Statement for which matter-of-factly states that “According to the FEMA Map Panel No. 48491C0290E dated September 26, 2008, approximately 13.1 acres within the District are located in the 100-year flood plain.” (emphasis is ours).
Consider the 2030 maturity CUSIP in this Series and ask how much might have changed since 2008. Then consider that according to risQ analysis, this specific MUD is in the 95th percentile in terms of inland flood risk and the 88th percentile in terms of flood from hurricane precipitation (remember Hurricane Harvey? Yeah, that sort of flooding).
The nature of MUDs is that, being small and distributed, they have a wide range of climate risk associated with them. However, there appears to be little discernment between them on this basis with respect to rating or investor appetite. Given that we’re now seeing direct correlation between flood events and subsequent changes in property value and population, something’s got to give on this. These are two pretty critical underpinnings of a given issuer’s financial strength.
Given the heightened flood and hurricane seasons this year, and the year-on-year trends related climate that will continue through the lifetime of this bond series, might be time to take a closer look and ask for a more recent view than over a decade ago.