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Local Muni Bond Defaults May Be Likely: Kyle Bass

CNBC.com
Wednesday, 16 Feb 2011 | 2:57 PM ET

Municipal bond defaults on the local level are likely and investors would be better off avoiding them, according to Kyle Bass, managing director of Hayman Capital Partners.

Bass said he generally agrees with the call by famed banking analyst Meredith Whitney, who said as many as 100 defaults are likely that will cost more than $100 billion in damage.

Though Whitney's call has prompted substantial backlashfrom her colleagues in the industry, Bass said the question is more a matter of degree.

"There are going to be a number of muni defaults, but it's where you draw the line," he said. "Will states be allowed to default? Will legislation be introduced to allow states to restructure? I don't believe that's the case. I believe states will not default."

Muni Meltdown
Insight on whether now is a good time to buy munis, with Kyle Bass, Hayman Capital Partners managing partner.

Cities and counties likely will sustain the bulk of the damage, he said.

For those who do get into munis, Bass warned investors to look "look at the balance sheets and make your own idiosyncratic decisions."

"When you get down to city, county and project-level municipal finance, I think those are all open season for defaults," he said.

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