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Weekly Preliminary OS Climate Risk Review (2/11/21)

By February 18, 2021 No Comments

Taking our usual weekly look through the Preliminary Official Statements on MuniOS, this is was we see or, more to the point, don’t see in terms of climate risk disclosure in the last week’s cohort:

Clear Creek Independent School District, TX: This is the highest risk school district across any with footprint in Harris County. As such, there’s an appropriately toned discussion of WEATHER EVENT risk on page 35. Down in Appendix I-28 you’ll find $5.6 million of “immediate aid” the district received over 3 years for Hurricane Harvey recovery. On page I-50, evidence of a 50% increase in 2017 of students requiring/eligible for subsidized lunches in the aftermath of Harvey (for those that still claim climate events are somehow a boon for local economies). For any evidence of subsequent flood risk mitigation you’ll need to go looking elsewhere as none are mentioned in the OS. Best bet would be to look at Flood Control Districts listed in the overlapping debt tables and see if their OS’s show anything tangible. (For those that are interested, we’ve set up a folder with all Harris County School Districts which you can access by clicking here)

Nicholls State University, LA: Sitting inside a Louisiana conduit issuer, the campus is in Thibodaux, the largest city in Lafourche Parish, the state’s third highest risk parish in terms of overall climate risk. As such, the university along with the aforementioned jurisdictions will have a consistent need (battle?) to stay ahead of climate change’s impact. The OS confirms that the university’s facilities carry property insurance for natural disasters, although those costs will assuredly be rising over time. There is no discussion of specific flood mitigation efforts in or around campus, nor the prior flood events that have caused the campus to close. Of broader note, given that the bonds are secured by a proportion of student fees, is the impact that climate events might have on student accommodation in the area and its viability and livability. The parish as a whole is in the worst 6% of counties nationally in terms of NFIP flood claims at $9,900 per capita/year for the last 20 years, and that’s just the insured losses which represent a minority of the overall losses. Note that there’s a good 20 years to the latest maturity in this 2021 Series, so these numbers are only going to climb. The probability of a hurricane impacting the area in 2041 is close to double versus current year (and all that rainfall that’ll come with it). The probability of a Cat 3 or higher hurricane is close to 3 times higher in a worst case climate change scenario, but still close to doubles even in a conservative model. There is no discussion of how adaptation and mitigation efforts writ large might be critical for growth or even retention of the student population, all the of the above would certainly warrant addressing.

Pasco County (Fuel Tax), FL: A short 5 line paragraph on Climate Change and Natural Disasters on page 27, which includes the all-too-common inference that it’s really “a longer-term in the climate over several decades” which subtly implies its nothing you need to worry about any time soon. We’d put that below the “minimum viable disclosure” standard given Pasco’s 96th percentile standing across counties nationally, and being in the highest risk 1/3 for Florida counties. The bonds are secured by fuel taxes, but its interesting to look at what the proceeds will be used for: a road extension to a development project of a new medical research facility and office space. On one hand, connection of the bonds through to investment in medical research has outsized ESG merits. On the other, new infrastructure on previously undeveloped green space carries inherent risk of enhanced flooding in and around a location, and certainly more value that can be impacted. All that said, Assured Guaranty have put an insurance wrapper on all this which will mitigates the extreme tail risk financial implications.

City of Deltona, FL: Interesting to compare an entire page of climate risk discussion on page 49 with the worse-than-cursory 5 lines of text used by Pasco County above. Generally, the larger the issuer, the more resources they should have to discuss and address climate risk. Furthermore, Pasco has much higher Property VaR than Deltona, so even less excuse for the former’s weaker disclosure efforts. Some of the language in the first paragraph on p49 is actually pretty similar (Control-C…Control-V), but Deltona then expounds. The main area for improvement comes when the OS discusses “past and future investment in adaptation strategies” on page 50 but then neglects to provide any details, even of the past ones. Note that you will find prior financial impacts associated with Hurricane’s Irma and Michael further into the OS, for those looking to benchmark these impacts.

Certainly keep an eye open for the above as they some into view on your sales calendars. Plenty in here that one could ask politely as the respective issuers about.

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