The Wall St. Journal warns today of more fragility in municipal debt, which includes government obligation and revenue bonds and short term debt or notes.
Banks that have been issuing letters of credit to communities to float them short term between bond issues are pulling back. New financial reforms are finally lowering the boom on banks, telling them that they must set aside capital to cover their outstanding loans -- no exceptions. So naturally banks carrying the riskiest debts are looking to shave them back.
So on top of the municipal bond markets' worst weeks occuring this year, NJ couldn't issue bonds of $1.8 billion and had to pedal back to $1.1 billion as interest rates climbed to 5%, the bulk of these letters of credit -$53 billion - are expiring this year. Asbury Park is carrying about $58 million in long term debt in addition to at least several million in short term notes. $8 million of the long term debt was taken out to upgrade the sewer plant, an obligation agreed to by Asbury Partners. So to date, the Partners have made payments ('serviced the debt') on that portion.
WSJ.com - New Hit to Strapped States
For more on this issue, you may want to read my articles from Institutional Investor: the Refinancing Cliff , about the tremendous debt coming due, and Moody'sGoRatings, which looks at Moody's process for rating government debt.